SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934: For the Fiscal Year ended December 31, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934:
For the transition period from ________ to ________.
Commission File Number 1-13012
H.E.R.C. PRODUCTS INCORPORATED
(Name of small business issuer in its charter)
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<S> <C>
State of Incorporation or Organization: Delaware IRS Employer Identification Number: 86-0570800
</TABLE>
2202 W. Lone Cactus Drive #15
Phoenix, Arizona 85027-2621
(Address of principal executive offices)
(602) 492-0336
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, $.01 par value Boston Stock Exchange
Nasdaq SmallCap Market
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $3,162,846.
At March 19, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $2,261,316 based on the closing market
price of the Common Stock on such date as reported by the Nasdaq Stock Market.
At March 18, 1998, there were 8,230,588 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No[X]
Documents Incorporated by Reference: None
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PART 1
Item 1. Description of Business
General
H.E.R.C. Products Incorporated (the "Company") manufactures consumer
and other water treatment chemicals and provides water pipeline rehabilitation
services. The Company markets its consumer products through wholesale and retail
customers and directs its other products and services toward industrial, marine
and municipal customers. During the fourth quarter of 1997, the Company
determined that it would exit the agricultural business and commenced efforts to
dispose of its wholly owned subsidiary, CCT Corporation, which manufactured and
distributed proprietary agricultural products. Financial information on the
Company's business segments is in Note 13 to the consolidated financial
statements of the Company for the year ended December 31, 1997, located
beginning at page F-1 of this Annual Report on Form 10-KSB. CCT is treated as a
discontinued operation in the financial statements.
Most of the Company's products depend upon its proprietary chemical
technology, Eliminate, which 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. 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 Eliminate technology, combined with water, dissolves and prevents
scaling and corrosion, suppresses the environment that supports biological
growth and results in more efficient water utilization. The Eliminate chemistry
keeps the dissolved components of scale and corrosion in solution even at highly
concentrated levels and is non-fuming, non-abrasive and non-flammable. Many of
the Company's Eliminate products are also certified biodegradable by Scientific
Certification Systems, an independent certifying testing laboratory ("Green
Cross"). The Eliminate-based products for the industrial market include Pipe
Klean and Well-Klean, which remove encrustations from water pumping and
distribution systems, and certain other chemical compounds which are used with
the Eliminate technology to clean cooling and other water treatment systems.
These products are sold directly by the Company. The Company's consumer products
include Eliminate Shower Tub & Tile Cleaner, Eliminate Evaporative 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 a
wholly-owned subsidiary of the Company, H.E.R.C. Consumer Products, Inc., an
Arizona corporation ("HCPI").
The Company was incorporated in Arizona in December 1986 and
reincorporated in Delaware in 1994. The Company's executive offices, warehouse
and manufacturing facility for certain of its Eliminate-based products are
located in Phoenix, Arizona and its telephone number is (602) 492-0336.
When used in the Form 10-KSB and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result," "the Company expects," "will continue," "is anticipated," "estimated,"
"project," or "outlook" or similar expressions are intended to identify
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company cautions readers not to place undue
reliance on any such forward-looking statements, each of which speak only as of
the date made. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. Included in the risks and
uncertainties that may effect the Company are the possible need for continued
market acceptance, the requirement to expand sales in all of its segments, the
seasonality of sales of certain of its products and the need to develop
additional cash resources. The Company has no obligation to release the result
of any revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
Market Overview
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Eliminate Based Products
Water is critical to many industries and uses, ranging from wells,
waterlines, heating and air-conditioning and most industrial production
processes. Water is a chemically active substance, and any surface which is
regularly exposed to water is subject to corrosion by oxidation (such as rust).
Since water is rarely pure, water exposed surfaces are also subject to scaling,
which is the deposit of water-borne minerals. Scaling or corrosion will
eventually lead to the plugging or fouling of the surface, pipe, pump, bathroom
fixture, tiles, air conditioning system, or other water exposed surface. In
addition, surfaces exposed to water are subject to biological activity.
Current treatment methods of water containment systems (i.e. water
tanks, piping, wells, etc.) include replacement, isolating and cleaning, or
treating the water to reduce or cure the problem. This latter method, referred
to in the industry as water systems treatment, is preferred because it reduces
capital costs and system downtime.
The Company estimates that in 1998 the annual U.S. Market for water
systems treatment chemicals is in excess of $1.0 billion.
Products
Industrial Products
The Company's Industrial Products Group ("IPG") is actively engaged in
the application of the Eliminate technology to provide unique products and
services to its customers. The Company's Pipe-Klean and Well-Klean chemicals are
used as core products in what are typically complex water systems operational
enhancements, and as tools to revitalize/rehabilitate water systems with
diminished capacities. The IPG Field Services Division provides turn-key
application of all of the IPG technologies.
Pipe-Klean and Well-Klean remove encrustation from pumps, screens,
pipes and distribution lines in water pumping and distribution systems. The
Company's products have been tested and certified to ANSI/NSF Standard 60 by
National Sanitation Foundation ("NSF") for use as well cleaning and pipe
cleaning aids in drinking water systems. ANSI/NSF Standard 60 was developed to
establish minimum requirements for the control of potential adverse human health
effects from products added directly to water for its treatment. The Company
believes that these products offer distinct advantages over the acid washes
which are generally used to clean water systems, since the acid can cause
corrosion and can be deemed to be hazardous waste for disposal purposes. In
addition, these products provide significant cost savings compared to other
currently available alternatives such as replacing a water system or a portion
of such system.
The Company currently segments three markets for Pipe-Klean: marine,
fire protection and municipal. The marine segment is primarily shipboard pipe
systems for water and waste water. The initial development of business was
produced from a response by the U.S. Coast Guard to a stock promotion radio
program. In responding to the inquiry from the U.S. Coast Guard, the Company
discovered a large market in the vacuum waste systems aboard most marine
vessels. The system develops an evaporative scale in the pipes that requires
cleaning approximately once per year.
During 1997 the Company cleaned pipe systems on board eight U.S. Coast
Guard and U.S. Navy vessels for aggregate revenue of $707,000. In September
1997, the Company received a five year contract from the U.S. Navy to clean pipe
systems on board ships for annual billings ranging from a minimum of
approximately $100,000 to an estimate of $1,200,000.
The fire protection segment developed from a contact with a major
airport in the Western United States. The fire sprinkler system inside the
international terminal had become corroded to the point of serious operational
concern. The Company cleaned segments of the system in February and March 1998.
Because the Pipe-Klean process is safe and minimally disruptive, it is ideal for
rehabilitation of the systems. Additional customers could be attracted to the
Company's services since insurance premiums are impacted by system performance.
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Municipalities represent another market in which the Company can expand
its existing business through its patented technologies. The Company's core
patent covers the chemical cleaning of potable waterlines with acid, neutral or
basic cleaning compositions that are ANSI/NSF Standard 60 certified.
NSF is a non-profit organization that has been commissioned by the
United States Environmental Protection Agency (EPA) to develop the drinking
water and drinking water system standards for the United States. The standards
that have been developed by NSF have been adopted legislatively in 36 states and
are policy in 12 others. Virtually no product can be used in a drinking water
system in the United States without NSF certification.
The greatest and most common problem found in municipal water lines is
tuberculation which is the development of chemical and biological corrosion
inside the pipes to the point that the useful diameter of the pipe is severely
restricted. It is not unusual to have a four inch mainline with only one inch of
useful diameter remaining. Tuberculation may also cause colored water, bad odors
or taste and increased chemical treatment and pumping costs.
The Company's cleaning process addresses all but the potential post
cleaning red water concerns. Because of this, the Company has developed a
relationship with Calgon Corporation ("Calgon") to address post cleaning
corrosion inhibition (passivation) concerns of any potential customer.
The Company signed a joint marketing agreement in April 1997 with
Calgon for the cleaning and passivation of potable water lines as well as the
marketing of Well-Klean. The Company provides cleaning services and Calgon
provides post cleaning water treatment chemicals as well as marketing support.
Revenue from municipal contracts was $400,000 in 1997.
Well-Klean is used to remove scale and corrosion in deep water wells.
Over time the slotted casing that allows water to be lifted with pumps becomes
clogged. Well-Klean was the first NSF certified product to rehabilitate water
wells. Well-Klean sales were $109,000 in 1997.
Consumer Products
Eliminate Shower Tub & Tile Cleaner. Eliminate Shower Tub & Tile
Cleaner is a cleaning solution designed to remove soap scum, hard water spots
and body oils from shower doors, walls, bathtubs and sinks. It is sprayed on and
rinsed off approximately a half hour later. It is not necessary to scrub or
brush. Eliminate Shower Tub & Tile Cleaner is Green Cross certified as
biodegradable, and it is the only such cleaner containing a fragrance which is
also certified biodegradable. Eliminate Shower Tub & Tile Cleaner is packaged in
four sizes: 16, 20 and 32 ounce spray bottles and gallon refill bottles. In
1997, approximately 56% of the Company's total revenue from continuing
operations was derived from sales of Eliminate Shower Tub & Tile Cleaner.
Eliminate Evaporative Cooler Treatment. Evaporative Cooler Cleaner and
Evaporative Cooler Treatment are used to clean and maintain evaporative cooler
systems which are used primarily in arid and semi-arid regions of the western
and southwestern United States.
Eliminate Toilet Bowl Cleaner. Eliminate Toilet Bowl Cleaner functions
like Eliminate Shower Tub & Tile Cleaner for use in toilet bowls. It is
effective as a cleaner for removing rust, hardwater deposits and waste build
ups.
Proposed Consumer Products. In order to expand its product lines,
channels of distribution and classes of trade, the Company has developed
additional products, including all-purpose cleaners, a carpet cleaning line,
institutional products and a patented multi-purpose cleaner.
Marketing and Distribution
Industrial Products
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The Company markets its products and services through its marketing and
sales staff and independent distributors and sales representatives. During 1997,
sales to the U.S. Navy represented 40% of total IPG sales.
As discussed above, the Company has also entered into strategic
relationships to market its products and service its customers.
Consumer Products
The Eliminate Shower Tub & Tile Cleaner is sold by HCPI primarily
through large hardware and home improvement chains. During 1997, the Company
sold $1,474,000 consumer products to The Home Depot, Inc., representing
approximately 84% of consumer products sales.
Advertising
The Company advertises and publishes in selected industry publications
and initiates direct mail pieces to specific groups of potential consumers of
its various products. The Company also uses an "800" number in connection with
its advertising, direct mail programs and order entry. The primary emphasis of
the advertising is to promote awareness of the Company and its various products.
Competition
Industrial Products
Waterwell and waterline revitalization and rehabilitation are normally
performed by regional contractors. There are no major companies that dominate
this business. The largest company in the waterwell field is Layne, Inc.
Chemicals used in cleaning water systems have generally been non-proprietary,
readily available acids produced by such major chemical companies as DuPont, Dow
Chemical Company, Hill Brothers Chemical Company and Vista Chemical Company.
These companies are substantially larger and have far more extensive resources
than the Company. To the extent that the Company seeks to sell its water system
pipeline rehabilitation technology directly to end users, it may be perceived as
competing with the regional contractors to which it might also seek to market
its pipe rehabilitation products and technology. While they are not as large as
the chemical producers, the contracting companies are still generally larger and
more established in the industry than the Company.
In addition, the Company expects that the companies with which it
competes have the resources to develop, have developed, are developing, or may
develop and market products directly competitive with the Company's technology.
Current competitors or new market entrants could produce directly new or
enhanced products with features that render the Company's products obsolete or
less marketable. The Company's competitive success will depend on its ability to
promote and to adapt to technological changes and advances in the water systems
treatment industry.
In the opinion of the Company's management, the Company's products and
methods are superior to other water system treatment chemicals because they are
easier to use, less expensive and are less harmful to the environment. The
Company competes principally on the basis of these qualities and by securing
strategic relationships with established companies. The Company has patent
protection for certain of its technologies and is seeking to expand patent
protection by making new applications with respect to its Eliminate products and
technology in order to provide a diverse product base.
Consumer Products
The markets for HCPI's products are highly competitive. HCPI competes
with numerous well-established chemical and consumer products companies, that
have financial, marketing, personnel and other resources which substantially
exceed those of HCPI. In addition, many competitors are large companies (e.g.
Johnson Wax, Zepp/Enforcer) that have established name recognition of their
product, have established distribution networks for their products and have
developed consumer loyalty to such products. HCPI will attempt to increase sales
in 1998 through additional retail outlets and other channels of distribution
such as catalog and club store sales.
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Manufacturing and Supplies
Certain of the Company's industrial products based upon the Eliminate
technology are formulated and packaged at its plant in Phoenix, Arizona. The
balance of these products and all of the Company's consumer products are
manufactured and packaged for it by third party manufacturers located in
Chandler, Arizona and Winterhaven, Florida, using formulations provided by the
Company. The Company generally does not maintain long-term supply agreements
with its suppliers and purchases raw materials pursuant to purchase orders or
short-term contracts in the ordinary course of business. The Company believes
that the raw materials and other supplies are readily available from a variety
of sources and that there are numerous companies available to formulate and
package its products.
Patent and Trademark Protection
The Company has a United States patent for the use of its Pipe-Klean
technology in the cleaning of potable water distribution systems and a United
States patent on the mobile recirculation units employed in the pipe cleaning
process. The Company has also received a Notice of Allowance for its basic pipe
cleaning patent for the association of European countries and can obtain patents
throughout Europe in 1998. Additionally, the Company has received a Notice of
Allowance on its U.S. Patent application for "Pipe Cleaning and In-Line
Treatment of Spent Pipe Cleaning Solution", an improvement on the basic pipe
cleaning technology. There are also three other U.S. Patents pending on
improvements and application of the basic technology.
There can be no assurance that any patents applied for will be
obtained. Moreover, 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 technologies and
they do 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 could 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 or proprietary rights action. Moreover, if any of
the Company's products infringe patents or proprietary 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 has obtained certification for its Pipe-Klean, Pipe-Klean
Preblend, Acid Klean, Pipe-Klean Concentrate, and Pipe-Klean Neutralizer
products as "pipe cleaning aids" under ANSI/NSF Standard 60 from NSF for use in
potable water distribution systems. Also, the Company has obtained ANSI/NSF
Standard 60 certification for their Well-Klean II Concentrate and Well-Klean
Preblend products as "well cleaning aids" for potable water wells.
Eliminate(R), Clean Sweep(R), h.e.r.c.(R), Well-Klean(R),
Pipe-Klean(R), and Line-out(R) are registered trademarks of the Company. The
Company also has Eliminate Man(C) registered as a copyright.
The Company 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 the Company will be able to 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.
Government Regulation
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Water pollution is a major focus of federal, state and local
environment protection laws and regulations. The discharge from water systems
treatment is subject to these laws and regulation. The water system treatment
chemicals industry and the Company's operations are subject to extensive and
significant regulation by federal, state and local governmental authorities.
Some of such regulation is extensive and may from time to time have a
significant impact on the Company's operations. The NSF has indicated that
Pipe-Klean and Well-Klean comply with the standards for chemicals which can be
used in cleaning drinking water systems. In addition, many of the Company's
products are Green Cross certified as biodegradable. Products are biodegradable
if they can be broken down into carbon dioxide, water and minerals without
harmful effects to the environment.
Some of the Company's products require the use of a chemical that is
classified under applicable laws as a corrosive chemical and substance. There
can be no assurance that the Company will not incur environmental liability
arising out of the use of corrosive substances. To date, the Company does not
believe that it has incurred any such liability. The Company does not maintain
insurance to compensate it for any liabilities it may incur if it were to
violate environmental laws or regulations. 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 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 matters, 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 corrosive
chemicals and substances.
The Company believes that it is in substantial compliance with all
material federal, state and local laws and regulations governing its 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 business operations without 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.
Advertising relating to the Company's products is subject to the review
of the Federal Trade Commission and state agencies, pursuant to their general
authority to monitor and prevent unfair or deceptive trade practices. In
addition, the Consumer Products Safety Commission regulates the labeling of the
Company's products.
Research and Development
The Company estimates that it spent fifty thousand dollars on research
and development activities during 1997.
Employees
As of February 20, 1998, the Company had 29 employees of which 19 are
full time. Three (3) are officers, sixteen (16) are engaged in field operations
and production, eight (8) are in administration, and two (2) are in marketing
and sales. Some of the field employees are part time. None of the Company's
employees is represented by labor unions or covered by a collective bargaining
agreement. The Company believes that its relationship with its employees is
satisfactory.
Seasonality
Sales of Pipe-Klean and Well-Klean products are seasonal in those parts
of the United States in the snow belt. Seasonal sales can result in uneven cash
flow for the Company which 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.
Item 2. Description of Property
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The Company leases 15,700 and 5,530 square feet of office and warehouse
facilities in Phoenix, Arizona and Portsmouth, Virginia, respectively. The
Phoenix location is under an operating lease which expires on July 31, 2001 and
provides for monthly payments escalating from $8,796 to $10,053 over the term of
the lease. The Portsmouth facility is under an operating lease expiring December
31, 1998, with an option to extend the lease for three (3) additional years to
December 31, 2001. The lease provides for monthly payments escalating from
$2,225 to $2,640 over the term of the lease, including the extension term.
The Company has no policy regarding investments in real estate, real
estate mortgages, or securities of persons primarily engaged in real estate
activities. However, the Company currently holds no such investments.
Item 3. Legal Proceedings
On December 19, 1997, in the Commonwealth Court in the state of
Virginia, a former employee of the Company filed a civil claim, thereafter
removed to the federal District Court of Virginia, alleging breach of an
employment contract action for sales commissions and seeking monetary damages of
$33,355 and anticipatory damages. The Company has substantially denied liability
for the claim and filed a counterclaim alleging conversion and indemnity seeking
monetary damages of $5,088.
On January 22, 1998, Resource Technology Group, Inc. filed for
arbitration with the American Arbitration Association of Arizona under a license
agreement with the Company for the transfer and use of the Company's patented
technology, claiming breach of contract and misrepresentation and seeking
monetary damages of $200,000. The Company denied the claim and filed a
counterclaim for failure of performance seeking damages of not less than
$50,000.
On March 3, 1998, Bibeau Water System Reclamation, Inc. filed in the
Superior Court of Arizona a civil action claiming breaches of contract and
warranty, and alleging misrepresentation concerning a technology license
agreement with the Company similar to that of Resource Technology Group, Inc.,
seeking damages in the amount of $200,000. The Company intends to vigorously
contest the complaint and to pursue meritorious counterclaims.
Although the resolution of these matters is not known, management and
its legal counsel believe the Company has meritorious defenses and
counterclaims, and believes the outcome will have no material effect on the
Company's operating results and financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
through solicitation of proxies or otherwise during the fourth quarter of the
year ended December 31, 1997.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
Trading Markets
The Company's Common Stock is listed on the Nasdaq SmallCap Market and
on the Boston Stock Exchange under the symbols "HERC" and "HER", respectively.
The Nasdaq SmallCap Market is the principal market for the Company's Common
Stock.
The following table sets forth the high and low sale prices of the
Company's Common Stock as quoted by Nasdaq for the periods indicated. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
1996 High Low
- ---- ---- ---
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First Quarter $ 1.813 $ 0.625
Second Quarter 2.125 0.750
Third Quarter 2.906 1.188
Fourth Quarter 3.125 1.500
1997 High Low
- ---- ---- ---
First Quarter $ 2.500 $ 1.250
Second Quarter 1.875 1.188
Third Quarter 1.719 0.969
Fourth Quarter 1.156 0.250
On March 19, 1998 the last reported bid price for the Common Stock as
quoted by Nasdaq was $0.3125.
Holders
As of March 20, 1998, there were 74 record holders of the Company's
Common Stock. The Company believes that as of such date there were approximately
1,575 beneficial holders of the Common Stock.
Dividends
To date, the Company has not paid any cash dividends on its Common
Stock, and it does not anticipate paying any cash dividends in the foreseeable
future. Until such time as the Company's term loan is repaid, the Company may
not pay any dividends or make any other distributions with respect to its
capital stock without the consent of the lender.
Recent Sales or Grants of Unregistered Securities
The following relates to all securities of the Company sold or granted within
the last fiscal year which were not registered under the Securities Act of 1933.
<TABLE>
<CAPTION>
Consideration received
and description of Exemption Terms of
Date of Title of Amount underwriting or other from conversion
grant security discounts to market registration or
price afforded to claimed exercise
purchasers
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
/6/97 - Preferred Stock 170,000 shares of Conversion of Section 75% of five day
5/12/97 converted into Preferred Stock Preferred Stock 4(2) average closing
Common Stock converted into bid price of
1,714,101 Common Stock share of Common
Stock
immediately
prior to
conversion
6/18/97 Warrants to 150,000 None Section Exercisable at
purchase Common 4(2) $1.312 through
Stock 8/18/02
6/21/97 - Warrants to 130,000 Consulting Section Exercisable at
9/30/97 purchase Common Services 4(2) prices of
Stock $1.00-$2.00
through
to 9/3/04
</TABLE>
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<S> <C> <C> <C> <C> <C>
9/15/97 Warrants to 125,000 Grant of loan Section Exercisable at
purchase Common 4(2) prices of
Stock $1.18-$1.47
from 9/1/98
to 8/31/03
</TABLE>
Item 6: Management's Discussion and Analysis of Financial Condition and Results
of Operations
When used in the Form 10-KSB and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result," "the Company expects," "will continue," "is anticipated," "estimated,"
"project," or "outlook" or similar expressions are intended to identify
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company cautions readers not to place undue
reliance on any such forward-looking statements, each of which speak only as of
the date made. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. Included in the risks and
uncertainties that may effect the Company are the possible need for continued
market acceptance, the requirement to expand sales in all of its segments, the
seasonality of sales of certain of its products and the need to develop
additional cash resources. The Company has no obligation to release the result
of any revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
Results of Operations
1997 Compared with 1996
CCT results are not included in the following discussion as these
results are accounted for as a discontinued operation (see Note 3 to
accompanying financial statements).
Sales from continuing operations for the year ended December 31, 1997
were $3,163,000 compared to $1,224,000 in 1996. Consolidation of H.E.R.C.
Consumer Products for the full year in 1997 (vs. only the final six months in
1996 - see Note 4 to accompanying financial statements) and higher Industrial
revenue from additional municipal and marine projects accounted for the
increase.
Consumer product sales in 1997 were $1,758,000 of which $1,008,000
occurred during the six months ended June 30, 1997. The increase of $103,000
over full year sales of $1,655,000 in 1996 is attributed to wider distribution
of Eliminate Shower Tub & Tile Cleaner offset somewhat by certain product
allowances granted during the first quarter of 1997. Shipments of Eliminate
Shower Tub & Tile Cleaner accounted for 98% of Consumer Products revenue in
1997; aggregate shipments to The Home Depot, Inc. accounted for 84% of such
revenues.
Industrial sales in 1997 were $1,405,000 compared with $330,000 in
1996. Marine Ship Board Pipe Line Chemical Cleaning contracts accounted for
$707,000 in 1997 of which $562,000 was realized from work for the U.S. Navy. In
September 1997 the Company signed a five year contract with the U.S. Navy for
cleaning projects with annual revenue ranging from a minimum of approximately
$100,000 to an estimate of $1,200,000. Pipe rehabilitation services through both
chemical and mechanical cleaning produced $400,000 in revenues in 1997 compared
with $87,000 in 1996.
Consolidated gross margins were 24% in 1997 and 9% in 1996. Despite
product allowances on certain first quarter shipments, consumer product margins
improved to 27% for the year 1997 from 22% for the six months ended December 31,
1996 when the Company absorbed certain one time product and freight costs
associated with inventory acquired from Conair (see Note 4 to accompanying
financial statements). Industrial gross margin of 21% was depressed because of
staging costs in September 1997 for the Navy contract and cost overruns on two
municipal projects during the second quarter when the Company encountered
weather delays and other unanticipated interruptions. However, the 1997 margin
improved over a negative 18% in 1996 when the Company incurred start up costs
associated with initial pipeline rehabilitation projects and wrote down certain
equipment used in the water system treatment process.
Although gross profit increased from $105,000 in 1996 to $758,000 in
1997, loss from continuing operations was $2,628,000 compared to $2,102,000 in
1996, primarily because of an increase of $1,179,000 in aggregate selling,
Page 10
<PAGE>
general and administrative expenses. Consolidation of Consumer Products and
write down of certain unamoritized patent costs (see Note 1 to accompanying
financial statements) accounted for $312,000 and $276,000 of the increase,
respectively. The balance is attributable to additional selling and other
personnel related support costs, professional services (including consideration
of warrants to acquire the Company's Common Stock) and an expenditure for
technological development. Increases in these costs were somewhat mitigated by
the Company's cost containment efforts which began to take effect during the
third quarter of 1997.
Liquidity and Capital Resources
Cash and cash equivalents were $1,370,000 at December 31, 1996 and
$135,000 at December 31, 1997 while working capital was $1,926,000 and a deficit
of $834,000 at those respective dates. Cash and working capital at December 31,
1996 are a function of the private equity offering of Preferred Stock in
December 1996 (see Note 10 to accompanying financial statements). The decline in
cash and working capital during 1997 is a function of the loss from continuing
operations with the impact on cash somewhat mitigated by depreciation and
amortization, the term loan of $250,000 and factoring arrangement described in
Note 8 to accompanying financial statements.
As of December 31, 1997 and March 27, 1998, the Company is not in
compliance with certain covenants pertaining to the term loan. However, all
payments required to service the debt have been made on a timely basis and the
lender has taken no action to accelerate repayment of principal.
The conversion during 1997 of all Preferred Stock outstanding at
December 31, 1996 into Common Stock had no impact on cash and cash equivalents
or working capital.
For the two months ended February 28, 1998, the Company sustained a
cash drain of approximately $70,000. To continue as a going concern, the Company
must achieve consistently profitable operations during the second quarter of
1998 and generate adequate financial resources. The Company continues to seek
buyers for certain assets as well as for certain of its businesses (see Note 3
to accompanying financial statements). Also, cash outlays for ongoing operating
expenses have been reduced through the Company's cost containment program.
The Company does not consider additional debt financing a realistic
possibility in the near future. Another offering of the Company's equity
securities is a possible source of capital but would substantially dilute the
interest of the Company's existing stockholders. Further, the success of any
additional equity offering could be adversely impacted if the Company's Common
Stock is delisted by the Nasdaq. As of March 27, 1998, the Company is not in
compliance with Nasdaq Standards required to maintain listing.
In the event future cash resources are not realized through additional
asset sales, operating results or other sources, the Company will not be able
to continue as a going concern.
Other Matters
The Company has received notification from its provider of financial
and accounting software that such software is structured to accommodate the year
2000 and beyond.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," and SFAS
No. 131, "Disclosure about Segments of an Enterprise and Related Information,"
were issued. No. 130 specifies presentation of comprehensive income and its
components; No. 131 requires certain additional information on operating
segments, products and services, geographic areas and major customers.
Implementation of both statements, which are effective for 1998 and future
years, will have no material impact on the Company's financial statements.
Item 7. Financial Statements
See Index To Financial Statements on F-1 attached hereto.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not Applicable
Page 11
<PAGE>
Part III.
Item 9. Directors, Executive Officers, Promoters and Control Persons; compliance
with Section 16(a) of the Exchange Act
Name Age Position
- ---- --- --------
S. Steven Carl 40 Chairman of the Board of Directors,
Chief Executive Officer and President
Kristi A. Cordray 32 Vice President of Administration
John P. Johnson 56 Chief Financial Officer
Salvatore DiMascio 58 Director
Robert M. Leopold 72 Director
Dr. Jerome H. Ludwig 65 Director
Robert J. Spane 57 Director
S. Steven Carl has been the Chief Executive Officer and a Director of the
Company since August 1995 and was President of the Company from August 1995 to
February 28, 1996. Effective February 28, 1996, Mr. Carl became Chairman of the
Board and resigned as President of the Company. Mr. Carl was re-appointed
President in May 1997. From May 1992 to August 1995, Mr. Carl was the President
and Chief Executive Officer of CCT Corporation ("CCT"), a wholly owned
subsidiary of the Company acquired in May 1995.
Kristi A. Cordray has been Vice President of Administration since May 1996. She
was also named General Manager of HERC Consumer Products, Inc. in June 1997. Ms.
Cordray joined the Company in December 1991 and has held positions as Director
of Operations, Marketing Manager and Purchasing Manager.
John P. Johnson has been Chief Financial Officer of the Company since January 1,
1997. Mr. Johnson has held numerous senior level financial positions with
various organizations, including the New York Stock Exchange, where he retired
as Chief Financial Officer - Vice President of Finance in 1990. Prior to this,
he was on the audit staff at Price Waterhouse LLP in New York. After his
retirement from the New York Stock Exchange in 1990, Mr. Johnson has acted as an
independent financial consultant. His most recent appointments include Acting
Chief Financial Officer for Boyt Company, a manufacturer of luggage and hunting
supplies, and Interim Treasurer for Rodale Press, Inc., a book and magazine
publisher. Mr. Johnson is a Certified Public Accountant.
Salvatore DiMascio has been a Director of the Company since September 3, 1996.
Since 1986, Mr. DiMascio has been President of DiMascio Venture Management, a
management and investment consulting firm. From June 1994 to June 1997, Mr.
DiMascio was Executive Vice President and Chief Financial Officer of Anchor
Gaming, a public company. Among other executive level positions held during his
30 year career, Mr. DiMascio was Senior Vice President and Chief Financial
Officer of Conair Corporation. In addition, he has experience in industrial
products manufacturing, distribution and other service industries. Mr. DiMascio
is currently a Director of U.S. Communications Inc. and Fotoball USA, both
public companies. Mr. DiMascio is a Certified Public Accountant.
Robert M. Leopold has been a Director of the Company since June 5, 1996. Mr.
Leopold has been the President of Huguenot Associates, a financial and business
consulting firms since 1977, and the Chairman of the Board of International
Asset Management Group, Inc. since 1983. During 1997, Huguenot Associates was a
consultant to the Company. From June 1982 to December 1990, Mr. Leopold held
various positions with Insituform of North America, Inc., including Vice
Chairman (1982-1986), Chief Executive Officer (1986-1989), Chairman (1986-1987)
and Advisor to the Chairman (1989-1990). Mr. Leopold was also a director of
Insituform Mid-America, Inc. Mr.
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<PAGE>
Leopold is a Director of Infodata Systems, Inc., Dental Services of America and
Standard Security Life Insurance Company of New York, a wholly-owned subsidiary
of Independence Holding Company.
Dr. Jerome Ludwig has been a Director of the Company since June 1993. He retired
in September 1997 as Executive Vice President and Secretary of the Company to
which positions he was elected in June 1993. Dr. Ludwig continues as a
consultant to the Company. For more than five years prior to 1993, he served as
a scientific consultant to the Company and also was engaged as an independent
business broker. Dr. Ludwig has spent over 40 years in marketing and product
development in the chemical, plastics and pharmaceutical industries and holds 17
United States patents.
Vice Admiral Robert J. Spane USN (Ret.) has been a Director of the Company since
May 1997. He has been Chairman, Chief Executive Officer and President of
Vanguard Airlines since 1997. Mr. Spane served in the U.S. Navy for 35 years,
where his last position was Commander, Naval Air Force Pacific. He was
responsible for all the finances, training, logistics and the material condition
of all aircraft carriers, aircraft and naval air stations in the Pacific. Mr.
Spane retired from the Navy in February 1996 and is a 1962 graduate of the U.S.
Naval Academy. Mr. Spane is a director of Kangward Airlines and Air South
Corporation.
Directors are elected to serve until the next annual meeting of
stockholders of the Company or until their successors are qualified and elected.
Officers serve at the discretion of the Board of Directors subject to any
contracts of employment.
The Board of Directors has established an Audit Committee and a
Compensation Committee.
The Audit Committee, currently comprised of Messrs. DiMascio, Leopold,
and Spane, has been formed to: (i) recommend annually to the Board of Directors
the appointment of the independent auditors of the Company; (ii) review with the
independent auditors the scope of the annual audit and review their final report
relating thereto; (iii) review with the independent auditors overall accounting
practices, policies, and accounting and financial controls of the Company; (iv)
be available to the independent auditors during the year for consultation and
(v) review related party transactions by the Company on an ongoing basis and
review potential conflicts of interest situations where appropriate. The Audit
Committee held three meetings during the year ended December 31, 1997.
The Compensation Committee, currently comprised of Messrs. Carl,
DiMascio, Spane and Leopold, has been formed to review overall executive
compensation and review the Company's employee benefit plans. The Compensation
Committee held two meetings during the year ended December 31, 1997.
The Company is obligated through May 1999, if so requested by Whale
Securities Co., L.P. ("Whale"), the underwriter of its initial public offering
in May 1994, to nominate and use its best efforts to elect Whale's designee as a
director of the Company, or at Whale's option, as a non-voting advisor to the
Board. Whale has not exercised its right to designate such a person.
The Company is obligated through April 2001, if so requested by GKN
Securities Corporation ("GKN"), the placement agent of its April 1996 private
placement, to nominate and use its best efforts to elect GKN's designee as a
director of the Company or, at GKN's option, as a non-voting adviser to the
Board of Directors. GKN has not exercised its right to designate such a person.
The Company is obligated , if so requested by Inter Equity Partners,
LLP ("Inter Equity"), to nominate and use its best offers to elect Inter
Equity's designee as a director of the Company. Alternatively, Inter Equity,
which has an outstanding term loan to the Company, may send an observer to the
Company's Board meetings. Inter Equity, which has not designated such people,
may exercise its right until such time as the loan is prepaid or matures in
2002.
The Board held four meetings during the year ended December 31, 1997.
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchanges Act of 1934, as amended,
requires the Company's directors and officers and persons who beneficially own
more than ten percent of the Company's Common Stock to file with the Securities
and Exchange Commission ("SEC"), the Nasdaq SmallCap Market and the Boston Stock
Exchange initial
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<PAGE>
reports of ownership of Common Stock in the Company. Officers, directors and
greater-than-ten percent of shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) reports they filed. To the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representation that no other reports were
required, during the year ended December 31, 1997, such persons complied with
all Section 16(a) filing requirements.
Item 10. Executive Compensation
Set forth in the following table is information as to the salary paid
or accrued to each officer and director receiving compensation of at least
$100,000, and the Chief Executive Officer, (collectively, the "Named Executive
Officers") for the three years ended December 31, 1997.
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<PAGE>
Name & Principal Position Year Salary
- --------------------------------------------------------------------------------
S. Steven Carl Chairman of the Board, 1997 $100,100
Chief Executive Officer 1996 $115,500
and Director (1) 1995 $ 74,690
Gary S. Glatter President, 1997 $191,160
Chief Operating Officer and 1996 $152,000
Treasurer (2) (3) 1995 $143,000
(1) Mr. Carl has served as the Chief Executive Officer since August 1995.
(2) Mr. Glatter served as Chief Operating Officer from August 1996 until
December 31, 1996.
(3) In addition, Mr. Glatter served as President from January 1997 until March
1997, at which time he resigned and the Company bought out his employment
agreement.
Employment Agreements
CCT Corporation has an employment contract with Mr. S. Steven Carl
which expires May 1, 1999 and provides for an annual base salary of $135,000 per
year, commencing January 1, 1998. CCT also has an employment contract with Mr.
Gilbert Crowell which expires May 1, 1999 and provides for an annual base salary
of $100,000 commencing January 1, 1998. Both agreements include confidentiality
and non-disclosure provisions.
Stock Option Plans
In 1993, the Board of Directors of the Company adopted a Stock Option
Plan ("1993 Plan") pursuant to which 350,000 shares of Common Stock were
reserved for issuance to key employees, including officers. Key employees are
persons whose efforts, knowledge and expertise are integral to the operations
and success of the Company. The 1993 Plan is administered by the Board of
Directors, but the Board of Directors may appoint a committee to act on its
behalf. Such options can be incentive stock options ("ISOs") within the meaning
of the Internal Revenue Code of 1986, as amended, or options not qualifying as
ISOs ("Non-qualified options"). The exercise price of any ISO cannot be less
than 100% of the fair market value per share of Common Stock on the date of
grant (110% of such fair market value if the grantee owns stock possessing more
than 10% of the combined voting power of all classes of the Company's stock). No
options may be granted after the year 2003. As of February 18, 1998, the Company
had issued under the 1993 Plan 290,000 ISO's, exercisable at prices ranging from
$1.00 to $5.00 per share.
In 1996, the Board of Directors of the Company adopted the 1996 Equity
Performance Plan ("1996 Plan") pursuant to which 1,000,000 shares of Common
Stock were reserved for issuance to key employees, officers, directors and
consultants of the Company and its subsidiaries, as both ISOs and non-qualified
options and other equity based awards. Holders of these awards are persons whose
efforts, knowledge and expertise are integral to the operations and success of
the Company. The 1996 Plan is administered by the Board of Directors, but the
Board of Directors may appoint a committee to act on its behalf. The exercise
price of any ISO cannot be less than 100% of the fair market value per share of
Common Stock on the last trading day before the date of grant (110% of such fair
market value if the grantee owns stock possessing more than 10% of the total
combined voting power of all classes of the Company's stock). The exercise price
of a Non-qualified Option may not be less than 100% of the fair market value on
the last trading day before the date of grant. No ISOs may be granted after the
year 2006. As of February 18, 1998 the Company had issued options under the 1996
Plan to acquire 475,400 shares of Common Stock, exercisable at prices ranging
from $1.00 to $2.50 per share, 405,400 of which were ISO's and 70,000 of which
were non-qualified options.
Other Options and Warrants
In addition to the options under the 1993 Plan and the 1996 Plan, the
Company currently has outstanding the following options and warrants: (i)
warrants to purchase 85,000 shares of Common Stock at $3.00 per share issued to
Perrin, Holden & Davenport Capital Corporation in connection with its private
placement in December 1996, (ii) warrants to purchase an aggregate of 3,214,902
shares of Common Stock at $2.00 per share issued to investors in the April 1996
private placement, (iii) an option to purchase 171,490 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 and its designees in connection
with the private placement in April 1996, (iv) warrants issued to original
insiders and a consultant to purchase an aggregate of 100,000 shares of Common
Stock at $5.00 per share, (v) warrants to purchase an aggregate of 130,000
shares of Common
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<PAGE>
Stock at $6.50 per share issued to Whale, the underwriter of the Company's
initial public offering, (vi) warrants issued to original bridge financing
investors and consultants to purchase 684,000 shares of Common Stock at prices
ranging from $1.06 to $2.75 per share, (vii) other options issued to employees
and a former director to purchase 556,000 shares of Common Stock at prices
ranging from $1.00 to $4.00 per share, (viii) warrants to purchase 300,000
shares of Common Stock at prices ranging from $1.31 to $2.00 per share, issued
to GKN and its designees in connection with the exercise of 150,000 units in
June 1997 and (ix) warrants to purchase 125,000 shares of Common Stock at prices
ranging from $1.18 to $1.47 issued to InterEquity in connection with the term
loan in September 1997. All of the foregoing securities are exercisable into an
aggregate of 6,303,282 shares of Common Stock.
The following charts set forth certain information with respect to options
granted to the Named Executive Officers:
Options Granted in Last Fiscal Year
<TABLE>
<CAPTION>
% of Total Options
Options Granted to Employees Date Expiration
Name Granted in Fiscal Year Exercise Price Vested Date
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
S. Steven Carl 12,500 1% $1.00 1997 2001
12,500 1% $1.00 1997 2002
12,500 1% $1.00 1998 2003
12,500 1% $1.00 1999 2004
20,000 2% $1.00 1997 2002
20,000 2% $1.00 1998 2002
20,000 2% $1.00 1999 2002
20,000 2% $1.00 2000 2002
20,000 2% $1.00 2001 2002
Gary S. Glatter 150,000 14% $1.75 1997 2003
100,000 10% $1.75 1997 2005
</TABLE>
Aggregate Year-End Option Values
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised in-the-money
at December 31, 1997 Options at December 31, 1997
-------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gary S. Glatter 250,000 -0- 0 (1) 0 (1)
S. Steven Carl 45,000 105,000 0 (1) 0 (1)
</TABLE>
(1) The market value at December 31, 1997 of the Common Stock underlying the
options was $0.34 per share. The options are exercisable at prices of $1.00
or more.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of March 18, 1998 certain information
regarding the beneficial ownership of shares of Common Stock by (i) each person
who is known by the Company to beneficially own 5% or more of the
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<PAGE>
outstanding shares of Common Stock; (ii) each of the Company's directors; and
(iii) all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Amount and Nature Percentage of Outstanding
of Beneficial Common Stock Owned
Ownership (1) Beneficially
<S> <C> <C>
S. Steven Carl (2)(3) 874,851 10.1
Shelby A. Carl (2)(4) 743,653 8.8
Norman H. Pessin (2) 422,500 5.1
Gary S. Glatter (2)(5) 250,000 2.9
Jerome H. Ludwig (2)(6) 151,581 1.8
Robert M. Leopold (2)(7) 36,000 *
Salvatore T. DiMascio (2)(8) 10,000 *
Robert J. Spane (2)(9) - 8
All executive officers and directors 2,107,585 22.6
as a group (10) (ten persons)
</TABLE>
* Less than 1.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from March 18, 1998 upon the
exercise of options and warrants or conversion of convertible
securities. Each beneficial owner's percentage ownership is determined
by assuming that options, warrants and convertible securities that are
held by such person (but not held by any other person) and that are
exercisable or convertible within 60 days from March 18, 1998 have been
exercised or converted. Except as otherwise indicated, and subject to
applicable community property and similar laws, each of the persons
named has sole voting and investment power with respect to the shares
shown as beneficially owned.
(2) The address for Messrs. S. Steven Carl, Shelby A. Carl, Glatter,
Leopold, Spane, Ludwig and DiMascio is c/o H.E.R.C. Products,
Incorporated, 2202 W. Lone Cactus Drive #15, Phoenix, Arizona 85027.
The address for Norman H. Pessin is c/o Neuberger & Berman, LLC, 605
Third Avenue, New York, NY 10158.
(3) Includes 410,442 shares issuable pursuant to immediately exercisable
options and warrants. Excludes 92,500 shares issuable on options which
become exercisable in the future.
(4) Includes (i) 186,771 shares issuable pursuant to immediately
exercisable options and warrants, (ii) 288,553 shares owned of record
by the Shelby A. Carl Trust, the trustee of which is Mr. Shelby A. Carl
for the benefit of his wife, Mrs. Margaret Carl, (iii) 5,623 shares
owned of record by Shelby A. Carl IRA for the benefit of Mr. Shelby A.
Carl and (iv) 29,412 shares owned of record and 29,412 shares issuable
upon exercise of immediately exercisable warrants owned by Margaret
Carl Sep IRA for the benefit of Margaret Carl, the wife of Mr. Shelby
A. Carl. Excludes 20,000 shares issuable on options which become
exercisable in the future.
(5) Shares issuable pursuant to immediately exercisable options.
(6) Includes 150,083 shares issuable pursuant to immediately exercisable
options and warrants. Excludes 20,000 shares issuable on warrants which
become exercisable in the future.
(7) Includes 35,000 shares issuable pursuant to immediately exercisable
options and warrants. Excludes 10,000 shares issuable on options which
become exercisable in the future.
(8) Shares issuable pursuant to immediately exercisable options and
warrants. Excludes 10,000 shares issuable on options which become
exercisable in the future.
(9) Excludes 10,000 shares issuable on options which become exercisable in
the future.
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<PAGE>
(10) Includes shares referred to as being included in notes (3), (4), (5),
(6), (7) and (8) and 41,500 shares issuable pursuant to immediately
exercisable options. Excludes shares referred to as being excluded in
note (3), (4), (5), (6), (7), (8) and (9) and 38,500 shares issuable on
options which become exercisable in the future.
Item 12. Certain Relationships and Related Transactions
Messrs. S. Steven Carl and Shelby A. Carl purchased an aggregate of
382,353 units for an aggregate purchase price of $325,000 in the private
placement consummated on April 3, 1996. These individuals paid for the units by
converting indebtedness for borrowed funds owed by the Company to them in the
amounts of $300,000 and $25,000, respectively.
Item 13. Exhibits and Reports on form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Sequential
Exhibit No: Exhibit Page Number
- ----------- ------- -----------
<S> <C> <C>
(3) (1) Certificate of Incorporation of the Company,
filed as Exhibit 3.1 to the Company's Registration
Statement (No. 33-75166).
(3) (2) By-Laws of the Company, filed as Exhibit 3.2 to the
Company's Registration Statement (No. 33-75166).
(3) (3) Certificate of Designations, Preferences and Other Rights
and Qualifications of the Class A Preferred Stock, as amended,
filed as Exhibit 99.1 to Form 8-K dated December 17, 1996.
(4) (1) Specimen of Common Stock certificate, (reference also made to exhibit
3.1 and 3.2), filed as Exhibit 4.1 to the Company's Registration
Statement (No. 33-75166).
(4) (2) Form of Underwriter's Warrant Agreement and Warrant
Certificate, filed as Exhibit 4.2 to the Company's Registration Statement
(No. 33-75166).
(4) (3) Form of Subscription Agreement between the Company and
purchasers of the Series A Preferred Stock, filed as Exhibit 4.1
of Form 8-K dated December 17, 1996.
(4) (4) Form of Warrant Agreement issued to Perrin, Holden &
Davenport Capital Corporation dated December 17, 1996, filed as
Exhibit 4.2 of Form 8-K dated December 17, 1996.
(4) (5) Form of Agency Agreement between the Company and Perrin, Holden
& Davenport Capital Corporation dated as of November 15, 1996,
as amended, filed as Exhibit 4.3 of Form 8-K dated December 17, 1996.
(4) (6) Form of Warrant Agreement between the Company and GKN Securities
Corp. dated November 19, 1996, filed as Exhibit 4.5 of Registration Statement
No. 333-19361.
(4) (7) Form of Warrant and Registration Rights Agreement between the Company
and the Equity Group, dated September 27, 1996, filed as Exhibit 4.6 of
Registration Statement No. 333-19361.
(10) (3) 1993 Incentive Stock Option Plan, as amended, filed as Exhibit 10.3
to the Company's Registration Statement No. 33-75166.
(10) (4) Employment Agreement With Shelby Carl dated March 1994,
filed as Exhibit 10.4 to the Company's Registration Statement
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
No. 33-75166.
(10) (5) Employment Agreement and Stock Option Agreement
dated January 1, 1994 with Gary S. Glatter, filed as
Exhibit 10.5 to the Company's Registration Statement
No. 33-75166.
(10) (6) Amendment to Employment Agreement with Gary S. Glatter,
dated September 23, 1994, filed as Exhibit 10.6 to the Company's
Annual Report on Form 10K-SB for the fiscal year ended
December 31, 1994.
(10) (7) Employment Agreement with Jerome Ludwig dated
March 24, 1994, filed as Exhibit 10.6 to the Company's Registration
Statement No. 33-75166.
(10) (8) Agency Agreement between the Company and GKN Securities
Corporation dated March 4, 1996, filed as Exhibit 10.8 to the Company's
Annual Report on Form 10K-SB for the fiscal year ended December 31, 1995
(10) (9) Form of Purchase Option issued to GKN Securities Corporation
and its' designees, filed as Exhibit 10.9 to the Company's Annual
Report on Form 10K-SB for the fiscal year ended December 31, 1995
(10)(10) Form of Warrant Agreement issued to investors on April 3, 1996,
filed as Exhibit 10.10 to the Company's Annual Report on Form
10K-SB for the fiscal year ended December 31, 1995
(10)(11) Form of Subscription Agreement between the Company and
investors dated April 3, 1996, filed as Exhibit 10.11 to the Company's
Annual Report on Form 10K-SB for the fiscal year ended December 31, 1995
(10)(12) Employment Agreement between CCT Corporation, a wholly-owned
subsidiary of the Company, and S. Steven Carl dated
May 1, 1995, filed as Exhibit 10.1 to the Company's Form 10-QSB
for the quarter ended March 31, 1995.
(10)(13) Employment Agreement between CCT Corporation, a wholly-
owned subsidiary of the Company, and Gilbert Crowell dated
May 1, 1995, filed as Exhibit 10.2 to the Company's Form 10-QSB
for the quarter ended March 31, 1995.
(10)(14) 1996 Performance Equity Plan, filed as Annex A to the Company's
Proxy Statement dated June 11, 1996.
(10)(15) Form of Purchase Option issued to GKN Securities Corporation and its designees
dated June 18, 1997.
(10)(16) Amendment number two to Employment Agreement by and between Gary S. Glatter and
the Company dated March 28, 1997.
(10)(17) Amendment number three to Employment Agreement by and between Gary S. Glatter and
the Company dated October 31, 1997.
(10)(18) Term loan between the Company and InterEquity Partners, LLP dated September 15, 1997.
(10)(19) Account Transfer and Purchase Agreement by and between the Company, H.E.R.C.
Consumer Products, Inc., and KBK Financial Incorporated dated September 22, 1997.
(10)(20) Agreement by and between the Company and the U.S. Navy dated August 8, 1997.
(10)(21) Lease by and between the Company and Roger Buttrum dated May 14, 1996.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
(10)(22) Form of Warrant Agreement between the Company and Jerry Ludwig and Associates
dated September 3, 1997.
(10)(23) Form of Warrant Agreement between the Company and Shelby Carl dated September
3, 1997.
(10)(24) Amendment to Stock Option Agreement by and between Gary S. Glatter dated
and the company dated March 23, 1995.
(10)(25) Amendment Number two to Stock Option Agreement by and between Gary S. Glatter
and the Company dated February 1, 1997.
(21) Subsidiaries
(23) Consent of Independent Certified Public Accountants
(27) Financial Data Schedule
(b) Reports on Form 8-K: None.
</TABLE>
Page 20
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
Page No.
Index to Consolidated Financial Statements
Report of Independent Certified Public Accountants F-2
Financial Statements:
Consolidated Balance Sheet
December 31, 1997 F-3
Consolidated Statements of Operations
Years Ended December 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows
Years Ended December 31, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
H.E.R.C. Products Incorporated
Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of H.E.R.C. Products
Incorporated and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1997 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of H.E.R.C. Products
Incorporated and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1996,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency as of December 31, 1997. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
\s\ BDO Seidman, LLP
Chicago, Illinois
January 31, 1998
F-2
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1997
<TABLE>
<S> <C>
Assets (Note 8)
Current Assets
Cash and cash equivalents $ 135,396
Trade accounts receivable, net of allowance for
doubtful accounts of $36,205 166,751
Inventories, principally finished goods 87,738
Other receivables 11,963
Prepaid expenses 98,757
------------
Total Current Assets 500,605
------------
Property and Equipment (Note 6)
Property and equipment 1,057,470
Less accumulated depreciation 235,253
------------
Net Property and Equipment 822,217
------------
Other Assets
Patents, net of accumulated amortization of $93,789 (Note 1) 62,642
Patents pending 71,146
Refundable deposits and other assets 93,021
Goodwill, net of accumulated amortization of $8,150 (Notes 1, 3, and 4) 100,519
------------
Total Other Assets 327,328
------------
$ 1,650,150
============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 583,571
Accrued wages 91,450
Current portion of notes payable (Note 8) 287,856
Liabilities of discontinued operation (Note 3) 261,272
Other accrued expenses 110,928
------------
Total Current Liabilities 1,335,077
------------
Long-Term Liabilities
Notes payable, net of current portion (Note 8) 66,938
------------
Total Liabilities 1,402,015
------------
Stockholders' Equity (Notes 8, 10 and 12)
Common Stock, $0.01 par value; authorized 40,000,000 shares;
issued and outstanding 8,230,588 shares 82,306
Additional paid-in capital 12,947,406
Accumulated deficit (12,781,577)
------------
Total Stockholders' Equity 248,135
------------
$ 1,650,150
============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996
---- ----
(Note 3)
-----------
<S> <C> <C>
Sales $ 3,162,846 $ 1,223,557
Cost of Sales 2,404,864 1,118,513
----------- -----------
Gross Profit 757,982 105,044
Selling Expenses 807,955 731,047
General and Administrative Expenses 2,577,819 1,476,203
----------- -----------
Loss from Continuing Operations Before Taxes on Income (2,627,792) (2,102,206)
Taxes on Income (Note 7) -- --
----------- -----------
Loss from Continuing Operations (2,627,792) (2,102,206)
----------- -----------
Discontinued Operation (Note 3):
Operating Loss (94,073) (300,735)
Provision for Loss on Disposition (1,740,000) --
----------- -----------
Loss from Discontinued Operation (1,834,073) (300,735)
----------- -----------
Loss Before Extraordinary Item (4,461,865) (2,402,941)
Extraordinary Gain on Extinguishment of Debt (Note 5) -- 137,912
----------- -----------
Net Loss (4,461,865) (2,265,029)
Non-Cash Dividend on Preferred Stock (Note 11) 62,842 566,667
----------- -----------
Net Loss Allocable to Common Stockholders $(4,524,707) $(2,831,696)
=========== ===========
Loss Per Common Share - Basic & Diluted (Note 11)
Loss from Continuing Operations $ (0.34) $ (0.50)
Loss from Discontinued Operations (0.24) (0.05)
----------- -----------
Loss before Extraordinary Item (0.58) (0.55)
Gain on Extraordinary Item -- 0.02
----------- -----------
Net Loss Per Common Share $ (0.58) $ (0.53)
=========== ===========
Weighted Average Common Shares Outstanding 7,773,951 5,364,420
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1996 -- -- 2,928,441 $ 29,284 $ 7,812,619 $ (5,425,174) $ 2,416,729
Net loss -- -- -- -- -- (2,265,029) (2,265,029)
Issuance of shares of Common
Stock (Notes 5 and 10) -- -- 3,428,046 34,281 2,767,234 -- 2,801,515
Issuance of shares of Preferred
Stock (Note 10) 170,000 $ 1,480,000 -- -- -- -- 1,480,000
Company expenses satisfied
by stockholders -- -- -- -- 29,073 -- 29,073
Warrants issued to prepay future
year's expenses (Note 10) -- -- -- -- 48,000 -- 48,000
Imputed dividend on Preferred
Stock (Note 11) -- -- -- -- 566,667 (566,667) --
-------- ------------ ---------- -------- ------------ ------------ -----------
Balance,
December 31, 1996 170,000 1,480,000 6,356,487 63,565 11,223,593 (8,256,870) 4,510,288
-------- ------------ ---------- -------- ------------ ------------ -----------
Net loss -- -- -- -- -- (4,461,865) (4,461,865)
Conversion of Preferred
Stock to Common Stock (Note 10) (170,000) (1,480,000) 1,714,101 17,141 1,462,859 -- --
Exercise of stock options (Note 10) -- -- 10,000 100 19,275 -- 19,375
Exercise of warrant (Note 10) -- -- 150,000 1,500 138,750 -- 140,250
Costs associated with Preferred Stock -- -- -- -- (34,813) -- (34,813)
Warrants issued to prepay future
year's expenses (Note 10) -- -- -- -- 74,900 -- 74,900
Dividend on Preferred Stock payable in
Common Stock upon conversion (Note 11) -- -- -- -- 62,842 (62,842) --
-------- ------------ ---------- -------- ------------ ------------ -----------
-----------
Balance,
December 31, 1997 -- $ -- 8,230,588 $ 82,306 $ 12,947,406 $(12,781,577) $ 248,135
======== ============ ========== ======== ============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net Loss $(4,461,865) $(2,265,029)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 524,152 195,058
Provision for loss on discontinued operation 1,740,000 --
Change in net liabilities of discontinued operation 404,890 --
Expenses paid by stockholders and Common Stock
and warrants issued for services 34,592 45,733
Extraordinary item, before tax -- (137,912)
(Gain) loss on sale or disposal of equipment 5,032 (11,606)
(Increase) decrease in assets
Trade accounts receivable 59,175 8,313
Inventories 73,194 7,540
Other receivables 10,104 (24,620)
Prepaid expenses 14,241 (19,074)
Other assets (44,108) (39,915)
Increase (decrease) in liabilities
Accounts payable 305,268 (153,462)
Accrued expenses 8,969 126,462
----------- -----------
Total adjustments 3,135,509 (3,483)
----------- -----------
Net cash used in operating activities (1,326,356) (2,268,512)
----------- -----------
Cash Flows From Investing Activities
Capital expenditures (311,645) (124,913)
Cash received from the sale of equipment 12,969 32,475
Cash paid in acquisition of subsidiary, net of cash acquired -- (218,929)
Proceeds from redemption of certificates of deposit -- 75,628
Expenditures related to patents and patents pending (99,021) (77,544)
----------- -----------
Net cash used in investing activities (397,697) (313,283)
----------- -----------
Cash Flows From Financing Activities
Proceeds from issuance of Common Stock -- 2,083,720
(Expenses) proceeds from issuance of Preferred Stock (34,813) 1,480,000
Proceeds from exercise of stock options 19,375 --
Proceeds from exercise of warrant 140,250 --
Proceeds from issuance of notes payable,
including consideration for warrants 393,583 336,000
Principal payments under long-term debt (28,789) (279,683)
----------- -----------
Net cash provided by financing activities 489,606 3,620,037
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,234,447) 1,038,242
Cash and cash equivalents at beginning of period 1,369,843 331,601
----------- -----------
Cash and cash equivalents at end of period $ 135,396 $ 1,369,843
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for interest $ 35,919 $ 18,331
During 1996, notes payable to shareholder of $325,000 were repaid through the issuance of common stock.
During 1996 and 1997, inventory of $230,175 and $211,685 respectively was reclassified to property and equipment.
During 1996, note payable of $237,912 was paid in full by issuing common stock with a market value of $100,000
resulting in an extraordinary gain.
In conjunction with the 1996 acquisition of H.E.R.C. Consumer Products Company, the Company acquired current assets
of $469,807, goodwill of $131,342 and current liabilities of $367,795. During 1997, certain adjustments were made
to assets and liabilities acquired and, accordingly, goodwill was reduced by $22,673.
During 1996 and 1997, the value attributed to warrants issued to prepay future years' expenses was $48,000 and $74,900,
respectively.
During 1997, 1,714,101 shares of Common Stock were issued upon the conversion of 170,000 shares of Preferred Stock.
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
H.E.R.C. PRODUCTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
H.E.R.C. Products Incorporated (the "Company") manufactures consumer and other
water treatment chemicals and provides water pipeline rehabilitation services.
The Company markets its consumer products through wholesale and retail customers
and directs its other products and services toward industrial, marine and
municipal customers. Through 1997, all sales were within the United States. The
Company's wholly owned subsidiary, CCT Corporation ("CCT") which manufactured
and distributed proprietary agricultural products, is accounted for as a
discontinued operation - Note 3.
The Company historically has had a concentration of significant customers with
which it considers its commercial relationships to be good. However, a loss of
these customers, or a significant decrease in purchases by these customers,
would have an adverse effect on the Company's operations. In 1997, sales to The
Home Depot, Inc. and the U.S. Navy were 47% and 18% respectively of consolidated
sales from continuing operations. Sales to The Home Depot, Inc. were 64% of
consolidated sales from continuing operations in 1996.
Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. CCT is accounted for as
a discontinued operation - Note 3; certain 1996 amounts have been restated to
conform with 1997 presentation.
Patents and Patents Pending
Patents issued are stated at cost which is amortized on the straight-line basis
over 10 years. Costs for patents pending are amortized when the patents are
awarded. Unamortized costs for patents which are denied or have no continuing
application to the Company's ongoing product base are expensed ($276,000 and
$10,000 in 1997 and 1996 respectively).
F-7
<PAGE>
Inventories
Inventories are stated at the lower of cost or market (net realizable value).
Cost is determined by various methods which approximate first-in, first-out.
Goodwill
Goodwill represents the excess price over the fair value of net assets acquired
and is amortized on a straight-line basis over 20 years. The Company evaluates
the recoverability and measures any impairment of goodwill based upon
expectations of future undiscounted cash flows - Note 3.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed over the
estimated useful lives of the assets by the straight-line method for financial
reporting and by accelerated methods for income taxes.
The useful lives of property and equipment for computing depreciation are three
to ten years.
Taxes on Income
At December 31, 1997, unused net operating losses of approximately $6,700,000
are available for carryforward against future years' taxable income and expire
in various years through 2018.
The Company's ability to utilize its net operating loss carryforwards is subject
to an annual limitation in future periods due to the 1996 change in ownership,
pursuant to Section 382 of the Internal Revenue Code of 1986, as amended - Note
10. Utilization of net operating loss carryforwards will be limited to
approximately $170,000 annually plus approximately $2,700,000 in net operating
loss carryforwards generated subsequent to the aforementioned change in
ownership.
Statements of Cash Flows
For purposes of these statements, cash equivalents include cash on hand and bank
checking and money market accounts and other highly liquid debt securities with
original maturities of 90 days or less.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123, encourages (but does
not require) adoption of the fair method of accounting for stock-based
compensation plans. The Company has not adopted the fair value method but
provides the required pro forma disclosures. (Note 12).
The provisions of SFAS No. 128, "Earnings per Share", are antidilutive and
therefore do not enter into the determination of loss per share shown in the
accompanying financial statements and notes thereto.
F-8
<PAGE>
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information," were
issued. No. 130 specifies presentation of comprehensive income and its
components; No. 131 requires certain additional information on operating
segments, products and services, geographic areas and major customers.
Implementation of both statements, which are effective for 1998 and future
years, will have no material impact on the Company's financial statements.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported assets and liabilities at December 31,
1997 and the amounts of revenue and expenses during the years ended December 31,
1997 and 1996. Actual results could differ from those estimates.
2. Basis of Financial Presentation
The accompanying financial statements have been prepared on a going-concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company has sustained
operating losses in each of the years 1994-1997 and has a working capital
deficiency of $834,000 at December 31, 1997. The Company's ability to continue
as a going concern in the long term is dependent upon consistently profitable
operations and generation of adequate financial resources. The accompanying
financial statements do not include any adjustments that may be necessary if
these results are not achieved.
To raise additional cash, the Company continues to seek buyers for certain
assets as well as for certain of its operating businesses. The Company has also
implemented a cost containment program to reduce ongoing operating expenses.
In the event future cash resources are not realized through asset sales,
operating results or other sources, the Company will not be able to continue as
a going concern.
3. Discontinued Operation
During the fourth quarter of 1997, the Company determined that it would exit the
agricultural business and commenced efforts to dispose of its investment in CCT
which is accounted for as a discontinued operation in the accompanying financial
statements. Accordingly the Consolidated Statement of Operations for the year
ended December 31, 1996 is reclassified.
F-9
<PAGE>
The Company is actively seeking a buyer for CCT, but there is no assurance that
a sale will be concluded. The Company believes the charge of $1,740,000 ($ 0.22
per share) recorded in the 1997 Consolidated Statement of Operations is adequate
to cover the loss associated with the discontinuation of CCT's business. The
charge consists of a write off ($1,478,000) of goodwill arising from the
Company's acquisition of CCT in 1995 and operating losses and other wind down
expenses in 1998 of $262,000.
CCT operating results were:
Years Ended December 31,
------------------------
1997 1996
---- ----
Sales $ 1,662,318 $ 1,377,085
Expenses 1,756,391 1,677,820
----------- -----------
Loss from discontinued operation ($0.01 and
$0.05 per Common Share respectively) $ (94,073) $ (300,735)
=========== ===========
Liabilities of CCT at December 31, 1997 consist of trade payables and
miscellaneous accrued expenses.
4. Acquisition:
On July 1, 1996, the Company acquired the 50% interest of H.E.R.C. Consumer
Products ("LLC") owned by Conair Corporation ("Conair") for $601,149, including
liabilities assumed. Prior to that date the Company and Conair equally owned the
LLC which was formed to produce and market the Company's consumer products. The
Company had accounted for its 50% investment in the LLC by the equity method,
and accordingly, sales of the LLC prior to July 1, 1996 were not reported as
sales of the Company. Also no amount of the cumulative losses of the LLC prior
to July 1, 1996 was recognized by the Company since its investment in the LLC
was zero. The Company accounted for the acquisition of the remaining 50%
interest as a purchase which resulted in $108,669 in goodwill.
Pro forma results for the year ended December 31, 1996 are unaudited and were
prepared as if the aforementioned acquisition had occurred at January 1, 1996:
Sales from continuing operations $1,984,803
Loss from continuing operations before extraordinary item (2,011,718)
Net loss (2,174,541)
Loss per common share before extraordinary item (0.53)
Net loss per common share (0.51)
F-10
<PAGE>
5. Extraordinary Item
In September 1996, the Company issued 37,210 shares of Common Stock, with a
market value of $100,000, in full satisfaction of certain long-term debt
obligations of $237,912. As a result of this transaction, the Company recognized
an extraordinary gain of $137,912 from the extinguishment of debt.
6. Property and Equipment
Property and equipment for continuing operations at December 31, 1997 are:
Equipment $ 945,606
Office furniture and fixtures 111,864
------------
1,057,470
Less accumulated depreciation 235,253
------------
Net property and equipment $ 822,217
============
7. Income Taxes
The Company was in a consolidated loss position for the years ended December 31,
1997 and 1996 and therefore had no federal income tax expense.
Deferred tax assets of approximately $2,600,000 from loss carryforward benefits
have not been recorded because of the uncertainty of realizing such benefits.
8. Long Term Debt and Other Financing Arrangements Long term debt consists of
the following:
Term loan (less original issue discount of $10,000) $ 240,000 (a)
Other financing, primarily equipment 114,794 (b)
---------
354,794
Less current portion 287,856
---------
$ 66,938
=========
a. In September 1997 the Company closed on a five year term loan and borrowed
$250,000. Interest is payable monthly at an annual rate of 14%; principal
repayments are over 54 months and begin 6 months after take-down. In
connection with the closing, the Company issued two warrants to the lender,
each to purchase 62,500 shares of Common Stock at $1.18 (market price at
closing) and $1.475 (25% premium over market price at closing),
respectively. The Company may prepay the loan; certain fees and conditions,
including issue of two identical warrants, apply if prepayment is not made
within two years of takedown. At December 31, 1997, the Company is not in
compliance with certain covenants in the loan agreement; accordingly the
total indebtedness is classified as a current liability in the accompanying
Consolidated Balance Sheet.
F-11
<PAGE>
b. Equipment financings are payable in monthly installments over varying
periods through November 2001. Interest rates range from 11.5% to 20.0%.
Principal payments are $47,856 in 1998, $43,496 in 1999, $19,095 in 2000
and $4,347 in 2001.
c. In October 1997, the Company concluded an arrangement for a factoring
facility whereby the factor purchases eligible receivables and advances 80%
of the purchased amount to the Company. Purchased receivables may not
exceed $600,000 at any one time. The arrangement may be canceled by either
party with 30 days notice. If the Company cancels, certain penalties apply.
At December 31, 1997, 80% of factored receivables amounted to $126,302.
This arrangement is accounted for as a sale of receivables on which the
factor has recourse to the 20% residual of aggregate receivables purchased
and outstanding.
Substantially all of the Company's assets are pledged as security pursuant to
the arrangements described in subsections a, b and c above.
9. Lease Commitments
The Company has operating leases, expiring through 2001, for office and
warehouse facilities in Phoenix, Arizona and Portsmouth, Virginia and for office
equipment. Rental expense associated with all operating leases of continuing
operations was $167,761 and $91,617 for the years ended December 31, 1997 and
1996, respectively.
Future minimum payments under operating leases as of December 31, 1997 are:
Years Ending
December 31, Amount
- ------------ ------
1998 $ 163,405
1999 122,405
2000 126,256
2001 77,487
---------
$ 489,553
=========
10. Stockholders' Equity
--------------------
Convertible Preferred Stock
In December 1996 the Company completed a private equity offering of 170,000
shares of Class A Preferred Stock ("Preferred Stock") for $10 per share and
received net proceeds of $1,480,000. The Preferred Stock had a par and stated
value of $.01 and $10, respectively.
F-12
<PAGE>
The holders of the Preferred Stock were entitled to receive dividends of 10% of
the stated value per annum from the date of issuance through the "Conversion
Date," as defined, payable solely in shares of the Company's Common Stock. The
Preferred Stock and accrued dividends thereon through the Conversion Date, were
converted into 1,714,101 shares of Common Stock during the first and second
quarters of 1997. Such amount was determined by dividing the aggregate of the
stated value of the Preferred Stock plus accrued dividends by 75% of the five
day average closing bid price of the shares of Common Stock immediately prior to
conversion.
Common Stock
In April 1996, the Company completed the private placement of 3,214,902 units at
a price of $.85 per unit and received net proceeds of approximately $2,277,000.
Each unit consisted of one share of Common Stock and one warrant, which entitles
the holder to purchase one share of Common Stock at a price of $2 per share ,
subject to adjustment, until April 3, 1999. The placement agent was granted a
warrant to acquire 321,490 units at .935 per unit which consists of one share of
Common Stock and one warrant to acquire one share of Common Stock at $2.00 per
share. In May 1997, the placement agent partially exercised the warrant and
acquired 150,000 units. The remaining 171,490 units are currently exercisable
and expire April 3, 2001. In connection with the partial exercise, the Company
granted warrants for purchase of an aggregate 150,000 shares of Common Stock at
$1.3125 per share to the placement agent. Such warrants are currently
exercisable and expire on June 18, 2002.
Included in the April 1996 private placement were 382,353 units to satisfy the
Company's obligation to S. Steven Carl and his father, the Chairman Emeritus,
who had advanced $325,000 to the Company.
During 1996:
a. Various consultants were paid for services through the issuance of 19,625
shares of Common Stock, and $29,932 was charged to expense based on the
market price at the measurement dates.
b. Warrants were exercised to acquire 66,000 shares of Common Stock at $2 per
share.
c. 37,210 shares of Common Stock were issued in satisfaction of certain debt
obligations. See Note 5.
During 1997, employee stock options were exercised to purchase 10,000 shares of
Common Stock at $1.9375 per share.
F-13
<PAGE>
Warrants
In May and September 1993 and January 1994, the Company issued warrants for
600,000 shares of Common Stock. The warrants became exercisable in May 1994 at
$2.50 per share and expire at various dates through 1999. At December 31, 1997
such warrants for 212,500 shares of Common Stock remain outstanding and expire
in 1999.
In connection with the public offering of its Common Stock in May 1994, the
Company was required to reduce the existing number of shares of its outstanding
Common Stock to no more than 950,000 shares. As consideration for the reduction
of shares, the stockholders were granted warrants, which are currently
exercisable until December 31, 1999, to acquire 50,000 shares of the Company's
Common Stock at $5.00 per share.
In 1994, the underwriter of the Company's public offering acquired, for $130,
warrants for the purchase of 130,000 shares of the Common Stock of the Company
at $6.50 per share. The warrants are currently exercisable and expire May 10,
1999.
Through 1997, the Company issued warrants for the purchase of 587,500 shares of
Common Stock to various consultants at exercise prices ranging from $1.06 to $5
per share. During 1996, 66,000 warrants were exercised at $2 per share. Of the
521,500 warrants outstanding, 409,000 are currently exercisable within the above
price range and expire at various dates through September 2003.
In 1996, the placement agent for the 1996 private offering of Preferred Stock
was granted a warrant to acquire 85,000 shares of Common Stock at $3.00 per
share. The warrants are currently exercisable and expire December 2001.
Warrants for the purchase of 125,000 shares were issued to a lender in September
1997 - Note 8. Such warrants are exercisable September 1998 through September
2003.
11. Loss Per Share of Common Stock
Loss per share of Common Stock is based on the weighted average number of shares
of Common Stock outstanding during each year. Shares of Common Stock issuable
upon exercise of outstanding options and warrants are anti-dilutive and are
excluded from the computation of shares outstanding. Similarly, shares issuable
upon conversion of preferred stock (Note 10) were anti-dilutive and were
therefore excluded from the computation of shares outstanding in 1996. Loss per
share of Common Stock for the year ended December 31, 1996 reflects the amount
of specified discount to the market price of Common Stock into which the
Preferred Stock was convertible. Accordingly, the net loss applicable to common
F-14
<PAGE>
stockholders was increased by $566,667 for an imputed Preferred Stock dividend
equivalent to the conversion discount, and loss per share of Common Stock was
increased by $0.11.
The Preferred Stock dividend in 1997 was paid in Common Stock at the time of
conversion of the Preferred Stock and was determined according to the formula
set forth in Note 10.
12. Stock Based Compensation
In October 1993, the Company adopted an incentive stock option plan for 350,000
shares of Common Stock which may be granted to employees. The Company adopted an
additional plan in 1996 for 1,000,000 shares of Common Stock for grant to
employees, officers, directors and consultants of the Company and its
wholly-owned subsidiaries. The exercise price per share may not be less than the
fair market value per share on the date the options are granted. Generally,
options granted vest over a period up to five years and expire over varying
periods through 2007.
In addition to the above plans, the Company granted:
a. an officer/director options to purchase 250,000 shares of Common Stock at
an exercise price of $1.75 per share. The options are currently exercisable
and expire not later than December 31, 2005.
b. a former Director options to purchase 100,000 shares of Common Stock at
exercise prices ranging from $2.50 to $4.00 per share. The options, granted
in 1995, are currently exercisable and expire in December 1999.
c. various key employees options to purchase 290,000 shares of Common Stock at
exercise prices ranging from $1.00 to $2.50 per share. The options, granted
through 1997, are exercisable from 1997 to 2001 and expire in various years
through 2001. At December 31, 1997, 206,000 options are outstanding of
which 186,000 options are exercisable.
F-15
<PAGE>
Overall activity in the Company's stock options:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996
------------------------------- ------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding, at beginning of year 1,547,000 $ 2.54 1,117,000 $ 3.23
Granted 1,042,500 1.34 575,000 1.75
Exercised (10,000) 1.94 -- --
Canceled (1,228,100) 2.35 (145,000) 4.76
---------- --------
Outstanding at end of year 1,351,400 1.79 1,547,000 2.54
========= =========
Exercisable at end of year 889,000 1.52 595,000 2.79
========= =========
</TABLE>
Details regarding the options outstanding at December 31, 1997:
Outstanding Exercisable
---------------------------------- --------------------
Weighted Weighted Weighted
Exercise Average Average Average
Price Remaining Exercise Exercise
Range Number Life Price Number Price
----- ------ ---- ----- ------ -----
$0.50 - $1.50 669,182 0.70 $1.05 536,971 $1.05
$1.50 - $2.50 295,483 1.31 1.77 132,011 1.81
$2.50 - $5.00 386,735 0.53 3.06 220,018 2.50
--------- -------
1,351,400 889,000
========= =======
The weighted-average grant-date fair value of stock options granted to employees
during the year and the weighted average significant assumptions used to
determine those fair values using a modified Black-
F-16
<PAGE>
Scholes option pricing model, and the pro forma effect on earnings of the fair
value accounting for stock options under SFAS No. 123 are:
Years ended December 31,
------------------------
1997 1996
---- ----
Grant-date fair value per options $1.42 $1.51
Significant assumptions (weighted average)
Risk-free interest rate at grant date 5.51% 5.67%
Expected stock price volatility 134% 236%
Expected dividend payout - -
Expected option life* 1.2 years 2.7 years
Net loss
As reported $(4,461,865) $(2,265,029)
Pro forma (5,279,252) (2,567,641)
Net loss per share of Common Stock
As reported $(0.58) $(0.53)
Pro forma (0.69) (0.59)
*The expected option life considers historical option exercise patterns and
future changes to those exercise patterns anticipated at the date of grant.
13. Segment Information
The company's major business segments included in continuing operations are the
manufacture and distribution of:
a. Consumer water treatment and related products
b. Industrial water treatment and related products
Segment information for agricultural products is not provided since CCT is
accounted for as a discontinued operation in the accompanying consolidated
financial statements.
Information by segment for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Consumer Industrial
Products Products Corporate Consolidated
-------- -------- --------- ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 1,758,205 $ 1,404,641 -- $ 3,162,846
Income (loss) from continuing operations 11,227 (668,176) $(1,970,843) (2,627,792)
Identifiable assets 265,388 894,381 490,381 1,650,150
Depreciation and amortization 4,867 366,978 152,307 524,152
Capital expenditures -- 294,600 17,045 311,645
</TABLE>
F-17
<PAGE>
Information by segment for the year ended December 31, 1996:
<TABLE>
<CAPTION>
Consumer Industrial
Products Products Corporate Consolidated
-------- -------- --------- ------------
(Note 3)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 893,754 $ 329,803 -- $ 1,223,557
Loss from continuing operations (117,896) (838,892) $(1,145,418) (2,102,206)
Identifiable assets 491,425 883,764 1,672,412 3,047,601
Depreciation and amortization 3,284 41,845 57,458 102,587
Capital expenditures -- 51,352 45,347 96,699
</TABLE>
14. Commitments and Contingencies
The Company is a defendant in various legal actions and claims incident to the
conduct of its business. Although the ultimate resolution of these matters is
not known, management and its legal counsel believe the Company has meritorious
defenses and the outcome will have no material effect on the Company's operating
results and financial position.
CCT has an employment contract with Mr. S. Steven Carl which expires May 1, 1999
and provides for an annual base salary of $135,000 per year, commencing January
1, 1998. CCT also has an employment contract with Mr. Gilbert Crowell which
expires May 1, 1999 and provides for an annual base salary of $100,000
commencing January 1, 1998.
Management believes the Company is in compliance with federal and state
environmental regulations which pertain to the sale and use of its products.
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, H.E.R.C. Products Incorporated has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ S. Steven Carl
-----------------------------------
Dated: March 27, 1998 S. Steven Carl, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ S. Steven Carl Chairman of the Board, Chief Executive Officer March 27, 1998
- ----------------------------- and President
S. Steven Carl
/s/ Jerome H. Ludwig Director March 27, 1998
- -----------------------------
Jerome H. Ludwig
/s/ Robert M. Leopold Director March 27, 1998
- -----------------------------
Robert M. Leopold
/s/ Salvatore DiMascio Director March 27, 1998
- -----------------------------
Salvatore DiMascio
/s/ Robert Spane Director March 27, 1998
- -----------------------------
Robert Spane
/s/ John P. Johnson Chief Financial Officer (Principal Financial and March 27, 1998
- ----------------------------- Accounting Officer)
John P. Johnson
</TABLE>
Page 39
THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE
OR JURISDICTION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES
THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN
PROVIDED.
NOT EXERCISABLE PRIOR TO JUNE 18, 1997. VOID AFTER 5:00 P.M. EASTERN TIME, JUNE
18, 2002.
PURCHASE OPTION
For 50,000 Shares
No. 1997-PO-1 of
H.E.R.C. PRODUCTS INCORPORATED
(A Delaware Corporation)
1. Purchase Option.
THIS CERTIFIES THAT, in consideration of $16.66 duly paid by
or on behalf of GKN Securities Corp. ("Holder"), as registered owner of this
Purchase Option, to H.E.R.C. Products Incorporated ("Company"), Holder is
entitled, at any time or from time to time at or after June 18, 1997
("Commencement Date"), and at or before 5:00 p.m., Eastern Time, June 18, 2002
("Expiration Date"), but not thereafter, to subscribe for, purchase and receive,
in whole or in part, up to 25,000 shares ("Shares") of the Company's common
stock, $.Ol par value ("Common Stock"). The Shares issuable hereunder are
sometimes collectively referred to herein as the "Securities." If the Expiration
Date is a day on which banking institutions are authorized by law to close, then
this Purchase Option may be exercised on the next succeeding day which is not
such a day in accordance with the terms herein. This Purchase Option is
initially exercisable at $1.3125 per Share purchased; provided, however, that
upon the occurrence of any of the events specified in Section 6 hereof, the
rights granted by this Purchase Option, including the exercise price for the
Shares 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. This Purchase Option is one of a number of such options issued
by the Company to GKN and its designees ("Purchase Options").
<PAGE>
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and delivered
to the Company, together with this Purchase Option and payment of the Exercise
Price for the Securities being purchased by wire transfer, certified check or
official bank check. If the subscription rights represented hereby are not
exercised at or before 5:00 p.m., Eastern time, on the Expiration Date this
Purchase Option 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 the securities purchased under this
Purchase Option shall bear a legend as follows unless such Securities have been
registered under the Securities Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Securities 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
Securities Act, or pursuant to an exemption from registration
under the Securities Act and applicable state law."
2.3 Cashless Exercise.
2.3.1 Determination of Amount. In lieu of the payment of the
Exercise Price in the manner required by Section 2.1, the Holder shall have the
right (but not the obligation) to pay the Exercise Price for the Securities
being purchased with this Purchase Option upon exercise by the surrender to the
Company of any exercisable but unexercised portion of this Purchase Option
having a "Value" (as defined below), at the close of trading on the last trading
day immediately preceding the exercise of this Purchase Option, equal to the
Exercise Price multiplied by the number of shares of Common Stock being
purchased upon exercise ("Cashless Exercise Right"). The sum of (a) the number
of shares of Common Stock being purchased upon exercise of the non-surrendered
portion of this Purchase Option pursuant to this Cashless Exercise Right and (b)
the number of shares of Common Stock underlying the portion of this Purchase
Option being surrendered, shall not in any event be greater than the total
number of shares of Common Stock purchasable upon the complete exercise of this
Purchase Option if the Exercise Price were paid in cash. The 'Value" of the
portion of the Purchase Option being surrendered shall equal the remainder
derived from subtracting (a) the Exercise Price multiplied by the number of
shares of Common Stock underlying the portion of this Purchase Option being
surrendered from (b) the Market Price of the shares of Common Stock multiplied
by the number of shares of Common Stock underlying the portion of this Purchase
Option being surrendered. As used herein, the term "Market Price" shall be
deemed to be the last reported sale price of the Common Stock at the close of
trading on the last trading day immediately preceding the exercise of this
Purchase Option, or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the immediately preceding three
trading days, in either case as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading, or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or if any such exchange on which the Common Stock is listed is not its
principal trading market, the last reported sale price as furnished by the NASD
through the Nasdaq National Market or SmallCap Market, or, if applicable, the
OTC Bulletin Board, or if the Common Stock is not listed or admitted to trading
on the Nasdaq National Market or SmallCap Market or OTC Bulletin Board or
similar organization, as determined in good faith by
2
<PAGE>
resolution of the Board of Directors of the Company, based on the best
information available to it. In addition to the above, the Holder may surrender
any other security issued by the Company, including but not limited to unit
purchase options, warrants, options and common stock in payment of the Exercise
Price, having a value, determined substantially as set forth above.
2.3.2 Mechanics of Cashless Exercise. The Cashless Exercise
Right may be exercised by the Holder on any business day on or after the
Commencement Date and not later than the Expiration Date by delivering to the
Company the Purchase Option or other security of the Company with a duly
executed exercise form attached hereto with the cashless exercise section
completed.
3. Transfer.
3.1 General Restrictions. The registered Holder of this Purchase
Option, by its acceptance hereof, agrees that it will sell, transfer or assign
or hypothecate this Purchase Option only in compliance with or 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 Purchase Option and payment of all
transfer taxes, if any, payable in connection therewith. The Company shall
immediately transfer this Purchase Option on the books of the Company and shall
execute and deliver a new Purchase Option or Purchase Options of like tenor to
the appropriate assignee(s) expressly evidencing the right to purchase the
aggregate number of Shares purchasable hereunder or such portion of such number
as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Act. This Purchase Option and the
Securities underlying this Purchase Option shall not be transferred unless and
until (i) the Company has received the opinion of counsel reasonably acceptable
to the Company that this Purchase Option or the Securities, as the case may be,
may be transferred 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
Purchase Option or Securities, as the case may be, has been filed by the Company
and declared effective by the Securities and Exchange Commission ("Commission").
4. New Purchase Options to be Issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Purchase Option may be exercised or assigned in whole or
in part. In the event of the exercise or assignment hereof in part only, the
Company shall cause to be delivered to the Holder without charge a new Purchase
Option of like tenor in the name of the Holder evidencing the right to purchase
the aggregate number of Shares as to which this Purchase Option 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
Purchase Option and of reasonably satisfactory indemnification, the Company
shall execute and deliver a new Purchase Option of like tenor and date. Any such
new Purchase Option 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.
3
<PAGE>
5. Registration Rights.
5.1 Registration Requirement.
5.1.1 Obligation to Register. The Company agrees to file
within four months after the Commencement Date, a registration statement
("Registration Statement") under the Securities Act with the Commission,
registering for resale the Securities and use its best efforts to have the
Registration Statement declared effective by the six-month anniversary of the
Commencement Date.
5.1.2 Terms. The Company shall bear all fees and expenses
(including counsel fees and expenses) attendant to registering the Securities
under Section 5.1.1 hereof, filing the Registration Statement with the NASD and
listing the Securities on Nasdaq and the BSE, 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 Securities. The
Company agrees to qualify or register the Securities in such states as are
reasonably requested by the Holder(s); provided, however, that in no event shall
the Company be required to register the Securities in a state in which such
registration would cause (i) the Company to be obligated to register or license
to do business in such state, or (ii) the principal stockholders of the Company
to be obligated to escrow their shares of capital stock of the Company. The
Company shall cause any Registration Statement filed pursuant to this Section 5
to remain effective and current for so long as the Holder owns any of the
Securities, of if earlier, the Holder may sell all the Securities he holds
pursuant to an exemption from registration under the Act.
5.2 General Terms.
5.2.1 Indemnification. The Company shall indemnify the
Holder(s) of the Securities to be sold pursuant to any registration statement
hereunder and each person, if any, who controls such Holders within the meaning
of Section 15 of the Securities Act and/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 incurred by the indemnified party in any action or
proceeding between the indemnitor and indemnified party or between the
indemnified party and any third party or otherwise) to which any of them may
become subject under the Securities Act, the Exchange Act or any other statute
or at common law or otherwise under the laws of foreign countries, arising from
such registration statement or based upon any untrue statement or alleged untrue
statement of a material fact contained in (i) any preliminary prospectus, the
registration statement or prospectus (as from time to time each may be amended
and supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included the Securities; or
(iii) any application or other document or written communication (collectively
called "application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, unless such statement
or omission is made in reliance upon, and in conformity with, written
information furnished to the Company with respect to the Holders expressly for
use in a preliminary prospectus, registration statement or prospectus, or
amendment or supplement thereof, or in any application, as the case may be. The
Company agrees promptly to notify the Holder of the commencement of any
litigation or
4
<PAGE>
proceedings against the Company or any of its officers, directors or controlling
persons in connection with the issue and sale or resale of the Securities or in
connection with the registration statement or prospectus.
5.2.2 Exercise of Purchase Option. Nothing contained in this
Purchase Option shall be construed as requiring the Holder(s) to exercise their
Purchase Options 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 National
Association of Securities Dealers, Inc. ("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.
5.2.4 Underwriting Agreement. The Company shall enter into an
underwriting agreement with the managing underwriter(s) selected by any Holders
whose Securities are being registered pursuant to this Section 5. Such agreement
shall be reasonably satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Securities and may, at their option, require that any
or all the representations, warranties and covenants of the Company to or for
the benefit of such underwriters shall also be made to and for the benefit of
such Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters except as they
may relate to such Holders, their shares and their intended methods of
distribution.
5.2.5 Documents to be Delivered by Holder(s). Each of the
Holder(s) participating in any of the foregoing offerings shall furnish to the
Company a completed and executed questionnaire provided by the Company
requesting information customarily sought of selling securityholders.
5
<PAGE>
6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Securities. The
Exercise Price and the number of shares of Common Stock issuable upon exercise
of this Purchase Option shall be subject to adjustment from time to time as
hereinafter set forth:
6.1.1 Stock Dividends - 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 payable in shares of
Common Stock or by a split-up of shares of Common Stock or other similar event,
then, on the effective date of such stock dividend or split up, the number of
shares of Common Stock issuable on exercise of each Purchase Option 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 6.2, 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 of
such consolidation, combination or reclassification, the number of shares of
Common Stock issuable on exercise of each Purchase Option 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 Purchase Option 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 fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Purchase Option
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. If
after the date hereof any capital reorganization or reclassification of the
Common Stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation or other similar event shall be effected, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and fair provision shall be made whereby the Holders shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in this Purchase Option and in lieu of the
Securities immediately theretofore purchasable and receivable upon the exercise
of this Purchase Option, such shares of stock, securities, or assets as may be
issued or payable with respect to or in exchange for the number of Securities
immediately theretofore purchasable and receivable upon the exercise of this
Purchase Option, had such reorganization, reclassification, consolidation,
merger or sale not taken place. In such event, appropriate provision shall be
made with respect to the rights and interests of the Holders so that the
provisions hereof (including, without limitation, provisions for adjustments of
the Exercise Price and of the number of securities purchasable upon the exercise
of this Purchase Option) shall thereafter be applicable, as nearly as may be in
relation to any share of stock, securities, or assets thereafter deliverable
upon the exercise hereof. The Company shall not effect any such reorganization,
reclassification, consolidation, merger or sale unless, prior to the
consummation thereof, the successor corporation (if other than the Company)
resulting from such transaction shall assume by written instrument executed and
delivered to the Holders the obligation to deliver such shares of stock,
securities or assets.
6
<PAGE>
6.2 Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of Common Stock upon the
exercise or transfer of the Purchase Option, 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 or down 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 the Purchase Options, 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 Purchase Options 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. The Company further covenants and agrees that upon
exercise of the Warrants underlying the Shares included in this Purchase Option
and payment of the exercise prices therefor, all shares of Common Stock and
other securities issuable upon such exercises shall be duly and validly issued,
fully paid and non-assessable and not subject to preemptive rights of any
stockholder. As long as the Purchase Options shall be outstanding, the Company
shall use its best efforts to cause the Common Stock issuable upon exercise of
the Purchase Options 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 Purchase Options 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.
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 any dividend or distribution, (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 dissolution, liquidation, winding up,
consolidation, merger or reorganization of the Company 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 6.1
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event
7
<PAGE>
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 Purchase Option 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 to 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 the Purchase Option, 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 Amendments. The Company and GKN may from time to time supplement or
amend this Purchase Option without the approval of any of the Holders in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and GKN may deem necessary or desirable. All other
modifications or amendments shall require the written consent of the party
against whom enforcement of the modification or amendment is sought.
9.2 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 Purchase Option.
9.3 Entire Agreement. This Purchase Option 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.
9.4 Binding Effect. This Purchase Option 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 Purchase Option or any provisions
herein contained.
9.5 Governing Law; Submission to Jurisdiction. This Purchase Option
shall be governed by and construed and enforced in accordance with the laws 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 Purchase Option 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.
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9.6 Waiver, Etc. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Purchase Option shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option 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.
9.7 Execution in Counterparts. This Purchase Option may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
9.8 Exchange Agreement. As a condition of the Holder's receipt and
acceptance of this Purchase Option, Holder agrees that, at any time prior to the
complete exercise of this Purchase Option by Holder, if the Company and GUN
enter into an agreement ("Exchange Agreement") pursuant to which they agree that
all outstanding Purchase Options will be exchanged for securities or cash or a
combination of both, then Holder shall agree to such exchange and become a party
to the Exchange Agreement.
IN WITNESS WHEREOF, the Company has caused this Purchase
Option to be signed by its duly authorized officer as of the 18th day of June,
1997.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ S. Steven Carl
--------------------------------
S. Steven Carl, Chief Executive
Officer
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Form to be used to exercise Purchase Option:
H.E.R.C. Products Incorporated
2202 West Lone Cactus Drive, #15
Phoenix, Arizona 85027
Date:___________________,19__
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase ____ Shares of Common Stock, $.Ol par value, of
H.E.R.C. Products Incorporated and hereby makes payment of $_____________ (at
the rate of $_____________ per Share) in payment of the Exercise Price pursuant
thereto. Please issue the Common Stock as to which this Purchase Option is
exercised in accordance with the instructions given below.
or
--
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase ____ Shares of Common Stock, $.Ol par value, of
H.E.R.C. Products Incorporated by surrender of the unexercised portion of the
within Purchase Option or other security of H.E.R.C. Products Incorporated (with
a "Value" of $___________ based on a "Market Price" of $___________ ). 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 Purchase Option 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.
Please issue securities as follows: Name:
-----------------------------
Address:
--------------------------
----------------------------------
I.D.#:
----------------------------
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Form to be used to assign Purchase Option:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the
within Purchase Option):
FOR VALUE RECEIVED, _______________________________ does hereby sell,
assign and transfer unto _______________________________ the right to purchase
_______________________________ Shares of Common Stock of H.E.R.C. Products
Incorporated ("Company") evidenced by the within Purchase Option 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 Purchase Option in every particular without
alteration or enlargement or any change whatsoever.
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THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE
OR JURISDICTION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES
THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN
PROVIDED.
NOT EXERCISABLE PRIOR TO JUNE 18, 1997. VOID AFTER 5:00 P.M. EASTERN TIME, JUNE
18, 2002.
PURCHASE OPTION
For 25,000 Shares
No. 1997-PO-2 of
H.E.R.C. PRODUCTS INCORPORATED
(A Delaware Corporation)
1. Purchase Option.
THIS CERTIFIES THAT, in consideration of $16.66 duly paid by
or on behalf of David Nussbaum ("Holder"), as registered owner of this Purchase
Option, to H.E.R.C. Products Incorporated ("Company"), Holder is entitled, at
any time or from time to time at or after June 18, 1997 ("Commencement Date"),
and at or before 5:00 p.m., Eastern Time, June 18, 2002 ("Expiration Date"), but
not thereafter, to subscribe for, purchase and receive, in whole or in part, up
to 25,000 shares ("Shares") of the Company's common stock, $.Ol par value
("Common Stock"). The Shares issuable hereunder are sometimes collectively
referred to herein as the "Securities." If the Expiration Date is a day on which
banking institutions are authorized by law to close, then this Purchase Option
may be exercised on the next succeeding day which is not such a day in
accordance with the terms herein. This Purchase Option is initially exercisable
at $1.3125 per Share purchased; provided, however, that upon the occurrence of
any of the events specified in Section 6 hereof, the rights granted by this
Purchase Option, including the exercise price for the Shares 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. This Purchase
Option is one of a number of such options issued by the Company to GKN and its
designees ("Purchase Options").
<PAGE>
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and delivered
to the Company, together with this Purchase Option and payment of the Exercise
Price for the Securities being purchased by wire transfer, certified check or
official bank check. If the subscription rights represented hereby are not
exercised at or before 5:00 p.m., Eastern time, on the Expiration Date this
Purchase Option 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 the securities purchased under this
Purchase Option shall bear a legend as follows unless such Securities have been
registered under the Securities Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Securities 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
Securities Act, or pursuant to an exemption from registration
under the Securities Act and applicable state law."
2.3 Cashless Exercise.
2.3.1 Determination of Amount. In lieu of the payment of the
Exercise Price in the manner required by Section 2.1, the Holder shall have the
right (but not the obligation) to pay the Exercise Price for the Securities
being purchased with this Purchase Option upon exercise by the surrender to the
Company of any exercisable but unexercised portion of this Purchase Option
having a "Value" (as defined below), at the close of trading on the last trading
day immediately preceding the exercise of this Purchase Option, equal to the
Exercise Price multiplied by the number of shares of Common Stock being
purchased upon exercise ("Cashless Exercise Right"). The sum of (a) the number
of shares of Common Stock being purchased upon exercise of the non-surrendered
portion of this Purchase Option pursuant to this Cashless Exercise Right and (b)
the number of shares of Common Stock underlying the portion of this Purchase
Option being surrendered, shall not in any event be greater than the total
number of shares of Common Stock purchasable upon the complete exercise of this
Purchase Option if the Exercise Price were paid in cash. The 'Value" of the
portion of the Purchase Option being surrendered shall equal the remainder
derived from subtracting (a) the Exercise Price multiplied by the number of
shares of Common Stock underlying the portion of this Purchase Option being
surrendered from (b) the Market Price of the shares of Common Stock multiplied
by the number of shares of Common Stock underlying the portion of this Purchase
Option being surrendered. As used herein, the term "Market Price" shall be
deemed to be the last reported sale price of the Common Stock at the close of
trading on the last trading day immediately preceding the exercise of this
Purchase Option, or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the immediately preceding three
trading days, in either case as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading, or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or if any such exchange on which the Common Stock is listed is not its
principal trading market, the last reported sale price as furnished by the NASD
through the Nasdaq National Market or SmallCap Market, or, if applicable, the
OTC Bulletin Board, or if the Common Stock is not listed or admitted to trading
on the Nasdaq National Market or SmallCap Market or OTC Bulletin Board or
similar organization, as determined in good faith by
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<PAGE>
resolution of the Board of Directors of the Company, based on the best
information available to it. In addition to the above, the Holder may surrender
any other security issued by the Company, including but not limited to unit
purchase options, warrants, options and common stock in payment of the Exercise
Price, having a value, determined substantially as set forth above.
2.3.2 Mechanics of Cashless Exercise. The Cashless Exercise
Right may be exercised by the Holder on any business day on or after the
Commencement Date and not later than the Expiration Date by delivering to the
Company the Purchase Option or other security of the Company with a duly
executed exercise form attached hereto with the cashless exercise section
completed.
3. Transfer.
3.1 General Restrictions. The registered Holder of this Purchase
Option, by its acceptance hereof, agrees that it will sell, transfer or assign
or hypothecate this Purchase Option only in compliance with or 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 Purchase Option and payment of all
transfer taxes, if any, payable in connection therewith. The Company shall
immediately transfer this Purchase Option on the books of the Company and shall
execute and deliver a new Purchase Option or Purchase Options of like tenor to
the appropriate assignee(s) expressly evidencing the right to purchase the
aggregate number of Shares purchasable hereunder or such portion of such number
as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Act. This Purchase Option and the
Securities underlying this Purchase Option shall not be transferred unless and
until (i) the Company has received the opinion of counsel reasonably acceptable
to the Company that this Purchase Option or the Securities, as the case may be,
may be transferred 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
Purchase Option or Securities, as the case may be, has been filed by the Company
and declared effective by the Securities and Exchange Commission ("Commission").
4. New Purchase Options to be Issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Purchase Option may be exercised or assigned in whole or
in part. In the event of the exercise or assignment hereof in part only, the
Company shall cause to be delivered to the Holder without charge a new Purchase
Option of like tenor in the name of the Holder evidencing the right to purchase
the aggregate number of Shares as to which this Purchase Option 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
Purchase Option and of reasonably satisfactory indemnification, the Company
shall execute and deliver a new Purchase Option of like tenor and date. Any such
new Purchase Option 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.
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<PAGE>
5. Registration Rights.
5.1 Registration Requirement.
5.1.1 Obligation to Register. The Company agrees to file
within four months after the Commencement Date, a registration statement
("Registration Statement") under the Securities Act with the Commission,
registering for resale the Securities and use its best efforts to have the
Registration Statement declared effective by the six-month anniversary of the
Commencement Date.
5.1.2 Terms. The Company shall bear all fees and expenses
(including counsel fees and expenses) attendant to registering the Securities
under Section 5.1.1 hereof, filing the Registration Statement with the NASD and
listing the Securities on Nasdaq and the BSE, 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 Securities. The
Company agrees to qualify or register the Securities in such states as are
reasonably requested by the Holder(s); provided, however, that in no event shall
the Company be required to register the Securities in a state in which such
registration would cause (i) the Company to be obligated to register or license
to do business in such state, or (ii) the principal stockholders of the Company
to be obligated to escrow their shares of capital stock of the Company. The
Company shall cause any Registration Statement filed pursuant to this Section 5
to remain effective and current for so long as the Holder owns any of the
Securities, of if earlier, the Holder may sell all the Securities he holds
pursuant to an exemption from registration under the Act.
5.2 General Terms.
5.2.1 Indemnification. The Company shall indemnify the
Holder(s) of the Securities to be sold pursuant to any registration statement
hereunder and each person, if any, who controls such Holders within the meaning
of Section 15 of the Securities Act and/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 incurred by the indemnified party in any action or
proceeding between the indemnitor and indemnified party or between the
indemnified party and any third party or otherwise) to which any of them may
become subject under the Securities Act, the Exchange Act or any other statute
or at common law or otherwise under the laws of foreign countries, arising from
such registration statement or based upon any untrue statement or alleged untrue
statement of a material fact contained in (i) any preliminary prospectus, the
registration statement or prospectus (as from time to time each may be amended
and supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included the Securities; or
(iii) any application or other document or written communication (collectively
called "application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, unless such statement
or omission is made in reliance upon, and in conformity with, written
information furnished to the Company with respect to the Holders expressly for
use in a preliminary prospectus, registration statement or prospectus, or
amendment or supplement thereof, or in any application, as the case may be. The
Company agrees promptly to notify the Holder of the commencement of any
litigation or
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<PAGE>
proceedings against the Company or any of its officers, directors or controlling
persons in connection with the issue and sale or resale of the Securities or in
connection with the registration statement or prospectus.
5.2.2 Exercise of Purchase Option. Nothing contained in this
Purchase Option shall be construed as requiring the Holder(s) to exercise their
Purchase Options 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 National
Association of Securities Dealers, Inc. ("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.
5.2.4 Underwriting Agreement. The Company shall enter into an
underwriting agreement with the managing underwriter(s) selected by any Holders
whose Securities are being registered pursuant to this Section 5. Such agreement
shall be reasonably satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Securities and may, at their option, require that any
or all the representations, warranties and covenants of the Company to or for
the benefit of such underwriters shall also be made to and for the benefit of
such Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters except as they
may relate to such Holders, their shares and their intended methods of
distribution.
5.2.5 Documents to be Delivered by Holder(s). Each of the
Holder(s) participating in any of the foregoing offerings shall furnish to the
Company a completed and executed questionnaire provided by the Company
requesting information customarily sought of selling securityholders.
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6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Securities. The
Exercise Price and the number of shares of Common Stock issuable upon exercise
of this Purchase Option shall be subject to adjustment from time to time as
hereinafter set forth:
6.1.1 Stock Dividends - 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 payable in shares of
Common Stock or by a split-up of shares of Common Stock or other similar event,
then, on the effective date of such stock dividend or split up, the number of
shares of Common Stock issuable on exercise of each Purchase Option 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 6.2, 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 of
such consolidation, combination or reclassification, the number of shares of
Common Stock issuable on exercise of each Purchase Option 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 Purchase Option 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 fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Purchase Option
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. If
after the date hereof any capital reorganization or reclassification of the
Common Stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation or other similar event shall be effected, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and fair provision shall be made whereby the Holders shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in this Purchase Option and in lieu of the
Securities immediately theretofore purchasable and receivable upon the exercise
of this Purchase Option, such shares of stock, securities, or assets as may be
issued or payable with respect to or in exchange for the number of Securities
immediately theretofore purchasable and receivable upon the exercise of this
Purchase Option, had such reorganization, reclassification, consolidation,
merger or sale not taken place. In such event, appropriate provision shall be
made with respect to the rights and interests of the Holders so that the
provisions hereof (including, without limitation, provisions for adjustments of
the Exercise Price and of the number of securities purchasable upon the exercise
of this Purchase Option) shall thereafter be applicable, as nearly as may be in
relation to any share of stock, securities, or assets thereafter deliverable
upon the exercise hereof. The Company shall not effect any such reorganization,
reclassification, consolidation, merger or sale unless, prior to the
consummation thereof, the successor corporation (if other than the Company)
resulting from such transaction shall assume by written instrument executed and
delivered to the Holders the obligation to deliver such shares of stock,
securities or assets.
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6.2 Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of Common Stock upon the
exercise or transfer of the Purchase Option, 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 or down 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 the Purchase Options, 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 Purchase Options 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. The Company further covenants and agrees that upon
exercise of the Warrants underlying the Shares included in this Purchase Option
and payment of the exercise prices therefor, all shares of Common Stock and
other securities issuable upon such exercises shall be duly and validly issued,
fully paid and non-assessable and not subject to preemptive rights of any
stockholder. As long as the Purchase Options shall be outstanding, the Company
shall use its best efforts to cause the Common Stock issuable upon exercise of
the Purchase Options 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 Purchase Options 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.
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 any dividend or distribution, (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 dissolution, liquidation, winding up,
consolidation, merger or reorganization of the Company 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 6.1
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event
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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 Purchase Option 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 to 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 the Purchase Option, 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 Amendments. The Company and GKN may from time to time supplement or
amend this Purchase Option without the approval of any of the Holders in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and GKN may deem necessary or desirable. All other
modifications or amendments shall require the written consent of the party
against whom enforcement of the modification or amendment is sought.
9.2 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 Purchase Option.
9.3 Entire Agreement. This Purchase Option 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.
9.4 Binding Effect. This Purchase Option 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 Purchase Option or any provisions
herein contained.
9.5 Governing Law; Submission to Jurisdiction. This Purchase Option
shall be governed by and construed and enforced in accordance with the laws 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 Purchase Option 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.
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9.6 Waiver, Etc. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Purchase Option shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option 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.
9.7 Execution in Counterparts. This Purchase Option may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
9.8 Exchange Agreement. As a condition of the Holder's receipt and
acceptance of this Purchase Option, Holder agrees that, at any time prior to the
complete exercise of this Purchase Option by Holder, if the Company and GUN
enter into an agreement ("Exchange Agreement") pursuant to which they agree that
all outstanding Purchase Options will be exchanged for securities or cash or a
combination of both, then Holder shall agree to such exchange and become a party
to the Exchange Agreement.
IN WITNESS WHEREOF, the Company has caused this Purchase
Option to be signed by its duly authorized officer as of the 18th day of June,
1997.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ S. Steven Carl
--------------------------------
S. Steven Carl, Chief Executive
Officer
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Form to be used to exercise Purchase Option:
H.E.R.C. Products Incorporated
2202 West Lone Cactus Drive, #15
Phoenix, Arizona 85027
Date:___________________,19__
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase ____ Shares of Common Stock, $.Ol par value, of
H.E.R.C. Products Incorporated and hereby makes payment of $_____________ (at
the rate of $_____________ per Share) in payment of the Exercise Price pursuant
thereto. Please issue the Common Stock as to which this Purchase Option is
exercised in accordance with the instructions given below.
or
--
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase ____ Shares of Common Stock, $.Ol par value, of
H.E.R.C. Products Incorporated by surrender of the unexercised portion of the
within Purchase Option or other security of H.E.R.C. Products Incorporated (with
a "Value" of $___________ based on a "Market Price" of $___________ ). 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 Purchase Option 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.
Please issue securities as follows: Name:
-----------------------------
Address:
--------------------------
----------------------------------
I.D.#:
----------------------------
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Form to be used to assign Purchase Option:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the
within Purchase Option):
FOR VALUE RECEIVED, _______________________________ does hereby sell,
assign and transfer unto _______________________________ the right to purchase
_______________________________ Shares of Common Stock of H.E.R.C. Products
Incorporated ("Company") evidenced by the within Purchase Option 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 Purchase Option in every particular without
alteration or enlargement or any change whatsoever.
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THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE
OR JURISDICTION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES
THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN
PROVIDED.
NOT EXERCISABLE PRIOR TO JUNE 18, 1997. VOID AFTER 5:00 P.M. EASTERN TIME, JUNE
18, 2002.
PURCHASE OPTION
For 25,000 Shares
No. 1997-PO-3 of
H.E.R.C. PRODUCTS INCORPORATED
(A Delaware Corporation)
1. Purchase Option.
THIS CERTIFIES THAT, in consideration of $16.66 duly paid by
or on behalf of Roger Gladstone ("Holder"), as registered owner of this Purchase
Option, to H.E.R.C. Products Incorporated ("Company"), Holder is entitled, at
any time or from time to time at or after June 18, 1997 ("Commencement Date"),
and at or before 5:00 p.m., Eastern Time, June 18, 2002 ("Expiration Date"), but
not thereafter, to subscribe for, purchase and receive, in whole or in part, up
to 25,000 shares ("Shares") of the Company's common stock, $.Ol par value
("Common Stock"). The Shares issuable hereunder are sometimes collectively
referred to herein as the "Securities." If the Expiration Date is a day on which
banking institutions are authorized by law to close, then this Purchase Option
may be exercised on the next succeeding day which is not such a day in
accordance with the terms herein. This Purchase Option is initially exercisable
at $1.3125 per Share purchased; provided, however, that upon the occurrence of
any of the events specified in Section 6 hereof, the rights granted by this
Purchase Option, including the exercise price for the Shares 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. This Purchase
Option is one of a number of such options issued by the Company to GKN and its
designees ("Purchase Options").
<PAGE>
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and delivered
to the Company, together with this Purchase Option and payment of the Exercise
Price for the Securities being purchased by wire transfer, certified check or
official bank check. If the subscription rights represented hereby are not
exercised at or before 5:00 p.m., Eastern time, on the Expiration Date this
Purchase Option 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 the securities purchased under this
Purchase Option shall bear a legend as follows unless such Securities have been
registered under the Securities Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Securities 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
Securities Act, or pursuant to an exemption from registration
under the Securities Act and applicable state law."
2.3 Cashless Exercise.
2.3.1 Determination of Amount. In lieu of the payment of the
Exercise Price in the manner required by Section 2.1, the Holder shall have the
right (but not the obligation) to pay the Exercise Price for the Securities
being purchased with this Purchase Option upon exercise by the surrender to the
Company of any exercisable but unexercised portion of this Purchase Option
having a "Value" (as defined below), at the close of trading on the last trading
day immediately preceding the exercise of this Purchase Option, equal to the
Exercise Price multiplied by the number of shares of Common Stock being
purchased upon exercise ("Cashless Exercise Right"). The sum of (a) the number
of shares of Common Stock being purchased upon exercise of the non-surrendered
portion of this Purchase Option pursuant to this Cashless Exercise Right and (b)
the number of shares of Common Stock underlying the portion of this Purchase
Option being surrendered, shall not in any event be greater than the total
number of shares of Common Stock purchasable upon the complete exercise of this
Purchase Option if the Exercise Price were paid in cash. The 'Value" of the
portion of the Purchase Option being surrendered shall equal the remainder
derived from subtracting (a) the Exercise Price multiplied by the number of
shares of Common Stock underlying the portion of this Purchase Option being
surrendered from (b) the Market Price of the shares of Common Stock multiplied
by the number of shares of Common Stock underlying the portion of this Purchase
Option being surrendered. As used herein, the term "Market Price" shall be
deemed to be the last reported sale price of the Common Stock at the close of
trading on the last trading day immediately preceding the exercise of this
Purchase Option, or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the immediately preceding three
trading days, in either case as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading, or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or if any such exchange on which the Common Stock is listed is not its
principal trading market, the last reported sale price as furnished by the NASD
through the Nasdaq National Market or SmallCap Market, or, if applicable, the
OTC Bulletin Board, or if the Common Stock is not listed or admitted to trading
on the Nasdaq National Market or SmallCap Market or OTC Bulletin Board or
similar organization, as determined in good faith by
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resolution of the Board of Directors of the Company, based on the best
information available to it. In addition to the above, the Holder may surrender
any other security issued by the Company, including but not limited to unit
purchase options, warrants, options and common stock in payment of the Exercise
Price, having a value, determined substantially as set forth above.
2.3.2 Mechanics of Cashless Exercise. The Cashless Exercise
Right may be exercised by the Holder on any business day on or after the
Commencement Date and not later than the Expiration Date by delivering to the
Company the Purchase Option or other security of the Company with a duly
executed exercise form attached hereto with the cashless exercise section
completed.
3. Transfer.
3.1 General Restrictions. The registered Holder of this Purchase
Option, by its acceptance hereof, agrees that it will sell, transfer or assign
or hypothecate this Purchase Option only in compliance with or 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 Purchase Option and payment of all
transfer taxes, if any, payable in connection therewith. The Company shall
immediately transfer this Purchase Option on the books of the Company and shall
execute and deliver a new Purchase Option or Purchase Options of like tenor to
the appropriate assignee(s) expressly evidencing the right to purchase the
aggregate number of Shares purchasable hereunder or such portion of such number
as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Act. This Purchase Option and the
Securities underlying this Purchase Option shall not be transferred unless and
until (i) the Company has received the opinion of counsel reasonably acceptable
to the Company that this Purchase Option or the Securities, as the case may be,
may be transferred 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
Purchase Option or Securities, as the case may be, has been filed by the Company
and declared effective by the Securities and Exchange Commission ("Commission").
4. New Purchase Options to be Issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Purchase Option may be exercised or assigned in whole or
in part. In the event of the exercise or assignment hereof in part only, the
Company shall cause to be delivered to the Holder without charge a new Purchase
Option of like tenor in the name of the Holder evidencing the right to purchase
the aggregate number of Shares as to which this Purchase Option 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
Purchase Option and of reasonably satisfactory indemnification, the Company
shall execute and deliver a new Purchase Option of like tenor and date. Any such
new Purchase Option 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.
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<PAGE>
5. Registration Rights.
5.1 Registration Requirement.
5.1.1 Obligation to Register. The Company agrees to file
within four months after the Commencement Date, a registration statement
("Registration Statement") under the Securities Act with the Commission,
registering for resale the Securities and use its best efforts to have the
Registration Statement declared effective by the six-month anniversary of the
Commencement Date.
5.1.2 Terms. The Company shall bear all fees and expenses
(including counsel fees and expenses) attendant to registering the Securities
under Section 5.1.1 hereof, filing the Registration Statement with the NASD and
listing the Securities on Nasdaq and the BSE, 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 Securities. The
Company agrees to qualify or register the Securities in such states as are
reasonably requested by the Holder(s); provided, however, that in no event shall
the Company be required to register the Securities in a state in which such
registration would cause (i) the Company to be obligated to register or license
to do business in such state, or (ii) the principal stockholders of the Company
to be obligated to escrow their shares of capital stock of the Company. The
Company shall cause any Registration Statement filed pursuant to this Section 5
to remain effective and current for so long as the Holder owns any of the
Securities, of if earlier, the Holder may sell all the Securities he holds
pursuant to an exemption from registration under the Act.
5.2 General Terms.
5.2.1 Indemnification. The Company shall indemnify the
Holder(s) of the Securities to be sold pursuant to any registration statement
hereunder and each person, if any, who controls such Holders within the meaning
of Section 15 of the Securities Act and/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 incurred by the indemnified party in any action or
proceeding between the indemnitor and indemnified party or between the
indemnified party and any third party or otherwise) to which any of them may
become subject under the Securities Act, the Exchange Act or any other statute
or at common law or otherwise under the laws of foreign countries, arising from
such registration statement or based upon any untrue statement or alleged untrue
statement of a material fact contained in (i) any preliminary prospectus, the
registration statement or prospectus (as from time to time each may be amended
and supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included the Securities; or
(iii) any application or other document or written communication (collectively
called "application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, unless such statement
or omission is made in reliance upon, and in conformity with, written
information furnished to the Company with respect to the Holders expressly for
use in a preliminary prospectus, registration statement or prospectus, or
amendment or supplement thereof, or in any application, as the case may be. The
Company agrees promptly to notify the Holder of the commencement of any
litigation or
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<PAGE>
proceedings against the Company or any of its officers, directors or controlling
persons in connection with the issue and sale or resale of the Securities or in
connection with the registration statement or prospectus.
5.2.2 Exercise of Purchase Option. Nothing contained in this
Purchase Option shall be construed as requiring the Holder(s) to exercise their
Purchase Options 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 National
Association of Securities Dealers, Inc. ("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.
5.2.4 Underwriting Agreement. The Company shall enter into an
underwriting agreement with the managing underwriter(s) selected by any Holders
whose Securities are being registered pursuant to this Section 5. Such agreement
shall be reasonably satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Securities and may, at their option, require that any
or all the representations, warranties and covenants of the Company to or for
the benefit of such underwriters shall also be made to and for the benefit of
such Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters except as they
may relate to such Holders, their shares and their intended methods of
distribution.
5.2.5 Documents to be Delivered by Holder(s). Each of the
Holder(s) participating in any of the foregoing offerings shall furnish to the
Company a completed and executed questionnaire provided by the Company
requesting information customarily sought of selling securityholders.
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6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Securities. The
Exercise Price and the number of shares of Common Stock issuable upon exercise
of this Purchase Option shall be subject to adjustment from time to time as
hereinafter set forth:
6.1.1 Stock Dividends - 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 payable in shares of
Common Stock or by a split-up of shares of Common Stock or other similar event,
then, on the effective date of such stock dividend or split up, the number of
shares of Common Stock issuable on exercise of each Purchase Option 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 6.2, 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 of
such consolidation, combination or reclassification, the number of shares of
Common Stock issuable on exercise of each Purchase Option 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 Purchase Option 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 fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Purchase Option
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. If
after the date hereof any capital reorganization or reclassification of the
Common Stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation or other similar event shall be effected, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and fair provision shall be made whereby the Holders shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in this Purchase Option and in lieu of the
Securities immediately theretofore purchasable and receivable upon the exercise
of this Purchase Option, such shares of stock, securities, or assets as may be
issued or payable with respect to or in exchange for the number of Securities
immediately theretofore purchasable and receivable upon the exercise of this
Purchase Option, had such reorganization, reclassification, consolidation,
merger or sale not taken place. In such event, appropriate provision shall be
made with respect to the rights and interests of the Holders so that the
provisions hereof (including, without limitation, provisions for adjustments of
the Exercise Price and of the number of securities purchasable upon the exercise
of this Purchase Option) shall thereafter be applicable, as nearly as may be in
relation to any share of stock, securities, or assets thereafter deliverable
upon the exercise hereof. The Company shall not effect any such reorganization,
reclassification, consolidation, merger or sale unless, prior to the
consummation thereof, the successor corporation (if other than the Company)
resulting from such transaction shall assume by written instrument executed and
delivered to the Holders the obligation to deliver such shares of stock,
securities or assets.
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6.2 Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of Common Stock upon the
exercise or transfer of the Purchase Option, 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 or down 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 the Purchase Options, 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 Purchase Options 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. The Company further covenants and agrees that upon
exercise of the Warrants underlying the Shares included in this Purchase Option
and payment of the exercise prices therefor, all shares of Common Stock and
other securities issuable upon such exercises shall be duly and validly issued,
fully paid and non-assessable and not subject to preemptive rights of any
stockholder. As long as the Purchase Options shall be outstanding, the Company
shall use its best efforts to cause the Common Stock issuable upon exercise of
the Purchase Options 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 Purchase Options 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.
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 any dividend or distribution, (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 dissolution, liquidation, winding up,
consolidation, merger or reorganization of the Company 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 6.1
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event
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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 Purchase Option 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 to 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 the Purchase Option, 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 Amendments. The Company and GKN may from time to time supplement or
amend this Purchase Option without the approval of any of the Holders in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and GKN may deem necessary or desirable. All other
modifications or amendments shall require the written consent of the party
against whom enforcement of the modification or amendment is sought.
9.2 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 Purchase Option.
9.3 Entire Agreement. This Purchase Option 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.
9.4 Binding Effect. This Purchase Option 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 Purchase Option or any provisions
herein contained.
9.5 Governing Law; Submission to Jurisdiction. This Purchase Option
shall be governed by and construed and enforced in accordance with the laws 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 Purchase Option 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.
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9.6 Waiver, Etc. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Purchase Option shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option 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.
9.7 Execution in Counterparts. This Purchase Option may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
9.8 Exchange Agreement. As a condition of the Holder's receipt and
acceptance of this Purchase Option, Holder agrees that, at any time prior to the
complete exercise of this Purchase Option by Holder, if the Company and GUN
enter into an agreement ("Exchange Agreement") pursuant to which they agree that
all outstanding Purchase Options will be exchanged for securities or cash or a
combination of both, then Holder shall agree to such exchange and become a party
to the Exchange Agreement.
IN WITNESS WHEREOF, the Company has caused this Purchase
Option to be signed by its duly authorized officer as of the 18th day of June,
1997.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ S. Steven Carl
--------------------------------
S. Steven Carl, Chief Executive
Officer
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Form to be used to exercise Purchase Option:
H.E.R.C. Products Incorporated
2202 West Lone Cactus Drive, #15
Phoenix, Arizona 85027
Date:___________________,19__
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase ____ Shares of Common Stock, $.Ol par value, of
H.E.R.C. Products Incorporated and hereby makes payment of $_____________ (at
the rate of $_____________ per Share) in payment of the Exercise Price pursuant
thereto. Please issue the Common Stock as to which this Purchase Option is
exercised in accordance with the instructions given below.
or
--
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase ____ Shares of Common Stock, $.Ol par value, of
H.E.R.C. Products Incorporated by surrender of the unexercised portion of the
within Purchase Option or other security of H.E.R.C. Products Incorporated (with
a "Value" of $___________ based on a "Market Price" of $___________ ). 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 Purchase Option 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.
Please issue securities as follows: Name:
-----------------------------
Address:
--------------------------
----------------------------------
I.D.#:
----------------------------
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Form to be used to assign Purchase Option:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the
within Purchase Option):
FOR VALUE RECEIVED, _______________________________ does hereby sell,
assign and transfer unto _______________________________ the right to purchase
_______________________________ Shares of Common Stock of H.E.R.C. Products
Incorporated ("Company") evidenced by the within Purchase Option 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 Purchase Option in every particular without
alteration or enlargement or any change whatsoever.
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THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE
OR JURISDICTION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES
THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN
PROVIDED.
NOT EXERCISABLE PRIOR TO JUNE 18, 1997. VOID AFTER 5:00 P.M. EASTERN TIME, JUNE
18, 2002.
PURCHASE OPTION
For 25,000 Shares
No. 1997-PO-4 of
H.E.R.C. PRODUCTS INCORPORATED
(A Delaware Corporation)
1. Purchase Option.
THIS CERTIFIES THAT, in consideration of $16.66 duly paid by
or on behalf of Robert Gladstone ("Holder"), as registered owner of this
Purchase Option, to H.E.R.C. Products Incorporated ("Company"), Holder is
entitled, at any time or from time to time at or after June 18, 1997
("Commencement Date"), and at or before 5:00 p.m., Eastern Time, June 18, 2002
("Expiration Date"), but not thereafter, to subscribe for, purchase and receive,
in whole or in part, up to 25,000 shares ("Shares") of the Company's common
stock, $.Ol par value ("Common Stock"). The Shares issuable hereunder are
sometimes collectively referred to herein as the "Securities." If the Expiration
Date is a day on which banking institutions are authorized by law to close, then
this Purchase Option may be exercised on the next succeeding day which is not
such a day in accordance with the terms herein. This Purchase Option is
initially exercisable at $1.3125 per Share purchased; provided, however, that
upon the occurrence of any of the events specified in Section 6 hereof, the
rights granted by this Purchase Option, including the exercise price for the
Shares 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. This Purchase Option is one of a number of such options issued
by the Company to GKN and its designees ("Purchase Options").
<PAGE>
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and delivered
to the Company, together with this Purchase Option and payment of the Exercise
Price for the Securities being purchased by wire transfer, certified check or
official bank check. If the subscription rights represented hereby are not
exercised at or before 5:00 p.m., Eastern time, on the Expiration Date this
Purchase Option 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 the securities purchased under this
Purchase Option shall bear a legend as follows unless such Securities have been
registered under the Securities Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Securities 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
Securities Act, or pursuant to an exemption from registration
under the Securities Act and applicable state law."
2.3 Cashless Exercise.
2.3.1 Determination of Amount. In lieu of the payment of the
Exercise Price in the manner required by Section 2.1, the Holder shall have the
right (but not the obligation) to pay the Exercise Price for the Securities
being purchased with this Purchase Option upon exercise by the surrender to the
Company of any exercisable but unexercised portion of this Purchase Option
having a "Value" (as defined below), at the close of trading on the last trading
day immediately preceding the exercise of this Purchase Option, equal to the
Exercise Price multiplied by the number of shares of Common Stock being
purchased upon exercise ("Cashless Exercise Right"). The sum of (a) the number
of shares of Common Stock being purchased upon exercise of the non-surrendered
portion of this Purchase Option pursuant to this Cashless Exercise Right and (b)
the number of shares of Common Stock underlying the portion of this Purchase
Option being surrendered, shall not in any event be greater than the total
number of shares of Common Stock purchasable upon the complete exercise of this
Purchase Option if the Exercise Price were paid in cash. The 'Value" of the
portion of the Purchase Option being surrendered shall equal the remainder
derived from subtracting (a) the Exercise Price multiplied by the number of
shares of Common Stock underlying the portion of this Purchase Option being
surrendered from (b) the Market Price of the shares of Common Stock multiplied
by the number of shares of Common Stock underlying the portion of this Purchase
Option being surrendered. As used herein, the term "Market Price" shall be
deemed to be the last reported sale price of the Common Stock at the close of
trading on the last trading day immediately preceding the exercise of this
Purchase Option, or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the immediately preceding three
trading days, in either case as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading, or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or if any such exchange on which the Common Stock is listed is not its
principal trading market, the last reported sale price as furnished by the NASD
through the Nasdaq National Market or SmallCap Market, or, if applicable, the
OTC Bulletin Board, or if the Common Stock is not listed or admitted to trading
on the Nasdaq National Market or SmallCap Market or OTC Bulletin Board or
similar organization, as determined in good faith by
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resolution of the Board of Directors of the Company, based on the best
information available to it. In addition to the above, the Holder may surrender
any other security issued by the Company, including but not limited to unit
purchase options, warrants, options and common stock in payment of the Exercise
Price, having a value, determined substantially as set forth above.
2.3.2 Mechanics of Cashless Exercise. The Cashless Exercise
Right may be exercised by the Holder on any business day on or after the
Commencement Date and not later than the Expiration Date by delivering to the
Company the Purchase Option or other security of the Company with a duly
executed exercise form attached hereto with the cashless exercise section
completed.
3. Transfer.
3.1 General Restrictions. The registered Holder of this Purchase
Option, by its acceptance hereof, agrees that it will sell, transfer or assign
or hypothecate this Purchase Option only in compliance with or 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 Purchase Option and payment of all
transfer taxes, if any, payable in connection therewith. The Company shall
immediately transfer this Purchase Option on the books of the Company and shall
execute and deliver a new Purchase Option or Purchase Options of like tenor to
the appropriate assignee(s) expressly evidencing the right to purchase the
aggregate number of Shares purchasable hereunder or such portion of such number
as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Act. This Purchase Option and the
Securities underlying this Purchase Option shall not be transferred unless and
until (i) the Company has received the opinion of counsel reasonably acceptable
to the Company that this Purchase Option or the Securities, as the case may be,
may be transferred 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
Purchase Option or Securities, as the case may be, has been filed by the Company
and declared effective by the Securities and Exchange Commission ("Commission").
4. New Purchase Options to be Issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Purchase Option may be exercised or assigned in whole or
in part. In the event of the exercise or assignment hereof in part only, the
Company shall cause to be delivered to the Holder without charge a new Purchase
Option of like tenor in the name of the Holder evidencing the right to purchase
the aggregate number of Shares as to which this Purchase Option 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
Purchase Option and of reasonably satisfactory indemnification, the Company
shall execute and deliver a new Purchase Option of like tenor and date. Any such
new Purchase Option 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.
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<PAGE>
5. Registration Rights.
5.1 Registration Requirement.
5.1.1 Obligation to Register. The Company agrees to file
within four months after the Commencement Date, a registration statement
("Registration Statement") under the Securities Act with the Commission,
registering for resale the Securities and use its best efforts to have the
Registration Statement declared effective by the six-month anniversary of the
Commencement Date.
5.1.2 Terms. The Company shall bear all fees and expenses
(including counsel fees and expenses) attendant to registering the Securities
under Section 5.1.1 hereof, filing the Registration Statement with the NASD and
listing the Securities on Nasdaq and the BSE, 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 Securities. The
Company agrees to qualify or register the Securities in such states as are
reasonably requested by the Holder(s); provided, however, that in no event shall
the Company be required to register the Securities in a state in which such
registration would cause (i) the Company to be obligated to register or license
to do business in such state, or (ii) the principal stockholders of the Company
to be obligated to escrow their shares of capital stock of the Company. The
Company shall cause any Registration Statement filed pursuant to this Section 5
to remain effective and current for so long as the Holder owns any of the
Securities, of if earlier, the Holder may sell all the Securities he holds
pursuant to an exemption from registration under the Act.
5.2 General Terms.
5.2.1 Indemnification. The Company shall indemnify the
Holder(s) of the Securities to be sold pursuant to any registration statement
hereunder and each person, if any, who controls such Holders within the meaning
of Section 15 of the Securities Act and/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 incurred by the indemnified party in any action or
proceeding between the indemnitor and indemnified party or between the
indemnified party and any third party or otherwise) to which any of them may
become subject under the Securities Act, the Exchange Act or any other statute
or at common law or otherwise under the laws of foreign countries, arising from
such registration statement or based upon any untrue statement or alleged untrue
statement of a material fact contained in (i) any preliminary prospectus, the
registration statement or prospectus (as from time to time each may be amended
and supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included the Securities; or
(iii) any application or other document or written communication (collectively
called "application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, unless such statement
or omission is made in reliance upon, and in conformity with, written
information furnished to the Company with respect to the Holders expressly for
use in a preliminary prospectus, registration statement or prospectus, or
amendment or supplement thereof, or in any application, as the case may be. The
Company agrees promptly to notify the Holder of the commencement of any
litigation or
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proceedings against the Company or any of its officers, directors or controlling
persons in connection with the issue and sale or resale of the Securities or in
connection with the registration statement or prospectus.
5.2.2 Exercise of Purchase Option. Nothing contained in this
Purchase Option shall be construed as requiring the Holder(s) to exercise their
Purchase Options 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 National
Association of Securities Dealers, Inc. ("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.
5.2.4 Underwriting Agreement. The Company shall enter into an
underwriting agreement with the managing underwriter(s) selected by any Holders
whose Securities are being registered pursuant to this Section 5. Such agreement
shall be reasonably satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Securities and may, at their option, require that any
or all the representations, warranties and covenants of the Company to or for
the benefit of such underwriters shall also be made to and for the benefit of
such Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters except as they
may relate to such Holders, their shares and their intended methods of
distribution.
5.2.5 Documents to be Delivered by Holder(s). Each of the
Holder(s) participating in any of the foregoing offerings shall furnish to the
Company a completed and executed questionnaire provided by the Company
requesting information customarily sought of selling securityholders.
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6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Securities. The
Exercise Price and the number of shares of Common Stock issuable upon exercise
of this Purchase Option shall be subject to adjustment from time to time as
hereinafter set forth:
6.1.1 Stock Dividends - 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 payable in shares of
Common Stock or by a split-up of shares of Common Stock or other similar event,
then, on the effective date of such stock dividend or split up, the number of
shares of Common Stock issuable on exercise of each Purchase Option 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 6.2, 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 of
such consolidation, combination or reclassification, the number of shares of
Common Stock issuable on exercise of each Purchase Option 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 Purchase Option 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 fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Purchase Option
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. If
after the date hereof any capital reorganization or reclassification of the
Common Stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation or other similar event shall be effected, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and fair provision shall be made whereby the Holders shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in this Purchase Option and in lieu of the
Securities immediately theretofore purchasable and receivable upon the exercise
of this Purchase Option, such shares of stock, securities, or assets as may be
issued or payable with respect to or in exchange for the number of Securities
immediately theretofore purchasable and receivable upon the exercise of this
Purchase Option, had such reorganization, reclassification, consolidation,
merger or sale not taken place. In such event, appropriate provision shall be
made with respect to the rights and interests of the Holders so that the
provisions hereof (including, without limitation, provisions for adjustments of
the Exercise Price and of the number of securities purchasable upon the exercise
of this Purchase Option) shall thereafter be applicable, as nearly as may be in
relation to any share of stock, securities, or assets thereafter deliverable
upon the exercise hereof. The Company shall not effect any such reorganization,
reclassification, consolidation, merger or sale unless, prior to the
consummation thereof, the successor corporation (if other than the Company)
resulting from such transaction shall assume by written instrument executed and
delivered to the Holders the obligation to deliver such shares of stock,
securities or assets.
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6.2 Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of Common Stock upon the
exercise or transfer of the Purchase Option, 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 or down 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 the Purchase Options, 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 Purchase Options 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. The Company further covenants and agrees that upon
exercise of the Warrants underlying the Shares included in this Purchase Option
and payment of the exercise prices therefor, all shares of Common Stock and
other securities issuable upon such exercises shall be duly and validly issued,
fully paid and non-assessable and not subject to preemptive rights of any
stockholder. As long as the Purchase Options shall be outstanding, the Company
shall use its best efforts to cause the Common Stock issuable upon exercise of
the Purchase Options 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 Purchase Options 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.
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 any dividend or distribution, (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 dissolution, liquidation, winding up,
consolidation, merger or reorganization of the Company 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 6.1
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event
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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 Purchase Option 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 to 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 the Purchase Option, 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 Amendments. The Company and GKN may from time to time supplement or
amend this Purchase Option without the approval of any of the Holders in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and GKN may deem necessary or desirable. All other
modifications or amendments shall require the written consent of the party
against whom enforcement of the modification or amendment is sought.
9.2 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 Purchase Option.
9.3 Entire Agreement. This Purchase Option 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.
9.4 Binding Effect. This Purchase Option 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 Purchase Option or any provisions
herein contained.
9.5 Governing Law; Submission to Jurisdiction. This Purchase Option
shall be governed by and construed and enforced in accordance with the laws 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 Purchase Option 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.
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9.6 Waiver, Etc. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Purchase Option shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option 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.
9.7 Execution in Counterparts. This Purchase Option may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
9.8 Exchange Agreement. As a condition of the Holder's receipt and
acceptance of this Purchase Option, Holder agrees that, at any time prior to the
complete exercise of this Purchase Option by Holder, if the Company and GUN
enter into an agreement ("Exchange Agreement") pursuant to which they agree that
all outstanding Purchase Options will be exchanged for securities or cash or a
combination of both, then Holder shall agree to such exchange and become a party
to the Exchange Agreement.
IN WITNESS WHEREOF, the Company has caused this Purchase
Option to be signed by its duly authorized officer as of the 18th day of June,
1997.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ S. Steven Carl
--------------------------------
S. Steven Carl, Chief Executive
Officer
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Form to be used to exercise Purchase Option:
H.E.R.C. Products Incorporated
2202 West Lone Cactus Drive, #15
Phoenix, Arizona 85027
Date:___________________,19__
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase ____ Shares of Common Stock, $.Ol par value, of
H.E.R.C. Products Incorporated and hereby makes payment of $_____________ (at
the rate of $_____________ per Share) in payment of the Exercise Price pursuant
thereto. Please issue the Common Stock as to which this Purchase Option is
exercised in accordance with the instructions given below.
or
--
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase ____ Shares of Common Stock, $.Ol par value, of
H.E.R.C. Products Incorporated by surrender of the unexercised portion of the
within Purchase Option or other security of H.E.R.C. Products Incorporated (with
a "Value" of $___________ based on a "Market Price" of $___________ ). 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 Purchase Option 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.
Please issue securities as follows: Name:
-----------------------------
Address:
--------------------------
----------------------------------
I.D.#:
----------------------------
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Form to be used to assign Purchase Option:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the
within Purchase Option):
FOR VALUE RECEIVED, _______________________________ does hereby sell,
assign and transfer unto _______________________________ the right to purchase
_______________________________ Shares of Common Stock of H.E.R.C. Products
Incorporated ("Company") evidenced by the within Purchase Option 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 Purchase Option in every particular without
alteration or enlargement or any change whatsoever.
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THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT AND APPLICABLE SECURITIES LAWS OF ANY STATE
OR JURISDICTION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES
THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN
PROVIDED.
NOT EXERCISABLE PRIOR TO JUNE 18, 1997. VOID AFTER 5:00 P.M. EASTERN TIME, JUNE
18, 2002.
PURCHASE OPTION
For 25,000 Shares
No. 1997-PO-5 of
H.E.R.C. PRODUCTS INCORPORATED
(A Delaware Corporation)
1. Purchase Option.
THIS CERTIFIES THAT, in consideration of $16.66 duly paid by
or on behalf of Lester Rosenkrantz ("Holder"), as registered owner of this
Purchase Option, to H.E.R.C. Products Incorporated ("Company"), Holder is
entitled, at any time or from time to time at or after June 18, 1997
("Commencement Date"), and at or before 5:00 p.m., Eastern Time, June 18, 2002
("Expiration Date"), but not thereafter, to subscribe for, purchase and receive,
in whole or in part, up to 25,000 shares ("Shares") of the Company's common
stock, $.Ol par value ("Common Stock"). The Shares issuable hereunder are
sometimes collectively referred to herein as the "Securities." If the Expiration
Date is a day on which banking institutions are authorized by law to close, then
this Purchase Option may be exercised on the next succeeding day which is not
such a day in accordance with the terms herein. This Purchase Option is
initially exercisable at $1.3125 per Share purchased; provided, however, that
upon the occurrence of any of the events specified in Section 6 hereof, the
rights granted by this Purchase Option, including the exercise price for the
Shares 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. This Purchase Option is one of a number of such options issued
by the Company to GKN and its designees ("Purchase Options").
<PAGE>
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and delivered
to the Company, together with this Purchase Option and payment of the Exercise
Price for the Securities being purchased by wire transfer, certified check or
official bank check. If the subscription rights represented hereby are not
exercised at or before 5:00 p.m., Eastern time, on the Expiration Date this
Purchase Option 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 the securities purchased under this
Purchase Option shall bear a legend as follows unless such Securities have been
registered under the Securities Act:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Securities 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
Securities Act, or pursuant to an exemption from registration
under the Securities Act and applicable state law."
2.3 Cashless Exercise.
2.3.1 Determination of Amount. In lieu of the payment of the
Exercise Price in the manner required by Section 2.1, the Holder shall have the
right (but not the obligation) to pay the Exercise Price for the Securities
being purchased with this Purchase Option upon exercise by the surrender to the
Company of any exercisable but unexercised portion of this Purchase Option
having a "Value" (as defined below), at the close of trading on the last trading
day immediately preceding the exercise of this Purchase Option, equal to the
Exercise Price multiplied by the number of shares of Common Stock being
purchased upon exercise ("Cashless Exercise Right"). The sum of (a) the number
of shares of Common Stock being purchased upon exercise of the non-surrendered
portion of this Purchase Option pursuant to this Cashless Exercise Right and (b)
the number of shares of Common Stock underlying the portion of this Purchase
Option being surrendered, shall not in any event be greater than the total
number of shares of Common Stock purchasable upon the complete exercise of this
Purchase Option if the Exercise Price were paid in cash. The 'Value" of the
portion of the Purchase Option being surrendered shall equal the remainder
derived from subtracting (a) the Exercise Price multiplied by the number of
shares of Common Stock underlying the portion of this Purchase Option being
surrendered from (b) the Market Price of the shares of Common Stock multiplied
by the number of shares of Common Stock underlying the portion of this Purchase
Option being surrendered. As used herein, the term "Market Price" shall be
deemed to be the last reported sale price of the Common Stock at the close of
trading on the last trading day immediately preceding the exercise of this
Purchase Option, or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the immediately preceding three
trading days, in either case as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading, or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or if any such exchange on which the Common Stock is listed is not its
principal trading market, the last reported sale price as furnished by the NASD
through the Nasdaq National Market or SmallCap Market, or, if applicable, the
OTC Bulletin Board, or if the Common Stock is not listed or admitted to trading
on the Nasdaq National Market or SmallCap Market or OTC Bulletin Board or
similar organization, as determined in good faith by
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<PAGE>
resolution of the Board of Directors of the Company, based on the best
information available to it. In addition to the above, the Holder may surrender
any other security issued by the Company, including but not limited to unit
purchase options, warrants, options and common stock in payment of the Exercise
Price, having a value, determined substantially as set forth above.
2.3.2 Mechanics of Cashless Exercise. The Cashless Exercise
Right may be exercised by the Holder on any business day on or after the
Commencement Date and not later than the Expiration Date by delivering to the
Company the Purchase Option or other security of the Company with a duly
executed exercise form attached hereto with the cashless exercise section
completed.
3. Transfer.
3.1 General Restrictions. The registered Holder of this Purchase
Option, by its acceptance hereof, agrees that it will sell, transfer or assign
or hypothecate this Purchase Option only in compliance with or 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 Purchase Option and payment of all
transfer taxes, if any, payable in connection therewith. The Company shall
immediately transfer this Purchase Option on the books of the Company and shall
execute and deliver a new Purchase Option or Purchase Options of like tenor to
the appropriate assignee(s) expressly evidencing the right to purchase the
aggregate number of Shares purchasable hereunder or such portion of such number
as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Act. This Purchase Option and the
Securities underlying this Purchase Option shall not be transferred unless and
until (i) the Company has received the opinion of counsel reasonably acceptable
to the Company that this Purchase Option or the Securities, as the case may be,
may be transferred 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
Purchase Option or Securities, as the case may be, has been filed by the Company
and declared effective by the Securities and Exchange Commission ("Commission").
4. New Purchase Options to be Issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Purchase Option may be exercised or assigned in whole or
in part. In the event of the exercise or assignment hereof in part only, the
Company shall cause to be delivered to the Holder without charge a new Purchase
Option of like tenor in the name of the Holder evidencing the right to purchase
the aggregate number of Shares as to which this Purchase Option 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
Purchase Option and of reasonably satisfactory indemnification, the Company
shall execute and deliver a new Purchase Option of like tenor and date. Any such
new Purchase Option 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.
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<PAGE>
5. Registration Rights.
5.1 Registration Requirement.
5.1.1 Obligation to Register. The Company agrees to file
within four months after the Commencement Date, a registration statement
("Registration Statement") under the Securities Act with the Commission,
registering for resale the Securities and use its best efforts to have the
Registration Statement declared effective by the six-month anniversary of the
Commencement Date.
5.1.2 Terms. The Company shall bear all fees and expenses
(including counsel fees and expenses) attendant to registering the Securities
under Section 5.1.1 hereof, filing the Registration Statement with the NASD and
listing the Securities on Nasdaq and the BSE, 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 Securities. The
Company agrees to qualify or register the Securities in such states as are
reasonably requested by the Holder(s); provided, however, that in no event shall
the Company be required to register the Securities in a state in which such
registration would cause (i) the Company to be obligated to register or license
to do business in such state, or (ii) the principal stockholders of the Company
to be obligated to escrow their shares of capital stock of the Company. The
Company shall cause any Registration Statement filed pursuant to this Section 5
to remain effective and current for so long as the Holder owns any of the
Securities, of if earlier, the Holder may sell all the Securities he holds
pursuant to an exemption from registration under the Act.
5.2 General Terms.
5.2.1 Indemnification. The Company shall indemnify the
Holder(s) of the Securities to be sold pursuant to any registration statement
hereunder and each person, if any, who controls such Holders within the meaning
of Section 15 of the Securities Act and/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 incurred by the indemnified party in any action or
proceeding between the indemnitor and indemnified party or between the
indemnified party and any third party or otherwise) to which any of them may
become subject under the Securities Act, the Exchange Act or any other statute
or at common law or otherwise under the laws of foreign countries, arising from
such registration statement or based upon any untrue statement or alleged untrue
statement of a material fact contained in (i) any preliminary prospectus, the
registration statement or prospectus (as from time to time each may be amended
and supplemented); (ii) in any post-effective amendment or amendments or any new
registration statement and prospectus in which is included the Securities; or
(iii) any application or other document or written communication (collectively
called "application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, unless such statement
or omission is made in reliance upon, and in conformity with, written
information furnished to the Company with respect to the Holders expressly for
use in a preliminary prospectus, registration statement or prospectus, or
amendment or supplement thereof, or in any application, as the case may be. The
Company agrees promptly to notify the Holder of the commencement of any
litigation or
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<PAGE>
proceedings against the Company or any of its officers, directors or controlling
persons in connection with the issue and sale or resale of the Securities or in
connection with the registration statement or prospectus.
5.2.2 Exercise of Purchase Option. Nothing contained in this
Purchase Option shall be construed as requiring the Holder(s) to exercise their
Purchase Options 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 National
Association of Securities Dealers, Inc. ("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.
5.2.4 Underwriting Agreement. The Company shall enter into an
underwriting agreement with the managing underwriter(s) selected by any Holders
whose Securities are being registered pursuant to this Section 5. Such agreement
shall be reasonably satisfactory in form and substance to the Company, each
Holder and such managing underwriters, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Securities and may, at their option, require that any
or all the representations, warranties and covenants of the Company to or for
the benefit of such underwriters shall also be made to and for the benefit of
such Holders. Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters except as they
may relate to such Holders, their shares and their intended methods of
distribution.
5.2.5 Documents to be Delivered by Holder(s). Each of the
Holder(s) participating in any of the foregoing offerings shall furnish to the
Company a completed and executed questionnaire provided by the Company
requesting information customarily sought of selling securityholders.
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<PAGE>
6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Securities. The
Exercise Price and the number of shares of Common Stock issuable upon exercise
of this Purchase Option shall be subject to adjustment from time to time as
hereinafter set forth:
6.1.1 Stock Dividends - 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 payable in shares of
Common Stock or by a split-up of shares of Common Stock or other similar event,
then, on the effective date of such stock dividend or split up, the number of
shares of Common Stock issuable on exercise of each Purchase Option 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 6.2, 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 of
such consolidation, combination or reclassification, the number of shares of
Common Stock issuable on exercise of each Purchase Option 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 Purchase Option 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 fraction (x) the numerator of which shall be the number of
shares of Common Stock purchasable upon the exercise of this Purchase Option
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. If
after the date hereof any capital reorganization or reclassification of the
Common Stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation or other similar event shall be effected, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and fair provision shall be made whereby the Holders shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in this Purchase Option and in lieu of the
Securities immediately theretofore purchasable and receivable upon the exercise
of this Purchase Option, such shares of stock, securities, or assets as may be
issued or payable with respect to or in exchange for the number of Securities
immediately theretofore purchasable and receivable upon the exercise of this
Purchase Option, had such reorganization, reclassification, consolidation,
merger or sale not taken place. In such event, appropriate provision shall be
made with respect to the rights and interests of the Holders so that the
provisions hereof (including, without limitation, provisions for adjustments of
the Exercise Price and of the number of securities purchasable upon the exercise
of this Purchase Option) shall thereafter be applicable, as nearly as may be in
relation to any share of stock, securities, or assets thereafter deliverable
upon the exercise hereof. The Company shall not effect any such reorganization,
reclassification, consolidation, merger or sale unless, prior to the
consummation thereof, the successor corporation (if other than the Company)
resulting from such transaction shall assume by written instrument executed and
delivered to the Holders the obligation to deliver such shares of stock,
securities or assets.
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6.2 Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of Common Stock upon the
exercise or transfer of the Purchase Option, 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 or down 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 the Purchase Options, 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 Purchase Options 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. The Company further covenants and agrees that upon
exercise of the Warrants underlying the Shares included in this Purchase Option
and payment of the exercise prices therefor, all shares of Common Stock and
other securities issuable upon such exercises shall be duly and validly issued,
fully paid and non-assessable and not subject to preemptive rights of any
stockholder. As long as the Purchase Options shall be outstanding, the Company
shall use its best efforts to cause the Common Stock issuable upon exercise of
the Purchase Options 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 Purchase Options 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.
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 any dividend or distribution, (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 dissolution, liquidation, winding up,
consolidation, merger or reorganization of the Company 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 6.1
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event
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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 Purchase Option 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 to 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 the Purchase Option, 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 Amendments. The Company and GKN may from time to time supplement or
amend this Purchase Option without the approval of any of the Holders in order
to cure any ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and GKN may deem necessary or desirable. All other
modifications or amendments shall require the written consent of the party
against whom enforcement of the modification or amendment is sought.
9.2 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 Purchase Option.
9.3 Entire Agreement. This Purchase Option 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.
9.4 Binding Effect. This Purchase Option 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 Purchase Option or any provisions
herein contained.
9.5 Governing Law; Submission to Jurisdiction. This Purchase Option
shall be governed by and construed and enforced in accordance with the laws 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 Purchase Option 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.
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9.6 Waiver, Etc. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Purchase Option shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option 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.
9.7 Execution in Counterparts. This Purchase Option may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
9.8 Exchange Agreement. As a condition of the Holder's receipt and
acceptance of this Purchase Option, Holder agrees that, at any time prior to the
complete exercise of this Purchase Option by Holder, if the Company and GUN
enter into an agreement ("Exchange Agreement") pursuant to which they agree that
all outstanding Purchase Options will be exchanged for securities or cash or a
combination of both, then Holder shall agree to such exchange and become a party
to the Exchange Agreement.
IN WITNESS WHEREOF, the Company has caused this Purchase
Option to be signed by its duly authorized officer as of the 18th day of June,
1997.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ S. Steven Carl
--------------------------------
S. Steven Carl, Chief Executive
Officer
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Form to be used to exercise Purchase Option:
H.E.R.C. Products Incorporated
2202 West Lone Cactus Drive, #15
Phoenix, Arizona 85027
Date:___________________,19__
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase ____ Shares of Common Stock, $.Ol par value, of
H.E.R.C. Products Incorporated and hereby makes payment of $_____________ (at
the rate of $_____________ per Share) in payment of the Exercise Price pursuant
thereto. Please issue the Common Stock as to which this Purchase Option is
exercised in accordance with the instructions given below.
or
--
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase ____ Shares of Common Stock, $.Ol par value, of
H.E.R.C. Products Incorporated by surrender of the unexercised portion of the
within Purchase Option or other security of H.E.R.C. Products Incorporated (with
a "Value" of $___________ based on a "Market Price" of $___________ ). 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 Purchase Option 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.
Please issue securities as follows: Name:
-----------------------------
Address:
--------------------------
----------------------------------
I.D.#:
----------------------------
10
<PAGE>
Form to be used to assign Purchase Option:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the
within Purchase Option):
FOR VALUE RECEIVED, _______________________________ does hereby sell,
assign and transfer unto _______________________________ the right to purchase
_______________________________ Shares of Common Stock of H.E.R.C. Products
Incorporated ("Company") evidenced by the within Purchase Option 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 Purchase Option in every particular without
alteration or enlargement or any change whatsoever.
11
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
Amendment No. 2 to Employment Agreement, effective as of March
28, 1997, by and between Gary S. Glatter ("Glatter") and H.E.R.C. Products
Incorporated ("Corporation").
WHEREAS, Glatter and the Corporation entered into an
Employment Agreement dated as of January 1, 1994, as amended ("Employment
Agreement"); and
WHEREAS, Glatter and the Corporation wish to further amend the
Employment Agreement to provide for the terms of the severance of Glatter's
employment.
NOW, THEREFORE, in consideration of the covenants set forth
herein, it is agreed:
1. Through June 30, 1997, all the terms of the Employment
Agreement, prior to this Amendment, shall remain in full force and effect.
2. As compensation after June 30, 1997, in substitution of the
provisions of Sections 3.1 (Base Salary) and 3.2 (Bonus) of the Employment
Agreement, the Corporation will pay Glatter the following amounts:
(a) On the first day of each month, from and
including July 1, 1997 through December 31, 1997, the Corporation will pay
Glatter $7,500; and
(b) On the first day of each month, from and
including January 1, 1998 through December 31, 1998, the Corporation will pay
Glatter $5,000.
3. In substitution of the provisions of Section 3.3 (Benefits)
after June 30, 1997, the Corporation will provide Glatter with his current
family medical and dental insurance coverage in the manner provided under the
COBRA rules and regulations after June 30, 1997 through December 31, 1998.
4. Section 3.5 of the Employment Agreement shall remain
operative through October 31, 1997. In addition, Glatter shall have the right to
purchase on or before November 1, 1997 from the Corporation the 1995 WindStar
Van which he is currently using and all its accessories at the lesser of book
value on the books of the Corporation or dealer wholesale "blue book" value on
the date of purchase.
5. Section 4 is amended as provided in the separate Option
Agreement, as amended.
6. Section 5 is amended to provide that the term shall
continue through June 30, 1997.
7. Section 8 is amended to provide that Glatter shall be
deemed to have resigned as a director and officer of the Corporation and any
subsidiary or affiliate of the Corporation on June 30, 1997.
<PAGE>
8. Sections 1, 2, 3.4, 3.6, 6 and 7 of the Employment
Agreement shall cease to be operative on and after July 1, 1997. Except as
modified in this Amendment, all the other terms of the Employment Agreement,
including, but not limited to, Sections 3.8 and 9 thereof, shall remain in full
force and effect after June 30, 1997.
9. Terms not otherwise defined in this Amendment shall have
the meanings assigned to them in the Option Agreement.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ S. Steven Carl
---------------------------------------
S. Steven Carl, Chief Executive Officer
/s/ Gary S. Glatter
------------------------------------------
GARY S. GLATTER
2
Amendment No. 3 to Employment Agreement
Reference is made to an employment agreement dated January 1, 1994, as amended
by an Amendment to Employment Agreement dated as of September 23, 1994, and as
further amended by Amendment No. 2 to Employment Agreement effective as of March
28, 1997 ("Second Amendment") between HERC Products Incoporated ("Company") and
Gary S. Glatter ("Glatter").
Pursuant to Paragraph 4 of the Second Amendment, Glatter has agreed to purchase
the 1995 Windstar Van ("Van") and the Company has agreed to sell the Van to
Glatter on the following terms:
1. The purchase price of the Van shall be $10,685.80 ("Purchase Price"),
the book value of the Van on the books of the Company as of October 31,
1997.
2. The Purchase Price shall be paid by way of modifying the Company's
obligations to Glatter, so that the two last $5,000.00 payments owed by
the Company to Glatter pursuant to Paragraph 2(b) of the Second
Amendment are hereby waived, and on October 1, 1998 the Company shall
make the last payment ot Glatter in the amount of $3,461.86. This last
payment reflects interest on the Purchase Price at the rate of 9% per
annum for the period November 1, 1997 - September 30, 1998.
3. Except as modified by this Amendment, all other terms of the Employment
Agreement, as previously amended, shall remain in full force and
effect.
DATED this 31st day of October, 1997
H.E.R.C. Products Incorporation
By: /s/ Kristi A. Cordray
-------------------------------
KRISTI A. CORDRAY
Vice President of Administration
/s/ Gary S. Glatter
- -------------------------------
GARY S. GLATTER
LOAN AGREEMENT
H.E.R.C. Products Incorporated, a Delaware corporation, with its principal
office at 2202 W. Lone Cactus Drive, #15, Phoenix, Arizona 85027 (hereinafter
referred to as ("Borrower"), and InterEquity Capital Partners, L.P., a Delaware
limited partnership, having an office at 220 Fifth Avenue, New York, N.Y. 10001
(hereinafter referred to as "Lender"), hereby enter into this Loan Agreement
("Agreement") dated as of September 15, 1997.
SECTION 1. CERTAIN DEFINITIONS
1.1 The following terms used in this Agreement will have the meanings
given below:
"Affidavit of Confession of Judgment" Defined in Section 7.1(c).
"Claims and Expenses" Any and all claims, lawsuits of any
kind, judgments, losses, damages,
liabilities, penalties, costs and
reasonable expenses arising out of
transactions contemplated under this
Agreement or under the Collateral
Documents, including all "Legal Costs
and Expenses" (defined below) incurred
in connection therewith.
Collateral Documents The Notes, the Security Agreement, the
Guaranty, the Affidavit of Confession
of Judgment, the Patent and Trademark
Assignment, the Subsidiaries' Security
Agreement and the applicable UCC
Statements.
EBITDA Earnings before interest, taxes,
depreciation and amortization.
"Event of Default" or default Defined in Section 13.1.
The "First Note" Defined in Section 2.2.
The "First Loan" Defined in Section 2.1.
First Loan Amortization Commencement March 1, 1998.
Date
The "First Loan Maturity Date" August 30, 2002.
<PAGE>
Loan covenants
10.1 Prompt payment of interest - yes.
10.2.1 Net worth of $2.6 - yes but will be
under at year end
m. EBIDITA of ($1.4 million) for you - No
Son - 2.2
Dep & Amortization (.3)
-----
$1.9
n. Revenues of $6 million - $1 million short
<PAGE>
Fixed Charge Coverage Net after tax income plus depreciation
and amortization divided by all
payments of principal on any
indebtedness and all cash expenditures
for capital expenses including
capitalized leases.
The "Guaranty" The Guaranty by the Subsidiaries of
the Notes.
Interest Coverage EBITDA divided by interest charges on
all indebtedness including the
outstanding Notes.
"Legal Costs and Expenses" Any and all reasonable attorneys' fees
and disbursements, court costs and
other litigation expenses.
The "Loans" The First Loan and the Second Loans
collectively.
The "Notes" The First Note and the Second Note
collectively.
The Patent and Trademark Assignment Defined in Section 7.1(b).
"Prepayment Fee" Defined in Section 2.3(c)(ii).
The "Second" Loan" Defined in Section 3.1.
Second Loan Amortization Commencement Defined in Section 3.2A(i)
Date
"Second Loan Funding Date" Defined in Section 3.2A
"The Second Loan Maturity Date" Defined in Section 3.2A(ii)
The "Second Note" Defined in Section 3.2.
Subsidiaries H.E.R.C. Consumer Products, Inc. and
CCT Corporation which corporations are
wholly owned by Borrower.
Subsidiaries' Security Agreement Security Agreement by the Subsidiaries
collateralizing the Guaranty.
2
<PAGE>
SECTION 2. THE FIRST LOAN
2.1 Simultaneously with the execution of this Agreement, Lender is
making the loan (the "First Loan") to Borrower in the principal amount of Two
Hundred Fifty Thousand US Dollars (US $250,000.00);
2.2 The First Loan is evidenced by a promissory note ("the First Note")
of the Borrower in favor of Lender, which is being executed by Borrower and
delivered to Lender contemporaneously herewith. A copy of the First Note is
attached to this Agreement as Exhibit 1.
2.3 The First Note is payable in accordance with its provisions which
include, inter alia;
(a) interest at the rate of 14% per annum on the unpaid balance of the
First Note payable in arrears on October 1, 1997 and on the first day
of each of the next five successive months thereafter;
(b) commencing April 1, 1998, and continuing successively on the first
day of each of the next 52 months thereafter, payments of $6,266.17,
with a 54th and final payment of $6,266.14 plus any other unpaid
principal and interest being due and payable on the First Loan Maturity
Date, each such payment reflecting interest at the annual rate of 14%
(computed from the First Loan Amortization Commencement Date) and
amortization of principal (based on a 54-month self-liquidating
schedule);
(c) the right of Borrower, exercisable at any time prior to the First
Loan Maturity Date to prepay all or part (in multiples of $100,000 or
covering the unpaid balance of the Note) of the unpaid principal amount
and accrued interest thereon of the First Note upon Borrower giving,
and Lender receiving:
(i) not less than 30 days' prior written notice of Borrower's
intention to prepay; and
(ii) if the prepayment pursuant to such notice is received
after the expiration of two years from the date of the First Note, an
additional amount (the "Prepayment Fee") equal to a percentage of the
then unpaid principal amount (as of the date immediately prior to such
prepayment) of the First Note, such percentage to equal 5% for a
prepayment received by Lender during the 12-month period beginning upon
the expiration of two years from the date of the First Note and
declining to 4% for a prepayment received by the Lender during the next
twelve month period and to 3% for a prepayment received by Lender after
the expiration of four years from the date of the First Note.
3
<PAGE>
(d) The principal of the First Note and accrued interest thereon shall
become immediately due and payable upon the occurrence of an Event of
Default.
SECTION 3. THE SECOND LOAN
3.1 Lender shall make an additional loan (the "Second Loan") to
borrower if drawn down by Borrower in its discretion by December 31, 1997 upon
the satisfaction of the conditions set forth in Section 3.3.
3.2 A. The Second Loan shall be evidenced by a promissory note (the
"Second Note") dated the day it is drawn down (the "Second Loan Funding Date")
and shall be payable in accordance with its provision which shall include, inter
alia:
(i) a payment of interest at the rate of 14% per annum on the
unpaid balance of the Second Note payable in arrears on the
first day of the month immediately following the Second Loan
Funding Date, and on the first day of each of the next five
(5) successive months thereafter (the scheduled date on which
the last payment of interest is due as hereinabove provided
being referred to herein as the "Second Loan Amortization
Commencement Date");
(ii) commencing on the first day of the month following the
month in which the Second Loan Amortization Commencement Date
occurs, and continuing successively on the first day of each
of the next 52 months thereafter, payments of $6,266.17 with a
54th and final payment of $6,266.14 plus any other unpaid
principal and interest payable on the expiration of 54 months
after the Second Loan Amortization Commencement Date, each
such payment representing interest at the rate of 14% per
annum computed from the Second Loan Amortization Commencement
Date and amortization of principal (based on a 54-month self
liquidating schedule);
(iii) the right of Borrower to prepay the Second Note on the
same terms as permitted under the First Note, including the
payment of a Prepayment Fee in the same amount as would be
payable under the First Note if a prepayment of that Note were
made at the same time as the prepayment is sought to be made
of the Second Note.
B. Except as indicated above, the Second Note, which shall be
substantially in the form attached hereto as Exhibit 2, shall contain the same
provisions as contained in the First Note.
4
<PAGE>
3.3 The obligation of Lender to make the Second Loan shall be
conditioned on the satisfaction of the following conditions as of the Second
Note Funding Date.
(a) Borrower shall be in compliance with all of its covenants
under this Agreement and under the Collateral Loan Documents,
and no Event of Default hereunder or thereunder shall have
occurred and be then continuing, or such noncompliance or
Event of Default shall have been waived, in writing, by the
Lender hereunder,
b) Borrower shall have recorded, on a cumulative basis,
revenues and EBITDA for the period (the "Period") from June 1,
1997 to the last day of the month immediately preceding the
month in which the Second Loan Funding Date occurs in amounts
at least equal to the amounts reflected for such items for the
Period on Borrower's Consolidated Budget annexed hereto as
Exhibit 3;
(c) All of the warranties and representations of Borrower set
forth herein shall be true and correct as of the Second Loan
Funding Date to the same effect as if made as of such date;
(d) Subsequent to June 1, 1997, the Borrower shall have
obtained binding commitments from its customers (with respect
to services not theretofore contracted for) which by their
terms will provide Borrower with $800,000 in revenue.
(e) Borrower's President shall have delivered to Lender a
certificate certifying to the fulfillment of the conditions
set forth in (a), (b), (c) and (d) above and in (g) and (i)
below;
(f) Lender shall have received an opinion of Borrower's
attorneys, addressed to the Lender substantially similar in
content to the opinion of Borrower's attorneys given in
connection with the First Loan (a copy of which is attached as
Exhibit 10 to this Agreement) and otherwise satisfactory in
form, scope and substance to the Lender and its attorneys;
(g) There shall be full compliance with the rules,
regulations, procedures and requirements of the U.S. Small
Business Administration as they relate to the Small Business
Investment Company program and this transaction;
(h) Lender shall have received all documents required by this
Agreement;
(i) There shall not have been a material adverse change in the
condition (financial or otherwise) from that contemplated in
this Agreement (whether under Section 9, Section 10.2, Section
11 or otherwise), or in the business or in the prospects of
Borrower or either of the Subsidiaries, it being understood
that losses consistent with the operating projections
reflected on Borrower's Consolidated
5
<PAGE>
Budget attached as Exhibit 3 shall not for this reason alone
be regarded as a materially adverse change;
(j) Borrower shall have delivered to Lender a certificate
signed by its President setting forth in detail the specific
purposes for which the proceeds of the Second Loan will be
applied, it being the understanding that the proceeds will not
be used for equipment purchases and upgrades of existing
equipment and fulfilling new contracts, unless at least 25% of
the internal cash balance of Borrower as at the Second Loan
Funding Date (not including the proceeds of the Second Loan
and the proceeds from the receivable financing referred to in
Section 11(a)) has been allocated for use for such purposes.
(k) Lender at its request shall have received a letter from
Paul Pollock, an associate of Lender, or such other employee
of Lender as Lender shall direct, which letter shall not be
unreasonably withheld, that based solely on a review of
Borrower's consolidated financial statements delivered to
Lender and discussions with the Chief Financial Officer of
Borrower and Borrower's independent outside accountants,
nothing has come to his attention that would indicate that as
of a date within five days prior to the Second Loan Funding
Date Borrower is or is likely to be in default of its
financial representations and covenants contained in Sections
9 and 10.2 upon the consummation of the Second Loan.
(l) Lender shall have received from Borrower an Affidavit of
Confession of Judgment relating to certain defaults of
Borrower of the Second Loan, in substantially the same form as
Exhibit 7 referred to in Section 7.1(c) herein.
3.4 Interest Limitation. Notwithstanding any provision in this
Agreement or the First or Second Note to the contrary, in no event shall the
interest rate applicable to the Loans exceed that permitted by the laws or
governmental regulations applicable to the Lender that limit rates of interest
that may be charged or collected by the Lender. If any payment hereunder or
under the First or Second Note shall be found to constitute a payment of
interest in excess of that permitted under the laws or governmental regulations
applicable to the Lender that limit rates of interest that may be charged or
collected by the Lender, then the amount of such excess payment shall be
refunded to the Borrower.
6
<PAGE>
SECTION 4. PROCESSING FEE
4.1 The Processing Fee payable by Borrower to Lender is $15,000, and
has been paid as follows:
o $12,500 has heretofore been paid to Lender.
o The final $2,500 is being paid by Borrower to Lender
simultaneously herewith.
SECTION 5. WARRANTS
5.1 Simultaneously with the Closing hereunder Borrower has delivered to
Lender two Warrants, Warrant A and Wan-ant B, each to purchase 62,500 shares of
Borrower's Common Stock, which Warrants are alike in all respects except that
the exercise price for Warrant A is $1.18 while the exercise price of the Second
Warrant is $1.475. The exercise price of both Warrants, and the number of shares
covered thereby. are subject to adjustment as set forth in the Wan-ants copies
of which are attached hereto as Exhibits 4 and 5.
5.2 At the closing of the Second Loan Borrower will deliver to Lender
two additional Warrants each providing for the purchase of 62,500 shares of
Borrower's Common Stock. One of these Warrants shall provide for the same
exercise price as contained in Warrant A, and the other shall have the same
exercise price as contained in Warrant B. Except for their dates of issuance the
Wan-ants to be issued at the Second Loan Funding Date shall in all respects be
the same as Warrants A and B, respectively, including their dates of expiration.
5.3 If, upon the expiration of two years from the date hereof, the
outstanding Loans have not been prepaid in full by Borrower, Borrower shall
deliver to Lender additional Warrants identical to the Warrants that were
heretofore issued to Lender thereby doubling the number of Warrants that will
have been issued to Lender hereunder.
7
<PAGE>
SECTION 6. USE OF PROCEEDS
A. The proceeds of the Loans will be used by the Borrower to purchase
pipe cleaning equipment to secure and fulfill new industrial contracts and to
insure its ability to work at multiple locations simultaneously and to upgrade
existing equipment and provide working capital for fulfilling new contracts and
for costs and expenses of Borrower relating to the transactions hereunder.
B. Borrower shall not use the proceeds of either of the Loans for any
purpose contrary to the purposes contemplated by the Small Business Investment
Act of 1958, as amended, including any subsequent amendments, or for any purpose
that may be in conflict with any regulations issued by the U. S. Small Business
Administration as they relate to the Small Business Investment Company program.
Such prohibited uses include:
(i) personal use by shareholders, officers and employees of
Borrower or the Subsidiaries;
(ii) use for any relending or reinvesting purposes, if the
primary business activity of such person involves, directly or
indirectly, providing funds to others, the purchase of debt
obligations, factoring, or long term leasing of equipment with
no provision for maintenance or repair;
(iii) use for purchasing any stock in or providing capital to
any small business investment company;
(iv) use for making any real estate purchases if a Borrower or
a Subsidiary as the case may be, is classified under Major
Group 65 of the Standard Industrial Classification Manual
unless such transaction would otherwise be exempt by virtue of
Section 901(c) of the Small Business Administration
Regulations pertaining to Small Business
Investment Companies,
(v) use for purposes contrary to the public interest,
including but not limited to activities which are in violation
of law, or inconsistent with free competitive enterprise; or
(vi) use for foreign investment and use outside the United
States except as may be permitted under Section 901 (e) of the
Small Business Administration Regulations pertaining to Small
Business Investment Companies.
8
<PAGE>
SECTION 7. COLLATERAL
7.1 The Loans are secured by the following documents, which are being
executed and delivered simultaneously with this Agreement:
(a) a security agreement from Borrower in substantially the form
attached hereto as Exhibit 6 granting Lender the security interests set
forth therein (the "Security Agreement");
(b) a collateral assignment of all of Borrower's patents and trademarks
in form appropriate for recording and satisfactory to Lender's Counsel
(the "Patent and Trademarks Assignment");
(c) an Affidavit of Confession of Judgment against, and executed by,
Borrower in favor of Lender (in the form attached hereto as Exhibit 7);
(d) UCC-I Financing Statements granting Lender a security interest in
property of Borrower and the Subsidiaries in form and content
satisfactory to Lender;
(e) a guaranty of the Notes by the Subsidiaries in substantially the
form annexed hereto as Exhibit 8 (the "Guaranty"); and
(f) a Security Agreement from the Subsidiaries, in substantially the
form annexed hereto as Exhibit 9 collateralizing their guaranty (the
"Subsidiaries' Security Agreement").
7.2 It is acknowledged and agreed by Lender that Borrower will seek to
secure a receivable facility in an aggregate amount of up to $1.5 million from a
third party ("Third Party"), pursuant to which Borrower shall sell certain or
all of its receivables to Third Party. It is further agreed that Borrower shall
be entitled to sell such receivables to Third Party and Lender's security
interest in Borrower's unsold receivables and inventory, to the extent covered
by the security interest to be given to Third Party ("Third party Security
Interest"), shall be subordinate to such Third Party Security Interest. Further,
Lender hereby agrees to enter into such intercreditor agreement as may be
reasonably requested by Third Party consistent with the provisions herein.
SECTION 8. CLOSING DOCUMENTS
8.1 Simultaneously with the execution and delivery of this Agreement,
the First Loan is being funded and Borrower is delivering to Lender the
following "Collateral Documents", duly executed and (where required) witnessed
or notarized:
(a) the First Note;
(b) the documents set forth in Section 7.1;
9
<PAGE>
(c) Secretary's Certificate of Borrower as to resolutions of its Board
of Directors authorizing (i) the borrowing hereunder and (ii) the
execution and delivery of this Agreement and the transactions
contemplated hereby and thereby;
(d) Opinion Letter of Attorneys for Borrower (in form and content
attached hereto as Exhibit 10).
8.2 Simultaneously with the funding of the Second Loan, Borrower shall
deliver or cause to be delivered to Lender, duly executed and (where required)
witnessed or notarized, closing documents substantially similar to the First
Loan Closing Documents.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
9.1 To induce Lender to make the Loan hereunder, the Borrower
represents, warrants and agrees that;
(a) Borrower and each Subsidiary validly exists and is in good standing
under the laws of their respective states of incorporation and is
qualified to do business in each state where the ownership of property
or the nature of the business conducted requires such qualification.
(b) Borrower has the requisite corporate authority and power to enter
into this Agreement, to borrow money as contemplated hereby, to issue
the Notes and Warrants described herein, and to execute and deliver
each of those documents required and described in this Agreement.
c) Borrower's Form 10-KSB for the year ended on December 31, 1996 and
its Forms 1O-QSB for the quarters ending on March 31, 1997 and June 30,
1997 are true and correct in all material respects and the financial
statements contained therein present fairly the financial position of
Borrower and its Subsidiaries on a consolidated basis as of the dates
of their respective balance sheets included therein and the results of
their operations for the applicable periods then ended.
(d) All representations made by Borrower to Lender in this Agreement or
in any Collateral Document are true and correct in all material
respects as of this date.
(e) Neither Borrower nor any Subsidiary is a party to, or threatened
by, any suits, actions, claims, or investigations by any governmental
body or legal, administrative or arbitration proceeding which may
result, either singly or in the aggregate, in any material adverse
change in the business, property or assets of the Borrower or any
Subsidiary.
(f) There are no outstanding orders, judgments, writs, injunctions or
decrees of any court, governmental agency, or arbitration tribunal
which may result, either singly or in the
10
<PAGE>
aggregate, in any material adverse change in the business, property or
assets of Borrower or any Subsidiary.
(g) Neither Borrower nor any Subsidiary is a party to, or bound by, any
contract or instrument which would be in breach as a result of any of
the Loans covered by this Agreement.
(h) Except to the extent indicated below, neither Borrower nor any
Subsidiary is in breach of, in default under, or in violation of, any
applicable law, decree, order, rule or regulation, or any indenture,
contract, agreement, deed, lease, loan agreement, commitment, bond,
note, deed of trust, restrictive covenant, license, instrument or
obligation to which it is a party or by which it is bound, or to which
any of its assets is subject, in each case which breach, default or
violation would have a material adverse effect on Borrower and the
Subsidiaries taken as a whole, and the execution, delivery and
performance of this Agreement and the Collateral Documents will not
constitute any such breach, default or violation, or require consent or
approval of any court, governmental agency, or body, except as may be
expressly provided herein or shall have been obtained. Borrower and its
Subsidiaries are currently delinquent in the payment of obligations in
an amount less than $500,000 in the aggregate. For purposes of this
subparagraph an obligation shall be deemed past due and delinquent if
it has not been paid when due in accordance with the understanding of
the parties to such transaction or, if there is no such understanding,
has not been paid within thirty (30) days after the date such
obligation was incurred. It is expected that the $500,000 maximum
delinquent amount will be reduced by $100,000 per month until
extinguished. Consequently, when this representation and warranty is
repeated as a condition to the making of the Second Loan, the $500,000
amount shall be deemed reduced to the amount determined by taking into
account the reductions as set forth in the preceding sentence.
(i) There has not been a material adverse change in the condition
(financial or otherwise) of the Company or the Subsidiaries from that
shown in the Company's financial statements included in its Form 10-QSB
for the quarter ending on June 30, 1997, it being understood that
losses consistent with the operating projections reflected in
Borrower's Consolidated Budget attached as Exhibit 3 shall not for this
reason alone be regarded as a materially adverse change.
(j) Borrower is a small business concern, as defined under the Small
Business investment Act and Regulations, in accordance with SBA Form
480 thereunder and accordingly is entitled to receive the proceeds of
this Loan.
(k) There are no liens, security interests or encumbrances of any kind
on any of the assets of Borrower or any Subsidiary which are intended
to secure the Notes or the Guaranty other than immaterial liens, and
Lender shall upon the filing of UCC statements as appropriate and the
recording of the Patent and Trademark Assignment have a first perfected
security interest in all such assets, except for a prior security
interest granted or to be granted by Borrower of the type permitted
under Section 11 (a) and the security interest given to bonding
institutions to secure Borrower's performance under outstanding
municipal contracts.
11
<PAGE>
(l) Mr. S. Steven Carl's employment agreement with the Borrower has
been amended effective on the date hereof to eliminate any incentive
bonus based on the revenues of CCT Corporation.
(m) Prior to the date hereof, S. Steven Carl and Shelby Carl and his
wife, have made equity investments in Borrower and/or the Subsidiaries
in an aggregate amount of not less than $1,300,000.
n) There has not since December 31, 1996 been any material change in
the ownership or control of Borrower or in the corporate structure or
business of Borrower or any of the Subsidiaries except as reflected in
Borrower's Forms 10-QSB referred to in Section 9.1(c) and its Proxy
Statement dated July 8, 1997 (the "Proxy Statement").
9.2 The representations, warranties and agreements in Section 9.1 apply
to each Loan and shall be deemed to have been made as of the Second Loan Funding
Date by the Borrower to induce Lender to fund the Second Loan.
SECTION 10. CERTAIN AFFIRMATIVE COVENANTS
10.1 The covenants and agreements in this Section 10 apply to each
Loan.
10.2 While either Note is outstanding, the Borrower will do and comply
with the following:
(a) Borrower will promptly make all payments of the principal and
interest on each Note when due;
(b) Borrower will comply with the terms and conditions in this
Agreement and in those contained in each Collateral Document;
(c) Borrower will keep accurate and complete books and records and
maintain them at its principal office set forth in the first sentence
of the Agreement.
(d) Borrower will furnish to Lender:
(i) within ninety (90) days after the end of each fiscal year
consolidated and consolidating balance sheets of Borrower and
consolidated and consolidating income statements of Borrower
showing the financial condition as of the close of such fiscal
year and the results of its operations for such fiscal year
and consolidated and consolidating statements of shareholders'
equity of Borrower and consolidated and consolidating
statements of cash flows of Borrower. All of the foregoing
Consolidated Financial Statements to be audited by an
independent certified public
12
<PAGE>
accountant ("CPA") selected by Borrower and reasonably
acceptable to Lender; it being agreed that Borrower's current
CPAs are acceptable to Lender;
(ii) within forty-five (45) days after the end of each fiscal
quarter, unaudited consolidated and consolidating balance
sheets, income statements, statements of shareholders' equity
and statements of cash flows of Borrower as of the end of such
quarterly period, prepared and certified by the Chief
Financial Officer of Borrower as presenting fairly the
financial condition and results of operations of Borrower and
having been prepared in accordance with generally accepted
accounting principles subject to year-end adjustments;
(iii) copies of each report of Borrower filed pursuant to the
Securities Exchange Act of 1934, simultaneous with its filing
with the Securities and Exchange Commission.
(e) For purposes of verifying Borrower's compliance with the provisions
of this Agreement, Borrower shall permit any authorized representative
of Lender and its attorneys and accountants to inspect, examine and
make copies and abstracts of the books of account and records of
Borrower and the Subsidiaries at reasonable times and upon five (5)
business day's notice during normal business hours, and to inspect the
collateral given as security for the Loans and the Guaranty;
(f) Borrower shall notify Lender of (i) litigation involving amounts of
$25,000. or more to which Borrower or a Subsidiary is a party by
mailing to Lender by certified mail within five (5) business days of
receipt thereof, a copy of the complaint, motion for judgment, or other
such pleadings served on or by Borrower or a Subsidiary and (ii) any
litigation to which Borrower or a Subsidiary is not a party but which
could substantially and adversely affect the operation of Borrower's or
a Subsidiary's business or the collateral pledged for this Loan by
mailing to Lender by certified mail, a copy of all pleadings obtained
by Borrower or a Subsidiary regarding such litigation, or if no
pleadings are obtained, a letter setting out the facts known about the
litigation within five (5) business days of receipt thereof. Mailings
under this paragraph shall be addressed to:
Abraham Goldstein, Managing Director
InterEquity Capital Partners, L.P.
220 Fifth Avenue
New York, New York 10001
(g) Borrower shall continue, and shall cause the Subsidiaries to
continue, their respective businesses in substantially the same general
character and manner as conducted as of the date of this Agreement and
to maintain, preserve and keep, in all material respects all their
respective properties, buildings, equipment and fixtures necessary for
the operation of their respective businesses in reasonable repair and
condition and promptly pay and discharge or cause to be paid and
discharged as and when due any and all income taxes, federal or
otherwise, lawfully assessed and imposed upon them, and any and all
lawful taxes, rates, levies and assessments whatsoever upon their
respective properties and every part thereof,
13
<PAGE>
provided however that nothing contained herein shall be construed as
prohibiting Borrower or a Subsidiary from contesting in good faith the
validity of any such income taxes, federal or otherwise, or such other
taxes, rates, levies or assessments;
(i) Borrower shall defend and cause the Subsidiaries to defend at all
times any claim by a third party relating to the possession of, or
interest in, their respective assets;
(j) Borrower shall make and cause the Subsidiaries to make all payments
to creditors as shall be necessary to preserve Lender's security
interests in the collateral given to secure the Loans and the Guaranty;
(k) Borrower shall execute and deliver and cause the Subsidiaries to
execute and deliver to Lender either before or after disbursement of
either Loan, all documents necessary to perfect Lender's security
interests or mortgages in the collateral given (A) to secure the Loans
including (but not limited to) extensions of the Affidavit of
Confession of Judgment referred to in Section 7 and (B) to
collateralize the Guaranty;
(l) The consolidated net worth of Borrower shall at all times up to and
including December 30, 1998 exceed $2,600,000, and at all times on or
after December 30, 1998 shall exceed $2,800,000.
(m) The (i) consolidated EBITDA of Borrower for the year ending
December 31, 1997 shall not result in a loss greater than $1,400,000
and (ii) the consolidated EBITDA of Borrower for each year beginning on
or after January 1, 1998 shall exceed $700,000.
(n) The Consolidated Revenues of Borrower for 1997 shall exceed
$6,000,000 and for each year thereafter shall exceed $8,500,000.
(o) The Interest Coverage for each year beginning on or after January
1, 1998 shall be not less than 1.5 to 1.
(p) The Fixed Charge Coverage for each year beginning on or after
January 1, 1998 shall be not less than 1.1 to 1.
(q) The President or Chief Financial Officer of Borrower shall submit a
semi-annual certification to Lender that to the best of such officer's
knowledge and belief, Borrower is in compliance with all of the terms,
provisions, conditions and covenants set forth in this Loan Agreement.
(r) Borrower shall, at all times, keep reserved for issuance that
number of shares of capital stock as may be required to be issued in
connection with the exercise of the Warrants issued and to be issued
hereunder.
(s) Employment and Non-Compete Agreements with S. Steven Carl and John
Johnson and with such other key operating and technical personnel as
requested by Lender, copies of
14
<PAGE>
which have been delivered to Lender shall remain in full force and
effect without any modification or amendment thereof.
(t) Borrower shall maintain insurance on the business assets of
Borrower and key man life insurance on the lives of S. Steven Carl and
John Johnson in the amounts of at least $500,000 for each such person
from licensed carriers, all in accordance with its current practice,
with the policies thereon made payable to Lender as its interest may
appear.
(u) Borrower and each Subsidiary shall comply with all federal, state
and local laws, ordinances, regulations and requirements applicable to
them and to their respective businesses, including (without limitation)
federal and state securities laws and zoning laws and ordinances except
where the failure to so comply would not have a material adverse effect
on Borrower and the Subsidiaries taken as a whole.
SECTION 11. CERTAIN NEGATIVE COVENANTS
Until such date as the Loans are repaid in full, and except with the
prior written consent of Lender (whose consent may be refused without
explanation and without any legal recourse by Borrower), Borrower will not:
(a) except for a loan up to $1,500,000 from a financial institution to
be secured by Borrower's accounts receivable and inventory on terms
acceptable to Lender and equipment leases and purchase money security
interests and credit card obligations in the ordinary course of
business, borrow any money or permit a Subsidiary to borrow any money
except for intra corporate borrowings between the Borrower and a
Subsidiary or between Subsidiaries.
(b) engage or permit a Subsidiary to engage in any line of business
materially different from those which Borrower and the Subsidiaries are
now engaged in;
(c) become, or permit a Subsidiary to become, a party to any merger or
consolidation with any corporation, company or entity of any kind
whatsoever, or sell substantially all of its assets, or otherwise
liquidate or dispose of its business, provided that nothing herein
shall prevent a merger or sale of assets between or among Borrower and
the Subsidiaries;
(d) become, or permit a Subsidiary to become, a guarantor of
obligations of any other person, firm, corporation or entity, except in
connection with depositing checks and other instruments for the payment
of money acquired in the normal course of their respective businesses;
(e) except as otherwise contemplated herein, transfer, sell, lease or
in any other manner convey or permit a Subsidiary to so do, to any
person other than in the ordinary course of its business any equitable,
beneficial or legal interest in any of the collateral securing a Loan
or the Guaranty;
15
<PAGE>
(f) except as otherwise contemplated herein, create or permit to exist
any mortgage interest, pledge, security interest, title retention
device, or other encumbrance in the collateral securing the Notes and
the Guaranty junior to Lender's lien or security interest thereon,
except for liens of taxes and assessments not delinquent or contested
in good faith, nonmaterial liens for workman's compensation and
unemployment obligations or those machinery and equipment purchases and
leases which may arise in the ordinary and necessary course of
business;
(g) knowingly permit any judgment obtained against Borrower or a
Subsidiary in an amount exceeding $10,000 to remain unpaid for a period
of thirty (30) days following the entry thereof, without obtaining a
stay of execution or bonding or causing such judgment to be bonded;
(h) pay any dividends or make any other distributions with respect to
its capital stock;
(i) pay any bonus to or increase the salary of any employee if the
effect of such payment would cause a breach of any other representation
or covenant made by Borrower in this Agreement, including, without
limitation, the covenants set forth in Section 10 of this Agreement;
(j) increase the salary of and/or pay a bonus to any executive officer
of Borrower which in the aggregate exceed 5% of his compensation for
any year;
(k) make any payment to any executive officer of Borrower for salary,
bonus or otherwise (whether or not such salary has been earned or such
other payment is due) if the effect of such payment would cause a
breach of any other representation or covenant made by Borrower in this
Agreement, including, without limitation, the covenants set forth in
Section 10 of this Agreement; provided that any payment so deferred may
thereafter be made to the extent that such payment would not cause a
breach of any other representation or covenant made by Borrowers in
this Agreement, including, without limitation, the covenants set forth
in this Section or in Section 9 or 10 of this Agreement.
SECTION 12. REPRESENTATION ON BORROWER'S BOARD OF DIRECTORS
12.1 Upon request of Lender, Borrower shall cause a person designated
by Lender, to be elected to serve as a member of Borrower's Board of Directors
for so long as either of the Notes remain unpaid.
12.2 If Lender does not elect to designate a nominee for election to
the Borrower's Board of Directors it shall have the right to send an observer to
all meetings of the Board in which case it
16
<PAGE>
shall be entitled to receive notice of all Board meetings in the same course and
manner as the directors comprising the Board.
12.3 Upon the occurrence, and continuation, for six months, of a
default by Borrower of any of its covenants under this Agreement, Borrower shall
at Lender's request cause a second person designated by Lender to be elected to
its Board of Directors, such person to serve as a director until all defaults
under this Agreement are cured.
SECTION 13. EVENTS OF DEFAULT
13.1 The occurrence of each of the following is an "Event of Default"
or "default" under this Agreement and under each Collateral Document:
(a) the failure to make any payment (whether for interest,
amortization, unpaid principal or otherwise) under this Agreement or a
Note within ten (10) days after being due;
(b) the failure of Borrower to perform, observe or comply with any of
the covenants, agreements, obligations, requirements or provisions in
this Agreement or in a collateral Document, and such failure continues
for ten (10) days after written notice thereof is given;
(c) any representation or warranty in this Agreement or in a Collateral
Document is not true or correct as of the date or dates such
representation is deemed made;
(d) the failure by a Subsidiary to comply with the Guaranty;
(e) Borrower or a Subsidiary shall commit an act of bankruptcy within
the meaning of the Federal Bankruptcy code or a bankruptcy,
receivership, insolvency, reorganization, dissolution, liquidation or
other similar proceeding shall be instituted by or against Borrower or
a Subsidiary and in the case of a non-voluntary proceeding such party
consents thereto or fails to cause such proceeding to be dismissed or
discharged within sixty (60) days;
(f) Except as described in Section 9.1(h), Borrower or a Subsidiary
shall be in default after expiration of all cure periods on any debt or
obligation greater than $25,000.00 whether or not secured by any of the
collateral given to secure a Loan; and
(g) a judgment or tax lien is filed against Borrower or a Subsidiary
and it is not paid or discharged by bond or otherwise stayed within
thirty (30) days;
(h) the death or permanent disability of S. Steven Carl or John
Johnson;
17
<PAGE>
(i) there has occurred since December 31, 1996 a material change in the
ownership or control of Borrower or in the corporate structure of
Borrower or any of the Subsidiaries except as reflected in either of
Borrower's Forms 1O-QSB referred in Section 9.1(c) or in the Proxy
Statement.
13.2 Borrower hereby waives presentment, demand, notice of dishonor,
protest or further notice of any kind. As a result, if any installment or other
sum is not paid when due, Lender does not have to notify Borrower before
enforcing its rights to collect all amounts due.
SECTION 14. IRREGULAR PAYMENT
14.1 Lender may accept late payments and partial payments even though
marked "payment in full" or words of similar import, without losing any of its
rights under this Agreement or under the Notes.
SECTION 15. DELAY IN ENFORCEMENT
15.1 Lender may delay in enforcing its rights under this Agreement or a
Collateral Document without losing or prejudicing such rights.
SECTION 16. NO BROKER
16.1 Borrower represents and warrants to Lender that it has not dealt
with any broker or finder, whether or not licensed, in connection with this
Agreement or the loan transactions under this Agreement.
16.2 Borrower agrees to defend, indemnify and hold harmless Lender from
any and all Claims and Expenses based on, or arising from, its representation
and warranty in Section 16.1.
SECTION 17. LOAN EXPENSES
17.1 Borrower agrees to pay, promptly after demand is made, all
reasonable out-of-pocket expenses incurred by Lender in connection with the
making, perfection or enforcement of the loan transactions which are the subject
of this Agreement, including (but not limited to) Lender's legal
18
<PAGE>
fees and disbursements and other miscellaneous expenses. Borrower has delivered
its check for $7,500 to Lender's counsel Morse, Zelnick, Rose & Lander, LLP on
account of legal fees and disbursements to be incurred by it in connection with
this transaction and will deliver a check for the balance of its fees and
disbursements incurred in connection therewith at the Closing against
presentation of a bill for such service and disbursements.
SECTION 18. NOTICES
18.1 Unless otherwise expressly provided elsewhere in this Agreement,
any notice, request, consent, election, demand or other communication ("notice")
to be given or made by the parties under this Agreement must be in writing and
either:
(a) delivered by hand, telecopier or overnight delivery by Federal
Express or other recognized carrier; or
(b) sent by certified or registered mail, return receipt requested,
postage prepaid.
18.2 Each notice to be given:
(a) to Lender, will be addressed to:
Abraham Goldstein, Managing Director
InterEquity Capital Partners, L.P.
220 Fifth Avenue
New York, New York 10001
(b) to Borrower, will be addressed to it at its address set forth in
the preamble on page 1 of this Agreement.
18.3 A copy of each notice must be sent simultaneously and in like
manner to the following persons:
(a) (in case of a notice to Lender) to:
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue, Suite 902
New York, New York 10022
Att'n: Howard L. Weinreich, Esq.
19
<PAGE>
(b) (in the case of a notice to Borrower) to:
Graubard, Mollen & Miller
600 Third Avenue
New York, New York 10016
Att'n: David Alan Miller
18.4 Borrower and Lender may, by notice to the others, change the
address to which future notices are to be sent or add or change a person to whom
a notice or a copy of a notice is to be sent.
18.5 Unless otherwise provided elsewhere in this Agreement, each notice
shall be considered to be given on:
(a) the date delivered by hand or telecopier (unless it is not a
business day or is not received before 5:30 P.M., in which case the
notice shall be considered given on the next business day after being
sent);
(b) the next business day after being sent by overnight courier;
(c) the third full business day following the date of mailing postage
prepaid in the United States Mail.
However, a notice of a change of address of person pursuant to Section 18.4
shall not be deemed given until received.
18.6 A notice that is mailed must be deposited into an official mail
depository maintained by the United States Postal Service or (if mailed outside
the United States) by an equivalent postal authority.
18.7 Failure to accept a notice is deemed receipt of it and does not
invalidate the notice or excuse the performance of an obligation.
SECTION 19. ENTIRE AGREEMENT
19.1 All prior and contemporaneous statements, representations,
promises, understandings, agreements, projections and opinions, whether written
or oral made to each other
20
<PAGE>
with regard to this transaction, are merged in this Agreement and have no effect
unless they are expressly contained in this Agreement. This Agreement
constitutes our entire agreement.
SECTION 20. CHANGES AND WAIVERS
20.1 A provision of this Agreement will be considered to have been
changed or waived only if the change or waiver is expressly made in writing
signed by the party to be charged.
20.2 The failure to insist on strict performance of any provision will
not mean that the provision has been waived or that the right to insist
thereafter on strict performance of that or any other provision has been waived.
SECTION 21. PARTIES TO COOPERATE
21.1 Each party will reasonably cooperate with the other to close these
loan transactions.
21.2 In furtherance of such cooperation, each party will obtain,
execute and deliver such documents as are in its possession or control and are
reasonably necessary in order to close or effectuate or confirm any provisions
of this Agreement.
SECTION 22. GOVERNING LAW; VENUE FOR LAWSUITS
22.1 The laws of the State of New York will govern this Agreement and
the interpretation and enforcement of its provisions, without regard to legal
principles of conflict of laws.
22.2 The parties each hereby agree that any action, suit or proceeding
under this Agreement shall be brought in the State of New York, and each party
hereby submits to the jurisdiction of the courts of the State of New York (both
State and Federal). Borrower hereby irrevocably appoints Messrs. Graubard,
Mollen & Miller, 600 Third Avenue, New York, New York 10016 as its authorized
agent upon whom process may be served in any such action, suit or proceeding.
Borrower agrees that service of process on such agent with a copy of such
process delivered to Borrower in the manner permitted under Section 18 shall
constitute effective service
21
<PAGE>
upon it Borrower agrees to take any and all actions, including the execution and
filing of all documents and instruments, as may be necessary or appropriate to
effect and continue the appointment of such agent in full force and effect, or
if necessary by reason of any fact or condition relating to such agent, to
replace such agent to the satisfaction of Lender and Borrower agrees that
service of process upon such agent or any replacement therefore with a copy to
it shall be deemed in every respect effective service of process in any such
suit, action or proceeding in any such court.
SECTION 23. WAIVER OF JURY TRIAL
23.1 Each Party waives the right to a trial by jury in any litigation
arising under this agreement or under any ancillary document.
23.2 Any claim for which a jury trial cannot legally be waived shall
not be asserted as a counterclaim or joined with any lawsuit in which a jury
trial is waived, unless the failure to assert it would prevent the claim from
being made later.
SECTION 24. INVALID PROVISIONS SEVERED
24.1 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity of the other provisions, which shall be
enforced to the fullest extent permitted by law.
SECTION 25. CAPTIONS; EXHIBITS; AND GRAMMAR
25.1 The paragraph captions are for convenience only. They are not part
of the text of this Agreement and are not to be used to interpret its
provisions.
25.2 All Exhibits to this Agreement are incorporated in, and are part
of, this Agreement as fully as though set forth herein.
25.3 All references in this Agreement to a Section, paragraph or
Exhibit mean a Section or paragraph of this Agreement or an Exhibit attached to
this Agreement.
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<PAGE>
25.4 The use of the singular includes the plural and the use of any
gender includes any other gender whenever required by the sense of this
Agreement
SECTION 26. REIMBURSEMENT FOR ENFORCEMENT
26.1 In the event Borrower fails to perform any of its obligations
under this Agreement or under any Collateral Document, then Borrower shall pay
any and all Claims and Expenses incurred by the Lender in enforcing or
establishing its rights hereunder or thereunder.
SECTION 27. NO NEGATIVE CONSTRUCTION AGAINST DRAFTING PARTY
27.1 The parties acknowledge that they are sophisticated and are
represented by experienced, knowledgeable attorneys. The parties agree that the
normal rules of construction to resolve ambiguities against the party whose
counsel drafted this Agreement shall not be followed in the interpretation of
this Agreement. Consequently, no negative inference or interpretation shall be
made by a court in enforcing the provisions of this Agreement against the party
whose attorney drafted this Agreement.
SECTION 28. NO OTHER PARTIES
The representations, warranties and agreements of Borrower contained
herein are intended solely for the benefit of Lender, and shall confer no rights
hereunder, whether legal or equitable, in any other third person, and no other
person shall be entitled to rely thereon.
SECTION 29. COUNTERPARTS
29.1 This Agreement may be signed in counterparts, each of which will
be deemed an original document. All counterparts will constitute one document
which may be sufficiently evidenced by one such Counterpart. Each counterpart
will be binding on the signatory to such counterpart notwithstanding that it is
not signed by both signatories to this Agreement.
23
<PAGE>
SECTION 30. INDEMNIFICATION
30.1 Borrower indemnifies Lender, its officers, directors, principals
and affiliates from and against any Claims and Expenses incurred or suffered by
them or any of them arising out of the transactions contemplated hereunder,
except that this indemnification shall not apply to any liability incurred by
the Lender to the Borrower or to any Person as a result of the gross negligence
or willful misconduct of the Lender, its officers, directors, employees, agents
and participating lenders.
SECTION 31. LENDER'S RIGHT TO TRANSFER AND ASSIGN
31.1 Lender has the right, in its sole and absolute discretion, without
consent or affecting the obligations of Borrower, to transfer and assign
participation interests in one or both Notes given to it pursuant to this
Agreement together with its rights hereunder under one or more of the other
Collateral Documents, provided that if there is more than one participant
(including Lender) then all participants shall designate one party who shall for
all purposes of the transactions contemplated under this Agreement act for and
on behalf of all participants.
SECTION 32. SUCCESSORS AND ASSIGNS
32.1 This Agreement shall bind Borrower and its successors.
32.2 This Agreement shall be binding upon and shall inure to the
benefit of Lender, its successors and assigns. Any reference in this Agreement
to Lender shall include its successors and assigns.
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<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement
and affixed their seals as of the date first above stated.
(SEAL) H.E.R.C. PRODUCTS INCORPORATED
By: /s/ John P. Johnson
-------------------------
INTEREQUITY CAPITAL PARTNERS, L.P.
By: /s/ [SIGNATURE ILLEGIBLE]
-------------------------
25
<PAGE>
Exhibit 3 to Loan Agreement
H.E.R.C. Products Incorporated and Subsidiaries
2202 W. Lone Cactus Drive #15
Phoenix, AZ 85027
1997 FORECAST
<PAGE>
HERC PRODUCTS INCORPORATED
CONSOLIDATED BUDGET 1997
<TABLE>
<CAPTION>
A C T U A L P R O J E C T E D
Revenue Jan Feb Mar Apr May Jun Jul
<S> <C> <C> <C> <C> <C> <C> <C>
Sales - PK 50,570 18,270 33,750 19,000 170,175 113,066 111,260
Sales - PW 13,234 12,301 8,688 9,639 9,878 9,996 11,937
Sales - WK 14,657 6,645 5.065 5,100 8,000 4,580 6,395
Sales - CH 10,685 5,250 0 5,008 5,145 5,187 5,355
Sales - HCP 164,318 293,309 168,803 111,600 118,779 151,115 147,765
Sales - CCT 81,758 106.156 100,610 176,953 277,877 266,721 93,520
Total Revenue 335,222 441,931 316,916 327,300 587,854 550,665 376,232
Cost of Goods Sold
COGS - PK 23,202 21,982 14,695 44,988 149,254 233,675 68,047
COGS - PW 3,319 4,902 2,458 4,145 2,976 2,587 3,165
COGS - WK 9,525 1,961 1,902 1,440 2,132 1,190 2,008
COGS - CH 1,684 819 0 1,166 872 706 999
COGS - HCP 139,786 202,406 42,142 68,733 75,433 103,578 102,656
COGS - CCT 40,132 41,086 55,691 89,649 155,592 149,858 47,616
Total Cost of Goods Sold 217,648 273,156 26,888 210,121 386,259 491,513 224,491
Gross Profit 117,574 168,775 100,028 117,179 201,595 59,152 151,741
------- ------- ------- ------- ------- ------ -------
35% 38% 32% 36% 34% 11% 40%
Selling Expenses
Selling Expenses - PK 25,754 18,328 27,747 21,612 33,979 29,848 26,678
Selling Expenses - PW 7,280 6,867 6,051 7,906 5,604 6,220 5,624
Selling Expenses - WK 5,026 5,160 4,476 4,780 4,751 4,531 5,343
Selling Expenses - CH 0 0 0 0 0 0 0
Selling Expenses - HCP 44,339 58,449 49,890 47,379 30,874 31,434 39,683
Selling Expenses - CCT 42,419 49,409 70,917 47,810 54,897 38,394 36,807
Total Selling Expenses 124,818 138,203 159,081 129,487 130,105 110,427 114,135
General & Administrative Expenses
G&A Expenses - PK 36,661 32,618 39,654 72,500 29,283 75,149 65,664
G&A Expenses - PW 155 284 198 112 128 143 139
G&A Expenses - WK 517 125 325 549 347 130 245
G&A Expenses - CH 0 0 0 0 0 0 0
G&A Expenses - HCP 856 7,546 28,920 6,812 3,108 2,690 2,006
G&A Expenses - CCT 19,172 14,823 9,054 14,823 16,201 14,714 14,616
G&A Expenses - Corporate 148,090 149,748 339,946 109,495 118,849 159,896 153,767
Total G & A Expenses 205,451 205,144 418,907 204,291 165,916 252,722 236,437
Total SG&A Expenses 330,269 343,347 577,178 333,778 296,021 363,149 350,572
Other Income Expenses
Interest Income 4,843 10,038 2,953 (472) 4,275 2,059 200
Interest Expense (1,302) (446) (2,549) (1,295) (3,694) 1,935 (2,525)
Total Other Income/Expense 3,541 9,592 404 (1,767) 581 3,994 (2,325)
Net Income (Loss) (209,154) (164,980) (476,746) (218,366) (93,845) (300,003) (201,156)
-------- -------- -------- -------- ------- -------- --------
-62.39% -37.33% -150.43% -66.72% -15.96% -54.48% -53.47%
A C T U A L P R O J E C T E D
Revenue Aug Sep Oct Nov Dec Total
<S> <C> <C> <C> <C> <C> <C>
Sales - PK 129,500 130,000 345,300 115,000 125,000 1,860,591
Sales - PW 10,000 15,000 15,300 15,000 15,000 145,673
Sales - WK 10,000 25,000 25,300 20,000 20,000 141,442
Sales - CH 5,200 10,000 10,300 10,000 10,000 81,830
Sales - HCP 157,174 172,064 186,355 201,845 216,735 2,090,463
Sales - CCT 225,000 300,000 150,000 52,626 51,154 1,892,377
Total Revenue 536,874 652,064 731.955 924,473 437,889 6,219,376
Cost of Goods Sold
COGS - PK 80,073 89,740 157,071 306,073 83,921 1,272,721
COGS - PW 3,200 4,800 4,800 4,800 4,800 45,952
COGS - WK 3,400 8,500 8,500 6.800 6,800 54,077
COGS - CH 1,768 3,400 3,400 3,400 3,400 21,614
COGS - HCP 97,088 105,642 114,972 124,302 133,632 1,410,370
COGS - CCT 128,255 155,023 75,661 33,543 20,055 992,161
Total Cost of Goods Sold 313,783 367,105 364,405 478,918 252,608 3,796,895
Gross Profit 223,901 284,959 367,550 445,555 185,281 2,422,481
------- ------- ------- ------- ------- ---------
42% 44% 50% 48% 42% 39%
Selling Expenses
Selling Expenses - PK 20,855 21,275 24,600 24,600 19,050 294,324
Selling Expenses - PW 6,343 8,343 6,343 7,843 6,343 80,757
Selling Expenses - WK 13,264 10,728 10,728 10,328 10,328 89,443
Selling Expenses - CH 0 0 0 0 0 0
Selling Expenses - HCP 42,889 39,088 40,922 40,922 41,267 505,937
Selling Expenses - CCT 54,938 57,934 27,614 27,614 24,832 547,739
Total Selling Expenses 138,288 137,313 123,216 111,307 101,819 1,518,200
General & Administrative Expenses
G&A Expenses - PK 29,253 39,253 39,253 39,253 39,253 537,793
G&A Expenses - PW 190 190 190 190 190 2,109
G&A Expenses - WK 525 525 525 525 525 4,863
G&A Expenses - CH 0 0 0 0 0 0
G&A Expenses - HCP 583 3,083 583 1,183 583 57,955
G&A Expenses - CCT 17,385 13,218 13,218 13,218 13,218 173,660
G&A Expenses - Corporate 107,527 102,420 94,420 94,920 94,420 1,671,497
Total G & A Expenses 155,463 158,689 148,189 149,289 148,189 2,447,876
Total SG&A Expenses 293,751 296,002 271,405 260,596 250,008 3,966,077
Other Income Expenses
Interest Income 200 200 200 200 200 24,896
Interest Expense (3,757) (8,006) (11,715) (13,735) (13,731) (80,820)
Total Other Income/Expense (3,557) (7,806) (11,515) (13,535) (13,531) (35,924)
Net Income (Loss) (74,217) (18,848) 84,630 171,424 (78,258) (1,579,520)
------- ------- ------ ------- ------- ----------
-13.82% -2.89% 11.58^ 18.54% -17.87% -25.40%
</TABLE>
<PAGE>
HERC PRODUCTS INCORPORATED
CORPORATE BUDGET 1997
<TABLE>
<CAPTION>
General & Administrative A C T U A L P R O J E C T E D
Jan Feb Mar Apr May Jun Jul
<S> <C> <C> <C> <C> <C> <C> <C>
Auto 796 1,380 952 2,424 1,276 1,410 1,000
Amortization 9,808 9,808 9,808 9,808 9,808 10,980 10,024
Bank Charges 20 570 1 157 173 12,941 13,700
Depreciation Expense 5,100 5,100 5,100 5,100 5,100 (7,201) 3,050
Dues & Subscriptions 4,000 261 107 962 0 200 0
Education Expenses 0 65 299 0 0 0 0
Meals and Entertainment 1,533 674 2,084 2,621 941 3,021 1,500
Equipment Rental Office 4,193 2,766 2,858 572 2,858 2,858 2,858
401K 10% Match 153 0 655 261 131 394 150
Insurance - Health 6,153 4,927 7,676 4,154 5,051 7,061 6,143
Insurance - Liab./D&O 17,270 6,956 14,330 9,644 12,602 11,940 12,500
Legal & Professional 12,847 26,548 43,218 12,766 24,146 19,194 19,607
Maint. & Repairs Office 927 213 849 678 298 676 54
Moving Expenses 0 0 0 0 0 0 0
Patent Expenses 0 0 3 4 0 (39) 0
Payroll Office 11,715 11,251 10,212 9,422 11,263 13,393 12,794
Payroll Officers 37,730 47,542 196,292 13,958 22,708 41,958 34,958
Payroll Support 3,317 3,167 3,217 3,267 3,167 3,345 3,580
Payroll Expenses 8,392 5,606 6,771 6,425 4,568 5,406 4,580
Permits/Licenses/Fees 0 0 0 60 0 4,396 76
Postage 1,725 884 987 1,491 563 1,576 1,050
Printing 439 417 2,576 324 821 173 6,000
Rent 9,841 9,722 9,819 9,755 2,316 9,074 9,074
R & D Expense 0 0 0 1,035 61 5 0
Supplies Office 3,051 1,688 2,151 1,843 896 3,130 2,000
Telephone 2,956 3,524 3,733 3,757 4,097 3,135 2,835
Taxes - Other 0 0 4,151 2 82 1,546 34
Testing Expenses 42 0 3,787 (50) 0 0 0
Travel 5,465 5,481 7,309 7,657 3,229 8,524 5,000
Utilities 615 0 801 1,398 692 800 1,200
Total G&A Expenses 148,090 149,748 339,946 109,495 116,849 159,896 153,767
Other Income/Expense
Other Income (Expense) 4,843 10,038 2,953 (472) 4,275 2,059 200
Interest Expense (798) 0 (905) (139) (1,390) (1,235) (1,100)
Total Other Income/Expense 4,045 10,038 2,046 (611) 2,885 824 (900)
General & Administrative A C T U A L P R O J E C T E D
Aug Sep Oct Nov Dec Total
<S> <C> <C> <C> <C> <C> <C>
Auto 1,000 1,000 1,000 1,000 1,000 12,240
Amortization 10,024 10,024 10,024 10,024 10,024 120,164
Bank Charges 0 0 0 0 0 27,562
Depreciation Expense 3,050 3,050 3,050 3,050 3,050 36,599
Dues & Subscriptions 100 100 100 100 100 8,030
Education Expenses 0 0 0 0 0 364
Meals and Entertainment 1,700 1,000 1,000 1,500 1,000 16,574
Equipment Rental Office 2,858 2,858 2,858 2,858 2,858 33,253
401K 10% Match 300 300 300 300 300 3,244
Insurance - Health 5,000 5,000 5,000 5,000 5,000 66,365
Insurance - Liab./D&O 13,750 13,750 13,750 13,750 13,750 153,992
Legal & Professional 13,219 12,200 4,700 4,700 4,700 197,845
Maint. & Repairs Office 500 500 500 500 500 8,195
Moving Expenses 0 0 0 0 0 0
Patent Expenses 0 0 0 0 0 (32)
Payroll Office 12,750 11,001 11,001 11,001 11,001 138,804
Payroll Officers 15,334 15,334 15,334 15,334 15,334 471,816
Payroll Support 3,506 3,506 3,506 3,506 3,506 40,590
Payroll Expenses 3,862 3,223 3,223 3,223 3,223 59,701
Permits/Licenses/Fees 0 0 0 0 0 4,532
Postage 900 900 900 900 900 12,776
Printing 200 200 200 200 200 11,750
Rent 9,074 9,074 9,074 9,074 9,074 104,971
R & D Expense 0 0 0 0 0 1,101
Supplies Office 1,500 1,500 1,500 1,500 1,500 22,259
Telephone 2,700 2,700 2,700 2,700 2,700 37,537
Taxes - Other 0 0 0 0 0 5,815
Testing Expenses 0 0 0 0 0 3,779
Travel 5,000 4,000 4,000 4,000 4,000 63,665
Utilities 1,200 1,200 700 700 700 10,006
Total G&A Expenses 107,527 102,420 94,420 94,420 94,420 1,671,497
Other Income/Expense
Other Income (Expense) 200 200 200 200 200 24,896
Interest Expense (2,315) (6,587) (10,280) (12,305) (12,305) (49,339)
Total Other Income/Expense (2,115) (6,367) (10,080) (12,105) (12,105) (24,443)
</TABLE>
<PAGE>
HERC PRODUCTS INCORPORATED
PIPE KLEAN BUDGET 1997
<TABLE>
<CAPTION>
A C T U A L P R O J E C T E D
Jan Feb Mar Apr May Jun Jul
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales 50,570 18,270 33,750 19,000 170,175 113,066 111,260
Cost of Goods Sold
Inventory 3,176 1,305 2,868 16,486 26,556 10,248 3,245
Meals - Operations 567 500 0 2,150 8,229 4,513 9,978
Contract labor 0 167 287 72 10,717 8,498 7,408
Freight 3,033 3,108 470 1,219 3,664 8,784 2,345
Insurance - Health 708 628 1,374 0 660 659 4,800
Lab Fees 0 182 0 936 0 0 0
Maint. & Repairs 0 716 551 0 5,918 (4,463) 769
Payroll - Operations 9,690 6,902 7,770 12,682 38,664 71,042 29,115
Payroll Expenses 817 528 589 787 2,846 3,073 2,832
Subcontractors 0 0 0 0 3,360 30,889 (5,130)
Supplies 675 4,175 333 1,667 14,341 11,998 1,28
MRU Repairs 368 150 188 1,925 1,083 0 1,230
Travel - Operations 3,698 1,663 275 2,257 10,602 14,309 23,900
Other 470 1,852 60 2,448 10,365 49,387 (29,000)
Rentals 0 106 0 2,359 12,249 24,738 15,300
Total COGS 23,202 21,982 14,695 44,988 149,254 233,675 68,047
Gross Profit 27,368 (3,712) 19,055 (25,988) 20,921 (120,609) 43,213
------ ------ ------ ------- ------ -------- ------
54% -20% 56% -137% 12% -107% 39%
Selling Expenses
Advertising 4,199 1,506 3,034 2,295 5,674 (50) 733
Auto 2,011 912 778 589 1,026 3,227 1,000
Commissions 0 0 2,846 0 5,261 4,038 3,338
Consultants 0 0 0 0 0 1,500 0
Dues & Subscriptions 771 0 0 86 170 225 0
Postage 482 42 18 467 293 416 300
Insurance - Health 2,123 1,200 1,321 2,043 2,259 1,460 1,777
Payroll - Sales 7,333 9,086 8,635 8,317 11,650 11,650 12,917
Payroll Expenses 561 636 464 659 969 892 988
Meals & Entertainment 493 184 890 232 244 985 400
Travel 5,189 4,242 3,914 3,743 4,705 2,187 3,000
Supplies 117 620 946 2,892 1,647 2,503 2,000
Trade Shows 2,475 (100) 4,900 289 81 815 225
Total Selling Expenses 25,754 18,326 27,747 21,612 33,979 29,848 26,678
A C T U A L P R O J E C T E D
Aug Sep Oct Nov Dec Total
<S> <C> <C> <C> <C> <C> <C>
Net Sales 129,500 130,000 345,000 615,000 125,000 1,860,591
Cost of Goods Sold
Inventory 8,650 10,500 21,500 48,500 8,750 161,784
Meals - Operations 2,590 2,600 6,900 12,300 2,500 52,824
Contract labor 4,745 4,400 12,950 21,050 4,500 74,794
Freight 778 890 1,980 4,140 775 31,186
Insurance - Health 5,600 5,600 6,350 6,350 6,350 39,079
Lab Fees 130 130 345 615 125 2,463
Maint. & Repairs 1,943 1,950 5,175 9,225 18,75 23,659
Payroll - Operations 23,448 23,448 25,948 25,948 25,948 300,535
Payroll Expenses 1,993 1,993 2,206 2,206 2,206 22,075
Subcontractors 13,802 22,679 29,268 101,589 15,268 211,724
Supplies 3,885 3,900 10,350 18,450 3,750 74,782
MRU Repairs 0 0 0 0 0 4,944
Travel - Operations 3,455 3,650 9,050 17,150 3,375 93,384
Other 5,170 4,100 14,700 20,100 4,750 84,402
Rentals 3,885 3,900 10,350 18,450 3,750 95,087
Total COGS 80,073 89,740 157,071 306,073 83,921 1,272,721
Gross Profit 49,427 40,260 187,929 308,927 41,079 587,870
------ ------ ------- ------- ------ -------
38% 31% 54% 50% 33% 32%
Selling Expenses
Advertising 0 0 0 0 0 17,391
Auto 800 800 800 800 800 13,543
Commissions 2,580 1,500 7,800 7,800 2,250 37,413
Consultants 200 200 200 200 200 2,500
Dues & Subscriptions 0 0 0 0 0 1,252
Postage 300 300 300 300 300 3,518
Insurance - Health 1,500 1,500 1,500 1,500 1,500 19,683
Payroll - Sales 9,583 9,583 9,583 9,583 9,583 117,503
Payroll Expenses 767 767 767 767 767 9,003
Meals & Entertainment 400 400 400 400 400 5,428
Travel 3,000 3,000 3,000 3,000 3,000 41,980
Supplies 1,725 1,725 250 250 250 14,925
Trade Shows 0 1,500 0 0 0 10,185
Total Selling Expenses 20,855 21,275 24,600 24,600 19,050 294,324
</TABLE>
<PAGE>
1997 PIPE KLEAN BUDGET CONTINUED
<TABLE>
<CAPTION>
General Administrative A C T U A L P R O J E C T E D
Jan Feb Mar Apr May Jun Jul.
<S> <C> <C> <C> <C> <C> <C> <C>
Auto 2,878 635 1,602 482 160 760 500
Depreciation 2,030 2,740 2,740 2,800 2,800 30,483 7,333
Dues & Subscriptions 4,712 0 1,497 99 0 (25) 0
Education 0 0 149 0 0 0 0
Entertainment 396 383 628 441 435 584 500
Equip. Rental Office 0 0 102 908 149 354 300
401k expense 55 0 233 75 47 110 110
insurance - Health 899 802 1,223 913 190 850 1,110
Legal Fees 2,930 178 2,331 357 103 7,881 1,986
Maint. & Repairs Office 0 1,250 100 371 287 0 150
Moving Expenses 0 0 0 0 0 2,499 0
Payroll Admin 12,833 12,833 12,833 12,833 12,708 13,000 13,000
Payroll Expenses 982 9820 982 1,346 972 994 995
Licenses & Permits 95 603 0 50 319 50 0
Postage 249 112 361 520 (121) 521 335
Printing 145 2,634 229 0 560 183 0
Office Rent 469 641 2,781 2,619 2,619 2,571 2,619
Research & Development 0 472 0 45,000 178 260 139
Office Supplies 594 2,315 2,154 (950) 941 1,468 2,422
Telephone 3,252 0 3,292 2,564 3,144 4,813 3,000
Taxes Other 0 75 0 675 11 (225) 100
Testing Expenses 1,146 5,890 2,516 486 1,245 1,045 175
Travel 2,996 0 3,395 765 1,932 6,489 3,500
Uncollectible Accounts 0 73 0 0 0 0 27,000
Utilities 0 506 146 604 484 400 400
Total G&A Expense 36,661 32,618 39,654 72,500 29,283 75,149 65,664
Total SG&A Expenses 62,415 50,946 67,401 94,112 63,262 104,997 92,342
Other Income (Expense)
Interest Expense (47) 0 (52) 0 (45) (951) (1,328)
Net Income (35,904) (54,658) (48,398) (120,100) (42,386) (226,557) (50,457)
------- ------- ------- -------- ------- -------- -------
-69.40% -299.17% -143.40% -632.11% -24.91% -200.38% -45.35%
General Administrative A C T U A L P R O J E C T E D
Aug Sep Oct Nov Dec Total
<S> <C> <C> <C> <C> <C> <C>
Auto 500 500 500 500 500 9,517
Depreciation 7,333 17,333 17,333 17,333 17,333 127,591
Dues & Subscriptions 100 100 100 100 100 6,783
Education 0 0 0 0 0 149
Entertainment 500 500 500 500 500 5,867
Equip. Rental Office 300 300 300 300 300 3,313
401k expense 110 110 110 110 110 1,180
insurance - Health 1,100 1,100 1,100 1,100 1,100 11,477
Legal Fees 1,000 1,000 1,000 1,000 1,000 20,766
Maint. & Repairs Office 50 50 50 50 50 2,40
Moving Expenses 0 0 0 0 0 2,499
Payroll Admin 8,834 8,834 8,834 8,834 8,834 134,210
Payroll Expenses 707 707 707 707 707 10,787
Licenses & Permits 100 100 100 100 100 1,014
Postage 350 350 350 350 350 4,218
Printing 250 250 250 250 250 2,479
Office Rent 2,619 2,619 2,619 2,619 2,619 29,407
Research & Development 0 0 0 0 0 46,218
Office Supplies 300 300 300 300 300 8,601
Telephone 2,500 2,500 2,500 2,500 2,500 34,880
Taxes Other 100 100 100 100 100 1,061
Testing Expenses 100 100 100 100 100 7,188
Travel 2,000 2,000 2,000 2,000 2,000 34,967
Uncollectible Accounts 0 0 0 0 0 27,000
Utilities 400 400 400 400 4,213
Total G&A Expense 29,253 39,253 39,253 39,253 39,253 537,793
Total SG&A Expenses 50,107 60,527 63,852 63,852 58,302 832,117
Other Income (Expense)
Interest Expense (1,328) (1,328) (1,328) (1,328) (1,328) (9,063)
Net Income (2,008) (21,595) 122,748 243,747 (18,552) (253,310)
------ ------- ------- ------- ------- --------
-1.55% -16,61% 35.58% 39.63% -14.84$ -13.61%
</TABLE>
<PAGE>
HERC PRODUCTS INCORPORATED
CCT CORPORATION BUDGET 1997
<TABLE>
<CAPTION>
A C T U A L P R O J E C T E D
Jan. Feb Mar Apr May Jun Jul
<S> <C> <C> <C> <C> <C> <C> <C>
Sales 81,758 106,158 100,610 176,953 277,877 266,721 93,520
Cost of Good Sold 40,132 41,086 55,691 89,649 155,592 149,858 47,616
Gross Profit 41,626 65,070 44,919 87,304 122,285 116,863 45,904
------ ------ ------ ------ ------- ------- ------
51% 61% 45% 49% 44% 44% 49%
Selling, General & Admin.
Accounting Fees 169 111 (9) 56 146 124 0
Advertising 200 0 0 0 0 0 0
Amortization 207 207 206 206 207 207 207
Bank Fes 0 0 21 0 0 0 0
Business Promotion 628 0 112 11 287 (11) 200
Commissions 1,000 0 3,164 2,190 2,480 1,784 251
Conferences & Meetings 388 260 1,111 116 575 103 410
Consulting Fees 2,575 2,500 19,000 2 9,334 (10,533) 0
Depeciation Expenses 474 474 474 474 474 474 474
Dues & Publications 370 760 1,525 268 334 145 0
Education & Training 0 0 108 0 0 0 120
Employee Benefits 3,083 3,394 1,637 2,269 104 2,430 1,672
Entertainment 912 1,067 531 1,054 988 646 613
Equip. Rental 0 0 0 0 0 0 95
Gas & Oil 144 111 476 385 554 72 748
Insurance Hazard 90 0 89 90 90 90 90
Insurance Worker's Comp. 102 0 0 0 0 0 0
License Fees 759 46 1,264 182 0 0 0
Misc. Expense 196 75 110 515 411 25 0
Office Supplies 1,475 678 783 830 781 831 337
Outside Services 0 0 14 (35) 8,868 1,149 0
Payroll Taxes 3,994 3,103 2,476 2,976 2,481 2,595 2,834
Plant Supplies 0 0 0 0 0 0 0
Postage 546 1,029 217 515 1,011 619 110
Printing 21 2,610 561 3,319 (2,580) 842 467
Professional Services 1,167 1,145 38 (10) 0 0 0
Rent 0 1,695 3,390 1,695 1,695 1,695 1,695
Repairs & Maint. 98 815 98 98 295 98 98
R & D 0 1,000 1,000 264 339 0 0
Salaries Admin. 11,959 6,203 1,137 7,10 8,084 6,797 6,699
Salaries Officers 7,213 8,620 ,917 7.717 8,117 7,917 7,917
Salaries Sales 13,092 16,842 22,256 17,598 16,842 18,902 18,902
Mill Taxes 0 0 0 0 0 52 52
Telephone 2,336 2,969 1,278 4,001 2,787 1,505 1,505
Travel 5,108 4,205 5,521 3,958 5,144 3,475 3,475
Utilities 105 96 92 93 12 122 122
Vehicle Repair 0 0 0 0 0 0 0
Vehicle Rents 1,306 1,516 1,174 1,441 1,504 1,455 1,455
Vehicle Reimbursement 1,619 1,996 1,791 2,600 3,186 1,625 1,625
Warehousing Costs 255 705 409 640 (1,582) 60 60
Total S, G&A Expenses 61,591 64,232 79,971 62,633 71,098 53,108 51,423
Operating Income (19,965) 838 (35,052) 24,671 51,187 63,755 (5,519)
Other Income/Expense
Other Income (Expense) (457) (446) (1,592) (1,156) (2,259) 4,121 (97)
Total Other Expense (457) (446) (1,592) (1,156) (2,259) 4,121 (97)
Net Income (20,422) 392 (36.644) 23,515 48,928 67,876 (5,616)
------- --- ------- ------ ------ ------ ------
-24.998% 0.37% -36.42% 13.29% 17.61% 25.45% -8.01%
A C T U A L P R O J E C T E D
Aug Sep Oct Nov Dec Total
<S> <C> <C> <C> <C> <C> <C>
Sales 225,000 300,000 150,000 62,628 51,514 1,892,377
Cost of Good Sold 128,255 155,023 75,661 33,543 20,051 992,161
Gross Profit 96,745 144,977 74,339 29,085 31,099 900,216
------ ------- ------ ------ ------ -------
43% 48% 50% 46% 61% 48%
Selling, General & Admin.
Accounting Fees 120 120 120 120 120 1,197
Advertising 0 0 0 0 0 200
Amortization 207 207 207 207 207 2,482
Bank Fes 60 60 50 50 50 291
Business Promotion 350 400 100 250 0 2,327
Commissions 4,624 8,996 1,588 970 193 27,240
Conferences & Meetings 1,500 250 250 0 0 4,963
Consulting Fees 3,032 3,061 3,010 3,010 3,001 37,992
Depeciation Expenses 474 474 474 474 474 5,688
Dues & Publications 125 210 100 100 50 3,987
Education & Training 225 725 175 75 275 1,703
Employee Benefits 3,043 3,043 3,043 2,535 2,535 28,788
Entertainment 760 415 415 340 302 8,043
Equip. Rental 145 145 120 20 20 545
Gas & Oil 805 840 337 332 342 5,146
Insurance Hazard 0 0 0 0 0 539
Insurance Worker's Comp. 0 0 0 0 0 102
License Fees 125 125 125 125 125 2,876
Misc. Expense 432 812 138 138 20 2,873
Office Supplies 960 755 755 720 720 9,625
Outside Services 0 0 0 0 0 7,996
Payroll Taxes 3,309 3,893 2,975 1,371 1,303 33,310
Plant Supplies 0 0 0 0 0 0
Postage 487 480 355 380 400 6,149
Printing 572 307 290 1,627 127 8,163
Professional Services 0 0 0 0 0 2,349
Rent 2,035 2,035 2,035 2,035 2,035 22,040
Repairs & Maint. 96 96 96 96 96 2,080
R & D 0 0 9 0 0 2,603
Salaries Admin. 11,968 7,801 7,801 7,801 7,801 91,157
Salaries Officers 5,417 5,417 5,417 5,417 5,417 82,503
Salaries Sales 18,902 18,902 18,217 7,171 7,171 189,556
Mill Taxes 1,130 2,267 351 0 0 11,448
Telephone 2,780 2,480 2,555 970 970 27,131
Travel 4,584 3,640 2,880 1,622 2,020 45,206
Utilities 150 150 150 150 150 1,503
Vehicle Repair 700 0 0 0 0 700
Vehicle Rents 1,958 1,806 1,376 1,776 1,176 17,693
Vehicle Reimbursement 1,760 1,750 1,180 650 650 20,431
Warehousing Costs 300 300 300 300 300 2,774
Total S, G&A Expenses 72,323 71,152 54,986 40,832 38,050 721,399
Operating Income 24,422 73,825 19,353 (11,747) (6,951) 178,817
Other Income/Expense
Other Income (Expense) (114) (111) (107) (102) (98) (2,418)
Total Other Expense (114) (111) (107) (102) (98) (2,418)
Net Income 24,308 73,714 19,246 (11,849) (7,049) 176,399
------ ------ ------ ------- ------ -------
10.80% 24.57% 12.83% -18.92% -13.78% 9.32%
</TABLE>
<PAGE>
HERC PRODUCTS INCORPORATED
CONSUMER PRODUCTS BUDGET 1997
<TABLE>
<CAPTION>
A C T U A L P R O J E C T E D
Jan Feb Mar Apr May Jun Jul
<S> <C> <C> <C> <C> <C> <C> <C>
Sales 202,880 318,392 173,434 114,365 123,515 148,548 144,314
Discounts (3,605) (4,844) (3,658) (3,721) (4,147) (4,677) (3,719)
Allowances (29,736) (18,466) 0 (1,568) 0 0 0
Returns (5,221) (1,971) (4,114) (907) (1,927) (10,601) (3,001)
Product Claims 0 198 3,141 3,431 1,338 17,847 10,171
Net Sales 164,318 293,309 168,803 111,600 118,779 151,115 147,765
Cost of Goods Sold 107,304 156,5583 95,817 52,167 58,601 74,461 75,404
Freight In 0 2,530 2,614 1,980 2,651 2,639 1,228
Freight Out 32,036 42,380 39,193 14,400 12,014 24,845 25,735
Warehouse Supplies 446 913 4,518 186 2,167 1,633 289
Total GOGS 139,786 202,406 142,142 68,733 75,433 103,578 102,656
Gross Profit 24,532 90,903 26,661 42,867 43,346 47,537 45,109
------ ------ ------ ------ ------ ------ ------
15% 31% 16% 38% 36% 31% 31%
Selling Expenses
Advertising 18,074 18,962 17,728 17,999 16,593 18,739 16,612
Auto 609 1,250 709 952 (434) 1,189 500
Commissions - Reps 7,341 13,790 8,446 5,580 (5,936) 8,289 7,388
Commissions - Sales 2,936 4,466 2,917 1,399 1,542 (12,846) 0
Customer Refunds 36 0 0 0 47 25 (25)
Insurance - Health 1,082 1,031 989 1,064 1,064 1,082 1,082
Payroll Sales 11,894 11,542 13,207 13,506 12,792 10,029 10,893
Payroll Expenses 910 883 1,042 1,033 979 1,413 833
Meals & Entertainment 55 902 486 569 (227) 310 350
Travel 675 3,548 2,902 3,485 1,529 2,145 1,500
Trade Shows 727 2,075 1,464 1,792 2,925 1,059 550
Total Selling Expenses 44,339 58,449 49,890 47,379 30,874 31,434 39,683
General & Administrative
Dues & Subscriptions 0 0 250 0 0 128 0
401k % Match 0 0 119 16 32 48 50
Licenses & Fees 0 0 350 62 91 319 77
Legal & Professional 0 323 148 479 2,623 497 604
Moving Expenses 0 0 22,000 44 (2,092) 0 0
Postage 218 625 398 151 68 41 25
Printing 16 32 271 40 40 1,165 58
Office Supplies 133 2,46 118 172 496 88 170
Product Development (42) 3,316 3,672 4,765 1,196 0 704
Telephone 531 782 1,594 1,083 656 404 318
Total G & A Expense 856 7,546 28,920 8,812 3,108 2,690 2,006
Total SG&A Expenses 45,195 85,995 78,810 54,191 33,982 34,124 41,689
Net Profit (20,663) 24,908 (52,149) (11,324) 9,365 13,413 3,420
------- ------ ------- ------- ----- ------ -----
-12.58% 8.49% -30.89% -10.15% 7.88% 8.88% 2.31%
A C T U A L P R O J E C T E D
Aug Sep Oct Nov Dec Total
<S> <C> <C> <C> <C> <C> <C>
Sales 155,000 170,000 185,000 200,000 215,000 2,150,446
Discounts (1,771) (1,943) (2,114) (2,286) (2,475) (38,943)
Allowances 3,500 3,500 3,500 3,500 3,500 (32,270)
Returns (192) (192) (192) (192) (192) (28,702)
Product Claims 638 699 761 823 885 39,931
Net Sales 157,174 172,064 186,955 201,845 216,735 2,090,463
Cost of Goods Sold 82,048 89,998 97,948 105,898 113,848 1,110,078
Freight In 0 0 0 0 0 13,642
Freight Out 14,725 15,300 16,650 18,000 19,350 274,628
Warehouse Supplies 314 344 374 404 433 12,022
Total GOGS 97,088 105,642 114,972 124,302 133,632 1,410,370
Gross Profit 60,087 66,422 71,983 77,543 83,104 680,093
------ ------ ------ ------ ------ -------
38% 39% 39% 38% 38% 33%
Selling Expenses
Advertising 16,667 16,667 16,667 16,667 16,667 208,042
Auto 500 500 500 500 500 7,275
Commissions - Reps 7,025 7,770 8,514 9,259 10,003 87,470
Commissions - Sales 0 0 0 0 0 414
Customer Refunds 50 50 50 50 50 333
Insurance - Health 1,082 1,082 1,082 1,082 1,082 12,804
Payroll Sales 10,893 10,893 10,893 10,893 10,893 138,328
Payroll Expenses 871 871 871 871 871 11,450
Meals & Entertainment 200 200 200 200 200 3,445
Travel 4,000 1,000 1,000 1,000 1,000 23,784
Trade Shows 1,600 0 0 400 0 12,592
Total Selling Expenses 42,889 39,033 39,778 40,922 41,267 505,937
General & Administrative
Dues & Subscriptions 0 0 0 0 0 378
401k % Match 50 50 50 50 50 515
Licenses & Fees 0 0 0 0 0 899
Legal & Professional 0 0 0 0 0 4,674
Moving Expenses 0 0 0 0 0 19,952
Postage 208 208 208 208 208 2,566
Printing 0 0 0 600 0 2,222
Office Supplies 125 125 125 125 125 4,270
Product Development 0 2,500 0 0 0 16,111
Telephone 200 200 200 200 200 6,368
Total G & A Expense 583 3,083 583 1,183 583 57,955
Total SG&A Expenses 43,472 42,117 40,361 42,106 41,850 563,892
Net Profit 16,614 24,305 31,621 35,437 41,253 116,201
------ ------ ------ ------ ------ -------
10.57% 14.13% 6.91% 17.58% 19.03% 5.56%
</TABLE>
<PAGE>
HERC PRODUCTS INCORPORATED
WELL KLEAN BUDGET 1997
<TABLE>
<CAPTION>
A C T U A L P R O J E C T E D
Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec. Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 4,657 6,645 5,065 5,100 6,000 4,580 6,395 10,000 25,000 25,000 20,000 20,000 148,442
Cost of Goods Sold 9,525 1,961 1902 1,440 2,132 1,109 2,008 3,400 8,500 8,500 6,800 6,8005 54,077
Gross Profit 5,132 4,684 3,163 3,60 3,868 3,471 4,387 6,660 16,500 16,500 13,200 13,200 94,365
----- ----- ----- ---- ----- ----- ----- ----- ------ ------ ------ ------ ------
35% 70% 62% 72% 64% 76% 69% 55% 66% 66% 66% 66^ 64$
Selling Expenses
Advertising 904 0 0 163 0 150 0 733 733 733 733 733 4,882
Auto 0 376 167 317 186 11 410 400 400 400 400 400 3,467
Consultant Fees 0 0 0 0 0 0 0 0 0 0 0 0 0
Payroll - Sales 3,000 3,000 3,000 3,000 3,000 3,000 3,000 7,000 4,000 4,000 4,000 4,000 44,000
Payroll Expenses 230 242 246 248 271 251 237 560 320 320 320 320 3,565
Commissions 0 161 211 236 541 287 191 800 2,000 2,000 1,600 1,600 9,627
Trade Shows 0 101 0 0 0 0 212 250 250 250 250 250 1,563
Travel 260 659 216 175 130 283 670 2,000 2,000 2,000 2,000 2,000 12,393
Postage 68 0 41 28 0 11 50 200 200 200 200 200 1,198
Insurance - Health 564 481 498 498 498 498 498 996 500 500 500 500 6,531
Meals & Entertainment 0 140 97 115 45 40 75 250 250 250 250 250 1,762
Supplies 0 0 0 80 0 0 75 75 75 75 75 455
Total Selling Expenses 5,026 5,160 4,476 4,780 4,751 4,531 5,343 13,264 10,728 10,728 10,328 10,328 89,443
General &
Administrative
401K 10% Match 0 0 0 0 0 0 0 0 0 0 0 0 0
Dues & Subscriptions 464 0 0 0 0 0 0 0 0 0 0 0 464
Employee Benefits 0 0 0 0 0 0 0 0 0 0 0 0 0
Equipment Rental 0 0 0 0 0 0 0 0 0 0 0 0 0
Legal & Prof. 0 0 235 102 0 0 0 0 0 0 0 0 337
License & Permits 0 0 0 0 0 0 0 0 0 0 0 0 0
Postage 0 41 0 0 0 26 87 0 0 0 0 0 154
Printing 0 0 0 0 0 0 0 25 25 25 25 25 125
R & D Expense 0 0 0 277 200 0 0 0 0 0 0 0 477
Taxes Other 0 0 0 0 0 0 0 0 0 0 0 0 0
Telephones 53 84 90 170 147 104 158 500 500 500 500 500 3,306
Total G & A Expenses 517 125 325 549 347 130 245 525 525 525 525 525 4,863
Total SG&A Expenses 5,543 5,285 4,801 5,329 5,098 4,661 5,588 13,789 11,253 11,253 10,853 10,853 94,306
Net Profit (411) (601) (1,638) (1,669) (1,230) (1,190) (1,201) (7,189) 5,247 5,247 2,347 2,347 59
----- ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
-3% -9% -32% -33% -21% -26% -19% -72% 21% 21% 12% 12% 0%
</TABLE>
<PAGE>
HERC PRODUCTS INCORPORATED
PROCESS WATER BUDGET 1997
<TABLE>
<CAPTION>
A C T U A L P R O J E C T E D
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 13,234 12,301 8,688 9,639 9,878 9,996 11,937 10,000 15,000 15,000 15,000 15,000 145,673
Cost of Goods Sold 3,319 4,902 2,458 4,145 2,976 2,587 3,165 3,200 4,800 4,800 4,800 4,800 45,952
Gross Profit 9,915 7,399 6,230 5,494 6,902 7,409 8,772 6,800 10,200 10,200 10,200 10,200 99,721
----- ----- ----- ----- ----- ----- ----- ----- ------ ------ ------ ------ ------
75% 60% 72% 57% 70% 74% 73% 68% 68% 68% 68% 68% 68%
Selling Expenses
Advertising 0 0 0 193 (193) 0 0 0 2,000 0 0 0 2,000
Auto 520 611 0 130 0 271 150 250 250 250 250 250 2,932
consulting Fees 0 0 0 0 0 0 0 0 0 0 0 0 0
Dues & Subscriptions 375 0 0 0 0 0 0 0 0 0 0 0 375
Freight & Postage 3 31 8 29 0 24 31 50 50 50 50 50 376
Insurance - Health 495 495 512 512 512 511 512 512 512 512 512 512 6,109
Meals & Entertainment 215 424 149 468 0 205 125 125 125 125 125 125 2,211
Payroll Expenses 306 306 306 306 306 306 306 306 30 306 306 306 3,672
Payroll Sales 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 48,000
Supplies 84 242 0 41 0 85 0 100 100 100 100 100 952
Trade Shows 0 0 0 60 979 0 0 0 0 0 1,500 0 2,539
Travel 1,282 748 1,076 2,167 0 818 500 1,000 1,000 1,000 1,000 1,000 11,591
Total Selling Expenses 7,280 6,857 6,051 7,906 5,604 6,220 5,624 6,343 8,343 6,343 7,843 6,343 80,757
General &
Administrative
401K Expense 10 0 50 20 10 60 40 40 40 40 40 40 390
Dues & Subscriptions 0 0 0 0 0 0 0 0 0 0 0 0 0
Employee Benefits 0 0 0 0 0 0 0 0 0 0 0 0 0
Printing 0 0 0 0 12 0 0 0 0 0 0 0 12
Supplies 11 0 0 0 0 0 7 0 0 0 0 0 18
Taxes Other 0 0 0 0 0 0 0 0 0 0 0 0 0
Telephone 134 284 148 92 106 83 92 150 150 150 150 150 1,689
Total G&A Expenses 155 284 198 112 128 143 139 190 190 190 190 190 2,109
Total SG&A Expenses 7,435 7,141 6,249 8,018 5,732 6,363 5,763 6,533 8,533 6,533 8,033 6,533 82,866
Net Profit 2,480 258 (19) (2,524) 1,170 1,046 3,009 267 1,667 3,667 2,167 3,667 16,855
----- --- --- ------ ----- ----- ----- --- ----- ----- ----- ----- ------
19% 2% 0% -26% 12% 10% 255 3% 11% 24% 14% 24% 12%
</TABLE>
<PAGE>
HERC PRODUCTS INCORPORATED
CHLORID BUDGET 1997
<TABLE>
<CAPTION>
A C T U A L P R O J E C T E D
Jan Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec. Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 10,685 5,250 0 5,008 5,145 5,187 5,355 5,200 10,000 10,000 10,000 10,000 81,830
Cost of Goods Sold 1,684 819 0 1,166 872 706 999 1,768 3,400 3,400 3,400 3,400 21,614
Gross Profit 9,001 4,431 0 3,842 4,273 4,481 4,356 3,432 6,600 6,600 6,600 6,600 60,216
Net Profit 9,001 4,431 0 3,842 4,273 4,481 4,356 3,432 6,600 6,600 6,600 6,600 60,216
----- ----- ---- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------
84.24% 84.40% 0.00% 76.72% 83.05% 86.39% 81.34% 66.00% 66.00% 66.00% 66.00% 66.00% 73.59%
</TABLE>
ACCOUNT TRANSFER AND PURCHASE AGREEMENT
This Account Transfer Agreement (this "Agreement") is dated this 22nd day of
September, 1997, and is between KBK Financial, Inc., a Delaware corporation
authorized to do business in Texas and doing business as HER/KBK Acceptance
Corporation ("KBK"), H.E.R.C. PRODUCTS INCORPORATED, a Delaware corporation, and
H.E.R.C. CONSUMER PRODUCTS, INC., an Arizona corporation (collectively referred
to herein as "Seller"). This Agreement shall become effective as of the day it
is accepted in the State of Texas by KBK as indicated at the end hereof by the
date and signature on behalf of KBK.
WHEREAS, KBK is in the business of purchasing accounts receivable
("accounts"); and
WHEREAS, Seller desires, from time to time during the term of this
Agreement, to sell accounts to KBK; and
WHEREAS, the parties hereto desire to enter into this Agreement to
govern the purchase and sale of accounts;
NOW THEREFORE, in consideration of the premises, the mutual agreements
herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:
1. Offer of Accounts. At its election from time to time during the term of
this Agreement, Seller agrees to offer for sale to KBK certain of its
accounts arising out of sales of goods, or services rendered, by
Seller, and to sell to KBK on the terms set forth in this Agreement
such of the offered accounts as KBK may accept for purchase in the
State of Texas. KBK shall have the absolute right in its sole
discretion to reject any or all offered accounts, whether or not KBK
has previously purchased accounts of any particular account debtor
hereunder. The parties agree that, without the prior consent of KBK,
the maximum Gross Amount (as defined below) of accounts that KBK may
purchase hereunder at any time, together with the Gross Amount of
accounts previously purchased by KBK from Seller hereunder which then
remain outstanding, will not exceed Six Hundred Thousand and No/100
Dollars ($600,000.00) (the "Facility Amount"). KBK's consent to
purchase accounts in excess of such amount may be evidenced by KBK's
acceptance for purchase of such offered accounts.
2. Purchase and Sale of Accounts. Each account purchase by KBK hereunder
shall be purchased by KBK without recourse against Seller. All losses
incurred by KBK from the financial inability of the applicable account
debtor to pay such account over and above any and all Residual Payments
(as hereinafter defined) and Reserve (as hereinafter defined) amounts
offset shall be borne solely by KBK; provided, however, that nothing in
this Agreement shall be construed to relieve Seller from liability for
any breach by Seller of any representation, warranty, or agreement of
Seller contained herein. Notwithstanding any provision in this
Agreement to the contrary, it is contemplated by and the intention of
the parties hereto that accounts of Seller may be considered and
purchased as one account (herein a "batch") and the terms "account" and
"accounts" as used herein may also refer to and mean a "batch" or
"batches," as the case may be.
In connection with each offer of accounts to KBK, Seller agrees to
deliver to KBK a written assignment of such accounts, together with a
copy of all invoices relating to such accounts, and evidence of
delivery of the related goods or performance of the related services
(and, if requested, the original purchase orders from the applicable
customers), all in a form reasonably satisfactory to KBK. In order for
an account to be eligible for purchase by KBK, the related invoice must
set forth, as the sole address for payment, the following post office
box: P.O. Box 52849, Phoenix, Arizona 85072-2849 ("Authorized
Remittance Address") (or, upon notice from KBK, another post office box
of KBK) and, in the case of payments to be effected by wire transfer or
other electronic means, the related invoice must set forth, as the sole
bank account for such payment, a bank account of KBK (or a third party
designated by KBK) designated by KBK from time to time (except in each
case as otherwise agreed in writing by KBK). KBK's acceptance for
purchase of offered accounts shall be evidenced by KBK's tendering of
the Initial Payment (as hereinafter defined) to Seller or otherwise
delivering to Seller a schedule of accounts accepted for purchase by
KBK. Seller's transference of offered accounts shall not be effective
as to any accounts not accepted for purchase by KBK.
Seller hereby sells, transfers, assigns and otherwise conveys to KBK
(as a sale by Seller and a purchase by KBK, and not as security for any
indebtedness or other obligation of Seller to KBK) all right, title and
interest of Seller in and to all accounts accepted by KBK for purchase
hereunder, together with all related rights (but not obligations) of
Seller with respect thereto, including all contract rights, guarantees,
letters of credit, liens in favor of Seller, insurance and other
agreements and arrangements of whatever character from time to time
supporting or securing payment of such accounts and all right, title
and interest of Seller in any related goods, including Seller's rights
and remedies under Article 2, Part 7 of the applicable Uniform
Commercial Code ("UCC"). The foregoing sale, transfer, assignment and
conveyance does not constitute and is not intended to result in an
assumption by KBK of any obligation of Seller or any other person in
connection with the accounts or related rights or under any agreement
or instrument relating thereto. Seller agrees to execute and deliver
such bills of sale, assignments, letters of credit, notices of
assignment, financing statements (including continuation statements)
under the applicable UCC and other documents, and make such entries and
markings in its books and records, and to take all such other actions
(including the negotiation, assignment or transfer of negotiable
documents, letters of credit or other instruments) as KBK may request
to further evidence or protect the sales and assignments of accounts
and related rights to KBK hereunder, as well as KBK's interest in any
returned goods referred to in Section 7 hereof.
3. Terms of Accounts. Except as otherwise may be agreed to in writing by
KBK from time to time, the terms of sale offered by Seller to its
account debtors with respect to all accounts offered to KBK for
purchase hereunder shall be NET 30 DAYS. After an account has been
purchased by KBK, Seller shall not have the right to vary the terms of
sale set forth in the invoice relating to such account, or any other
aspect of the account, except in Seller's capacity as agent for KBK for
purposes of collection of accounts purchased by KBK as set forth in
Section 8 hereof, and then only with the prior written consent of KBK.
4. Purchase Price. The purchase price for each account purchased hereunder
shall consist of and be paid by the Initial Payment and the Residual
Payment. The Initial Payment shall be payable by KBK to Seller on the
business day that KBK accepts for purchase the related account, and the
Residual Payment shall be payable by KBK to Seller within five business
days after KBK receives and deposits the proceeds of collection for the
subject account in an amount equal to the Net Amount (as hereinafter
defined) of such account (subject to KBK's right to withhold payment of
Residual Payments hereunder, and subject to KBK's right to withhold,
offset, and charge each as described below).
"Initial Payment" means Eighty percent (80%) of the Gross Amount of an
account. "Gross Amount" of an
1
<PAGE>
account means the gross face Amount payable pursuant to the related
invoice. "Net Amount" of an account means the Gross Amount of such
account, less all discounts, deductions and allowances. "Residual
Payment" with respect to an account means the aggregate amount
collected with respect to such account, less the sum of (i) the Initial
Payment with respect to such account, (ii) the KBK Discounts (as
hereinafter defined), (iii) any and all attorneys' fees and other costs
of collection.
5. Fixed and Variable Discounts. "Fixed Discount" means a discount of One
percent (1.0%) of the Gross Amount of such account. "Variable Discount"
means a discount computed on the Initial Payment and accruing on the
basis of actual days elapsed from the date of Initial Payment until and
including five business days after KBK receives and deposits the
proceeds of collection of such account at a per annum rate equal to
KBK's Base Rate (as hereinafter defined) in effect on the date of
purchase of such account plus Two percent (2.0%) per annum; provided
however, in no event shall the Variable Discount with respect to any
account purchased hereunder be less than seven percent (7.0%) per
annum. "Base Rate" means that per annum variable rate (expressed as a
per annum percentage based on a year consisting of 360 days) determined
from time to time by KBK without notice to Seller as KBK's Base Rate
for purposes of calculating variable discounts under KBK's account
transfer agreements. The Fixed Discount and the Variable Discount shall
be collectively referred to herein as the "KBK Discounts." The KBK
Discounts may be subject to one or more adjustments during the term of
this Agreement if a Performance Based Pricing Addendum is attached
hereto. If a Performance Based Pricing Addendum is attached hereto, it
is then made a part hereof as though fully written herein.
6. Reserve. In the event that KBK believes Seller has breached any
material representation, warranty, covenant or agreement contained
herein (including, without limitation, in the event an account
purchased by KBK becomes a Disputed Account as hereinafter defined),
any account is not paid in full within 90 days from the date of
purchase of such account, or KBK deems itself insecure hereunder, KBK
may at its election, withhold and accumulate the payment of the
Residual Payments ("Reserve") with respect to any or all accounts
purchased hereunder to the extent necessary to maintain a Reserve in an
amount up to the sum of (a) the total Initial Payments made by KBK with
respect to accounts purchased by KBK hereunder which remain
uncollected, plus (b) the total of the KBK Discounts with respect to
such accounts and (c) such other amounts which may become due by Seller
to KBK hereunder or under any other agreement. Seller hereby authorizes
KBK to offset and charge any and all amounts for which Seller or the
Reserve may be obligated to pay to KBK pursuant to the terms of this
Agreement against the Reserve, and at KBK's election, against any funds
of Seller in the possession or control of KBK, from whatever source.
However, if, on any business day that KBK regularly makes a payment to
Seller for accounts purchased, none of the foregoing conditions exists
and no other breach of this Agreement by Seller exists, then KBK shall
distribute to Seller the Residual Payments then due and all funds it
then has on hand that it has collected from accounts that KBK has not
then purchased.
7. Certain Security. For the purpose of securing KBK (a) in the payment of
any and all sums of money that may become due and owing KBK from Seller
by reason of this Agreement, and (b) in the performance by Seller of
Seller's obligations hereunder, Seller hereby grants to KBK a security
interest in (i) all of Seller's present and future inventory, accounts,
account and contract rights, contracts, drafts, acceptances, documents,
instruments, chattel paper, deposit accounts, general intangibles and
all products and proceeds therefrom, including all returned or
repossessed goods, as well as all books and records pertaining to all
of the foregoing, (ii) all amounts due as Residual Payments or withheld
by KBK as the Reserve pursuant to Section 6 hereof and (iii) all money
and other funds of Seller now or hereafter in the possession, custody,
or control of KBK, from whatever source. Seller agrees to execute and
deliver such financing statements under the applicable UCC and other
documents, and make such entries and markings in its books and records
and to take all such other actions, as KBK may request to further
evidence, perfect, preserve or protect the security interest granted to
KBK hereunder. KBK shall have all rights and remedies in respect of the
lien and security interest herein granted to KBK hereunder. KBK shall
have all rights and remedies in respect of the lien and security
interest herein granted as are provided in this Agreement, the UCC and
other applicable law, including the right at any time, before or after
any default by Seller of any of its obligations hereunder, to notify
account debtors and obligors on instruments to make payment to KBK (or
its designee) and to take control of proceeds to which KBK is entitled,
and to apply proceeds to (in addition to other obligations of Seller to
KBK) the reasonable attorneys' fees and legal expenses incurred by KBK
in connection with the disposing of collateral or the other exercise of
rights and remedies by KBK.
In the event a security interest has heretofore been granted
and given to KBK by Seller in a prior agreement(s) or document(s) to
secure certain obligations, then, in such event, and notwithstanding
anything in this Agreement to the contrary, including Section 23
hereof, the lien and security interest herein granted and given to KBK
is in renewal and extension, and not in extinguishment of, all such
prior liens and security interests and are valid and subsisting liens
and security interests to secure all prior, existing, and new
obligations of Seller to KBK hereunder and under any such prior
agreements, which obligations are likewise herein renewed and extended,
in any manner, including any action required in connection with or by
virtue of the United States Bankruptcy Code (the "Bankruptcy Code").
8. Servicing. KBK hereby appoints Seller as servicing agent for KBK
("Servicer") for the purpose of expediting the payment of accounts
purchased by KBK hereunder which become past due. Servicer agrees to
maintain an active, on-going and regular dialogue with each Account
Debtor. Servicer further agrees to utilize all powers, influences and
rights and take every action within its control in accordance with its
customary practices and applicable law to expedite the collection of
the accounts purchased by KBK which become past due and direct such
payments in specie exclusively to the Authorized Remittance Address.
Seller will furnish to KBK, upon request, any and all papers,
documents, and records in its possession or control related to accounts
purchased by KBK hereunder, or related to Seller's business
relationship with the respective account debtors, and agrees to
cooperate fully with KBK in all matters related to collection of
accounts purchased by KBK hereunder. KBK reserves the right to
terminate such servicing relationship at any time with or without cause
and without notice to Servicer.
Seller authorizes KBK to forward directly to account debtors statements
or invoices on accounts purchased by KBK hereunder, and to request
payment at such address or to such bank account as may be designated by
KBK. Seller agrees that, if any payment is made to Seller on any
account purchased by KBK from Seller hereunder, Seller (i) will hold
such payment in trust for KBK, (ii) will not commingle such payment
with any funds of Seller, and (iii) will deliver such payment to KBK,
in the exact form received, by the close of business on the next
business day following receipt thereof by Seller. If any goods relating
to an account purchased by KBK hereunder shall be returned to or
repossessed by Seller, Seller shall give prompt notice thereof to KBK
and shall hold such goods in trust for KBK, separate and apart from
Seller's own property, and such goods shall be owned solely by KBK and
be subject to KBK's direction and control. Seller shall properly store
and protect such goods and agrees to cooperate fully with KBK in any
subsequent disposition thereof for the benefit of KBK.
2
<PAGE>
Seller authorizes to collect, sue for and give releases for in the name
of Seller or KBK in KBK's sole discretion, all amounts due on accounts
sold to KBK hereunder. Seller specifically authorizes KBK to endorse,
in the name of Seller, all checks, drafts, trade acceptances or other
forms of payment tendered by account debtors in payment of accounts
sold to KBK hereunder and made payable to Seller. KBK shall have no
liability to Seller for any mistake in the application of any payment
received with respect to any account, IT BEING THE SPECIFIC INTENT OF
THE PARTIES HERETO THAT KBK SHALL HAVE NO LIABILITY HEREUNDER FOR ITS
OWN NEGLIGENCE except for its own gross negligence or willful
misconduct. Seller hereby waves notice of nonpayment of any account
sold to KBK hereunder, as well as any and all other notices with
respect to such accounts, demands or presentations for payment, and
agrees that KBK may extend or renew from time to time the payment of,
or vary or reduce the amount payable under or compromise any of the
terms of, any account purchased by KBK, in each case without notice to
or the consent of Seller. Seller further authorizes KBK (or its
designee) to open and remove the contents of any post office box of
Seller of KBK (or its designee) which KBK believes contains mail
relating to accounts, and in connection therewith or otherwise, to
receive, open and dispose of mail addressed to Seller which KBK
believes may relate to accounts, and in order to further assure receipt
by KBK (or its designee) of mail relating to such accounts, to notify
other parties including customers and postal authorities to change the
address for delivery of such mail addressed to Seller to such address
as KBK may designate. KBK agrees to use reasonable measures to preserve
the contents of any such mail which does not relate to accounts
purchased hereunder and to deliver same to Seller (or, at the election
of KBK, to notify Seller of the address where Seller may take
possession of such contents; provided, if Seller does not take
possession o f such contents within 30 days after notice from KBK to
take possession thereof, KBK may dispose of such contents without any
liability to Seller). Seller hereby irrevocably appoints KBK (and any
employee, agent or other person designated by KBK, any of whom may act
without joinder of the others) as Seller's attorneys-in-fact and
agents, in Seller's name, place and stead, to take all actions, execute
and deliver all notices, negotiate such instruments and other
documents, as may be necessary or advisable to permit KBK (or its
designee) to take any and all of the actions described in this
paragraph or to carry out the purpose and intent thereof, as fully and
for all intents and purposes as Seller could itself do, and hereby
ratifies and confirms all that said attorneys-in-fact and agents may
door cause to be done by virtue hereof. This power of attorney is
irrevocable and deemed coupled with an interest.
9. Representations and Warranties of Seller. Seller hereby represents
and warrants to KBK with respect to each account offered by Seller to
KBK hereunder that (i) Seller is the sole owner of such account, which
account is free and clear of any liens (other than the lien granted by
Seller to InterEquity Capital Partners, L.P. which is subordinate to
KBK's lien), claims, or encumbrances whatsoever, and upon each purchase
by KBK of such account, KBK will own such account free and clear of any
liens, claims, or encumbrances whatsoever and the consideration
received by Seller from KBK, for such account is fair and adequate,
(ii) Seller is the sole obligee under such account, and has full power
and is duly authorized to sell, assign, and transfer such account to
KBK hereunder, and the date of sale of such account is not more than 30
days after the date of the original invoice relating to such account,
(iii) Seller has no knowledge of any fact which would lead it to expect
that, at the date of sale of such account to KBK, such account will not
be paid in the full stated amount when due, (iv) such account arises
out of a bona fide sale of conforming goods or the bona fide rendition
of services by Seller, and all underlying goods have been delivered to
the account debtor, or all underlying services have been rendered by
Seller, in complete fulfillment of all of the terms and conditions of a
fully executed, delivered, and unexpired contract with the account
debtor, and the account debtor has accepted the goods or services to
which the account relates, (v) such account is denominated and payable
only in United Sates dollars and constitutes the legal, valid and
binding payment obligation of the account debtor, enforceable in
accordance with its terms (except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, or
other similar laws affecting the enforcement of creditors' rights
generally), (vi) such account is current and not past due as of the
date of purchase by KBK, (vii) such account has not been paid by or on
behalf of the account debtor in whole or in part, and is not and will
not be subject to any dispute, decision, set-off, recoupment, defense
or claim by the account debtor, whether relating to price, quality,
quantity, workmanship, delay in delivery, set off, counterclaim or
otherwise, and the account debtor has not and will not claim any
defense of any kind or character (other than bankruptcy or insolvency
arising after the date of sale of such account to KBK hereunder)
against payment of such account, and (viii) as of the date of purchase
by KBK of such account, the account debtor with respect to such account
is located (within the meaning of Section 9-103 of the applicable UCC)
and has its principal executive offices within the United States.
Seller further represents and warrants to KBK that (a) the execution,
delivery and performance of this Agreement by Seller have been duly
authorized and this Agreement constitutes the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with its
terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally), (b)
Seller is not a debtor in any bankruptcy proceedings, insolvent,
undergoing composition or adjustment of debts or unable to make payment
of its obligations when due and no petition in bankruptcy has been
filed by or against Seller, nor has Seller or any Affiliate filed any
petition seeking an adjustment of its debts or for any other relief
under the Bankruptcy Code, and no application for appointment of a
receiver or trustee for all or a substantial part of the property of
Seller is pending, nor has Seller made any assignment for the benefit
of creditors, (c) Seller is not in default of any debt or obligation to
KBK, any other lender or other creditor, and (d) Seller's principal
place of business, chief executive office, the location where all
records concerning its books of account and contract rights are kept,
and (except any additional locations listed on Schedule A attached
hereto) the sole location of any property subject to the security
interest granted herein is its "Address for Notices" set forth on the
signature page hereon. Seller agrees not to change the location of its
principal place of business or chief executive office, the location
where its records concerning its books of account or contract rights
are kept, or the location of any property subject to the security
interest granted herein, without giving at least 15 days advance
written notice thereof to KBK pursuant to Section 20 herein. Seller
does business under no trade or assumed names except as may be listed
on Schedule A attached hereto.
Each representation and warranty of Seller contained in this Agreement
shall be deemed to be made at and as of the date hereof and at and as
of the date of each sale of accounts to KBK hereunder.
Seller agrees to indemnify and hold all Indemnified Persons (as
hereinafter defined) harmless against any breach by Seller of any
representation, warranty, or agreement of Seller contained in this
Agreement, and against any claims or damages arising out of the
manufacture, sale, possession or use of, or otherwise relating to,
goods, or the performance of services, associated with or relating to
accounts or related rights purchased (or with respect to which a
security interest is granted) hereunder. The term "Indemnified Persons"
shall mean KBK and its officers, directors, shareholders, employees,
attorneys, representatives, agents, Affiliates, successors and assigns.
Seller agrees to notify KBK immediately of any breach by Seller of any
representation, warranty or agreement of Seller contained herein or
should any representation, warranty or agreement made herein become
untrue or false at any time. Seller further agrees to notify KBK
immediately of the assertion by any account debtor of any dispute or
other claim (including any defense or offset asserted by any account
debtor) with respect to any
3
<PAGE>
account sold to KBK hereunder, or with respect to any related goods or
services ("Disputed Accounts"). Upon KBK's request, Seller agrees to
settle, at its own expense and for the benefit of KBK, all such
Disputed Accounts; provided that any such settlement shall be made only
with the prior written consent of KBK. Unless KBK is advised in writing
by Seller to the contrary, any account that has not been approved by
the account debtor within seventy-five (75) days from the date of the
invoice upon which the account is based, shall be deemed to be a
Disputed Account. As to any Disputed Account, KBK shall have the right,
in its sole discretion, (i) to settle at the expense of Seller
(including all attorneys' fees and expenses of KBK) and for the benefit
of KBK any such dispute or claim upon such terms as KBK may in its sole
discretion deem advisable of (ii) to assign the related account to
Seller, without recourse to KBK, and charge any unpaid balance with
respect thereto (up to the amount of the Initial Payment with respect
thereto and KBK's Discounts through the date of such charge with
respect thereto) against the Reserve or deduct such unpaid balance from
any Initial Payments or against any money or other funds of Seller in
the possession, custody or control of KBK, from whatever source. Seller
agrees that, in lieu of KBK charging any such unpaid balance against
the Reserve, Initial Payments or against such other funds, KBK may
require Seller to pay (and Seller hereby agrees to pay) to KBK on
demand any such unpaid balance. An account with respect to which the
account debtor has asserted an Insolvency Claim is not a Disputed
Account. As used herein, "Insolvency Claim" means any defense or other
claim by an account debtor with respect to an account sold to KBK
hereunder arising solely out of the bankruptcy or insolvency of the
account debtor or the financial inability of the account debtor to pay,
if Seller has not breached its representation contained in clause (vi)
of the first paragraph of this Section. Notwithstanding anything herein
to the contrary, KBK shall have the right to charge all accounts not
paid because of an Insolvency Claim against the Reserve and such charge
shall have priority over ad be paid before any Disputed Account charge.
Seller agrees to maintain the additional covenants set forth in the
Addendum attached hereto.
10. Financial Statements. Seller represents and warrants that all financial
and other information provided by Seller to KBK in connection with or
in Seller's application to KBK or to induce KBK to enter into this
Agreement is true, complete and correct in all material respects.
Seller agrees to furnish to KBK (i) within 90 days after the last day
of each fiscal year of Seller, a consolidated statement of income and a
consolidated statement of cash flows of Seller for such fiscal year,
and a consolidated balance sheet of Seller as of the last KBK, together
with a copy of any report to management delivered to Seller by such
accountants in connection therewith, and (ii) within 45 days after the
last day of each fiscal quarter of Seller, an unaudited consolidated
statement of income and statement of cash flows of Seller for such
fiscal quarter, and an unaudited consolidated balance sheet of Seller
as of the last day of such fiscal quarter. Seller, represents and
warrants that each such statement of income and statement of cash flows
will fairly present, in all material respects, the results of
operations and cash flows of Seller for the period set forth therein,
and that each such balance sheet will fairly present, in all material
respects, the financial condition of Seller as of the date set forth
therein, all in accordance with generally accepted accounting
principles applied on a consistent basis, except as otherwise noted in
the accompanying auditors' report (or, with respect to unaudited
financial statements, in the notes thereto). Seller also agrees to
furnish to KBK, upon request, such additional financial and business
information concerning Seller and its business as KBK may reasonably
request, including copies of its Form 941 returns filed with the
Internal Revenue Service and evidence of payment of related taxes. KBK
and its agents, representatives and accountants shall have the right,
at all times during normal business hours and without prior notice to
Seller, to conduct an audit or other examination of the financial and
business records of Seller and to examine and make copies of all books
and records of Seller for the purpose of assuring or verifying
compliance by Seller with the terms of this Agreement, and Seller
agrees to cooperate fully with KBK and its agents, representatives, and
accountants in connection therewith and to timely pay all costs
associated with such audits at a rate equal to $650.00 per day, per
person, plus out-of-pocket expenses. Seller agrees to properly reflect
the effect of this Agreement, and all sales related thereto, in all
financial reports and disclosures, written or otherwise, provided to
Seller's creditors and other interested parties. Seller specifically
agrees that all accounts purchased by KBK will be excluded from
Seller's reported accounts receivable balances. Seller also
specifically agrees to immediately notify KBK of any material adverse
change in Seller's financial condition or business.
11. Taxes. All taxes and governmental charges of any kind imposed with
respect to the sale of goods or the rendering of services relating to
accounts purchased by KBK hereunder shall be for the account of, and
paid by, Seller.
12. Fees. Seller hereby agrees to pay KBK on the execution hereof a
one-time origination fee (the "Origination Fee") of Six Thousand and
no/100 dollars ($6,000.00). Seller and KBK acknowledge and agree that
the Origination Fee is intended as reasonable compensation to KBK for
making this facility available under the terms of this Agreement and
for no other purpose.
Seller hereby agrees to pay to KBK a termination fee equal to Two
percent (2.0%) of the Facility Amount (the "Termination Fee") and the
payment shall be an obligation of Seller secured under Section 7
hereof. This Termination Fee is payable upon termination of this
Agreement by Seller for any reason or upon termination by KBK at its
election for the reasons set forth in the second sentence of Section 13
below. However, if this Agreement is so terminated after the expiration
of one (1) year from the date of KBK's execution hereof, but before the
expiration of two (2) years from such date, one-half of the Termination
Fee shall be waived. If the Agreement is terminated more than two (2)
years after the date of KBK's execution hereof, all of the Termination
Fee shall be waived.
13. Termination. This Agreement may be terminated by either party hereto by
delivery of written notice of termination of this Agreement to the
other party specifying the date of termination, which date shall be at
least 30 days after the date such notice is given. KBK may, at its
election, terminate this Agreement immediately and without the
requirement of notice to Seller if (i) Seller shall fail to perform any
of its obligations hereunder or shall breach any of its representations
and warranties hereunder, (ii) Seller shall become insolvent or suspend
all or a substantial part of its or their business, (iii) a petition
under the Bankruptcy Code or any other insolvency or debtor statute
shall be filed by or against Seller or any receivership proceedings
with respect thereto shall commence, (iv) any guarantee of any of
Seller's obligations hereunder shall be terminated or become impaired,
(v) an event of default occurs under any other agreement now or
hereafter executed between Seller and KBK, or (vi) KBK otherwise
determines that it is insecure hereunder.
Termination of this Agreement shall not affect the rights and
obligations of the parties hereunder with respect to transactions
occurring on or prior to the date of such termination, and this
Agreement shall continue to govern the rights and obligations of the
parties hereto with respect to accounts purchased by KBK from Seller on
or prior to the date of such termination. All security interests
granted or contemplated by this Agreement shall survive the termination
of this Agreement until all amounts payable to KBK with respect to
transactions
4
<PAGE>
occurring on or prior to the date of termination have been paid to KBK,
and Seller has performed all its obligations to KBK with respect to
such transactions and all obligations under this Agreement including
but not limited to payment of any fees owning hereunder.
14. Notice of Proposed Refinancing. Seller hereby agrees that in the event
(a) Seller receives a written proposal from any third party to provide
financing or factoring ("Proposed Refinancing"), (b) the terms of the
Proposed Refinancing are acceptable to Seller, and (c) Seller is
considering accepting the Proposed Refinancing from the Offeror
("Offeror"), Seller will immediately advise KBK in writing of the
identity of the Offeror, the complete terms and conditions of the
Proposed Refinancing and provide KBK a full and complete copy of all
written correspondence between Seller and Offeror describing the
Proposed Refinancing. Seller agrees not to accept the Proposed
Refinancing from the Offeror until at least 10 business days after
delivery of the foregoing items to KBK.
15. Attorney's Fees, Litigation Expense. Seller agrees to reimburse KBK
upon demand for KBK's attorneys' fees, court costs and other fees and
expenses incurred in collecting any sums due or to become due to KBK
hereunder, enforcing any of KBK's rights under this Agreement and all
actions taken by KBK that it deems necessary or desirable under the
Bankruptcy Code or should any provisions of Bankruptcy Code be
applicable to any rights or obligations of any party to this Agreement,
as well as all appearances, motions, and actions to which KBK may be or
become a party in any bankruptcy case.
16. Governing Law; Venue; Submission to Jurisdiction. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION
OR NONPERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN RESPECT
OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF TEXAS. SELLER AND KBK EACH AGREE
THAT TARRANT COUNTY, TEXAS SHALL BE THE EXCLUSIVE VENUE FOR LITIGATION
OF ANY DISPUTE OR CLAIM ARISING UNDER OR RELATING TO THIS AGREEMENT,
AND THAT SUCH PARISH IS A CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH
DISPUTE OR CLAIM. SELLER AND KBK EACH CONSENT TO THE PERSONAL
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN TARRANT COUNTY,
TEXAS FOR THE LITIGATION OF ANY SUCH DISPUTE OR CLAIM. SELLER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
17. Waiver of Jury Trial. SELLER AND KBK EACH HEREBY IRREVOCABLY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO ATRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH.
18. Amendments; Waivers. This Agreement may be amended only in writing
signed by the parties hereto. No failure on the part of KBK to
exercise, and no delay by KBK in exercising, and no course of dealing
by KBK with respect to, any right, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder by KBK
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The remedies of KBK hereunder are
cumulative and not exclusive of any remedies provided by law.
19. Notices. All notices and other communications provided for herein shall
be given or made in writing and telecopied or delivered by courier or
mail to the intended recipient at the "Address for Notices" specified
opposite its name on the signature page hereto, or at such other
address or telecopy number as shall be designated by a party to the
other party in the manner specified in this Section. All such notices
and other communications shall be deemed to have been duly given when
transmitted by telecopier (with receipt thereof confirmed by
telecopier) or personally delivered or, in the case of a mailed notice,
upon deposit in the United States Postal System postage prepaid and
properly addressed, in each case given or addressed as aforesaid.
20. Indemnification. Seller agrees to indemnify, defend, and hold the
Indemnified Persons harmless from and against any and all loss,
liability, obligation, damage, penalty, judgment, claim, deficiency and
expense (including interest, penalties, attorneys' fees and amounts
paid in settlement) owing to any third party to which any Indemnified
Person may become subject arising out of or based upon this Agreement
as well as any prior relationship of Seller with any Indemnified
Person, WHETHER BY ALLEGED OR ACTUAL NEGLIGENCE OF ANY INDEMNIFIED
PERSON, except and to the extent caused by the gross negligence or
willful misconduct of any Indemnified Person.
21. Waiver and Release. Seller, by its execution of this Agreement, does
hereby covenant, warrant and represent that (i) the benefit received
and to be received by Seller as a result of this Agreement shall and
does constitute sufficient and valuable consideration to Seller for
entering into and performing its obligations under this Agreement, (ii)
the execution, delivery, and performance by Seller of this Agreement
and the consummation of the transaction contemplated thereby are (a)
not prohibited by any indenture, contract or agreement, law or
corporate or partnership documents, including, but not limited to the
Bylaws and Articles of Incorporation or Certificate of Incorporation,
as the case may be, if Seller is a corporation, or Seller's partnership
agreement, if Seller is a partnership, (b) duly authorized by
appropriate action of Seller, and (c) legally valid and binding
obligations of Seller and will continue to be such and enforceable
against the Seller according to their terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally), (iii) that this Agreement
will be executed and delivered by properly authorized officer of
Seller, (iv) KBK has no obligation to enter into this Agreement except
for the considerations herein expressed, and (v) the representations
and warranties set forth herein will survive the execution and delivery
of this Agreement.
22. Captions; Final Agreement; Counterparts; Successors and Assigns.
Captions and headings appearing herein are included solely for
convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement. This Agreement
represents the final agreement between the parties hereto with respect
to the subject matter hereof, and supersedes all prior proposals,
negotiations, agreements and understandings, oral or written, related
to such subject matter. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the
same instrument. This
5
<PAGE>
Agreement may not be assigned by Seller without the prior written
consent of KBK. This Agreement may be assigned by KBK, and any accounts
purchased by KBK hereunder, together with all rights and interests
related thereto granted to KBK hereunder, may be assigned by KBK, all
without notice to or the consent of Seller. This Agreement shall be
binding upon the parties hereto and their respective successors and
permitted assigns.
23. Effectiveness of Agreement. This Agreement shall become effective only
upon acceptance by KBK at its offices in Fort Worth, Tarrant County,
Texas as evidenced by KBK's signature hereon.
24. True Sales. Seller and KBK acknowledge and agree that the sale of
accounts contemplated and covered hereby are fully intended by the
parties hereto as true sales governed by the provisions of Article
5069-1H.103 of the Texas Revised Civil Statutes and Section 9.102 of
the Texas Business and Commerce Code, as each may be amended from time
to time, and, accordingly, legal and equitable title in all of Seller's
accounts sold to and purchase by KBK from time to time hereunder will
pass to KBK.
IN WITNESS WHEREOF, the parties hereto, heretofore duly authorized, have
executed this Agreement as of the date first set forth above.
Address for Notices SELLER:
2202 W. LONE CACTUS DRIVE H.E.R.C. PRODUCTS INCORPORATED
SUITE 15
PHOENIX, ARIZONA 85027
Telecopy No: (602) 233-1107 By: /s/ S. Steven Carl
-------------------------------------
Name: S. Steven Carl
Title: C.E.O.
2202 W. LONE CACTUS DRIVE H.E.R.C. CONSUMER PRODUCTS, INC.
SUITE 15
PHOENIX, ARIZONA 85027
Telecopy No: (602) 233-1107 By: /s/ S. Steven Carl
-------------------------------------
Name: S. Steven Carl
Title: C.E.O.
Address for Notices: KBK FINANCIAL, INC.:
301 COMMERCE STREET
2200 CITY CENTER By: /s/ Jeff Kassing
FORT WORTH, TEXAS 76012 -------------------------------------
Telecopy No: (817) 258-6114 Name: Jeff Kassing
Title: Vice President & General Counsel
Date: October 17, 1997
-----------------------------------
6
<PAGE>
SCHEDULE A
TO
ACCOUNT TRANSFER AND PURCHASE AGREEMENT
Dated September 22, 1997
By and Between
KBK FINANCIAL, INC.
H.E.R.C. PRODUCTS INCORPORATED
and
H.E.R.C. CONSUMER PRODUCTS, INC.
The addresses of any other locations of Collateral referenced in Section 9:
CCT Corporation Innerspace Storage Corporation
5115 Avenida Encinas #A 1600 N.M-291 Highway
Carlsbad, CA 92008 Sugar Creek, Mo.
Nutrient Technologies Wilbur-Ellis
1092 E. Kamm Avenue 3 Miles West FM 1925
Dinuba, Ca. 93618 Edinburg, Tx. 78540
Helena Chemical Company Helena Chemical Company
2405 N. 71st Street Route 5 Box 522 Highway 275
Tampa, Fl. 33619 Freemont, Ne. 68025
Helena Chemical Company Helena Chemical Company
4555 Highway 90 East 100 Santa Barbara
Uvalde, Tx. 78801 Mesquite, NM 88048
Any trade or assumed names referenced in Section 9:
CCT Corporation
7
<PAGE>
ADDENDUM
to Account Transfer and Purchase Agreement between KBK FINANCIAL, INC., a
Delaware corporation ("KBK"), H.E.R.C. PRODUCTS INCORPORATED, a Delaware
corporation, and H.E.R.C. CONSUMER PRODUCTS, INC., an Arizona corporation
(collectively herein referred to as "Seller') dated September 22, 1997 (the
"Agreement").
This Addendum modifies and supplements the Agreement as follows:
1. Financial Covenants. Seller agrees to maintain the following financial
covenant while this Agreement remains in effect:
(a) Tangible Net Worth. At the end of each fiscal quarter, its
Tangible Net Worth on a pro forma basis (i.e. add back
purchased accounts and factored balance) of not less than
$750,000.00.
As used herein, the term "Tangible Net Worth" shall mean, as of any
date, the amount by which Seller's total assets exceeds its total
liabilities, plus Subordinated Debt, less any intangible assets (as
defined by generally accepted accounting principles, including, without
limitation, trademarks, patents, copyrights, goodwill, covenants not to
compete and customer lists), less deferred charges. The term
"Subordinated Debt" shall mean indebtedness owing by Seller to a
creditor other than KBK which has been subordinated and subject in
right of payment to the prior payment of all indebtedness and
obligations now or hereafter owing by Seller to KBK, such subordination
to be evidenced by a written agreement between Seller and the
subordinated creditor which is in form and substance satisfactory to
KBK.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ S. Steven Carl
-------------------------------------
Name: S. Steven Carl
Title: C.E.O.
H.E.R.C. CONSUMER PRODUCTS INC.
By: /s/ S. Steven Carl
-------------------------------------
Name: S. Steven Carl
Title: C.E.O.
KBK FINANCIAL, INC.
By: /s/ Jeff Kassing
-------------------------------------
Name: Jeff Kassing
Title: Vice President & General Counsel
8
<TABLE>
<CAPTION>
PART I - THE SCHEDULE SECTION A - SOLICITATION/CONTRACT FORM
<S> <C> <C> <C> <C>
SOLICITATION, OFFER, AND AWARD 1. THIS CONTRACT IS A RATED RATING PAGE OF PAGES
ORDER UNDER DPAS (15CFR350) DO-A3 1 / 84
- -----------------------------------------------------------------------------------------------------------------------------------
2. CONTRACT NO. 3. SOLICITATION # 4. TYPE OF SOLICITATION 5. DATE 6. REQ/PURCHASE
ISSUED
N62678-97-D-0001. N62678-97-R-1046 ( ) SEALED BID (1FB) 97 MAY 23 REQN# N62678-7105-c250
( ) NEGOTIATED (RFP)
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7. ISSUED BY CODE N62678 8. ADDRESS OFFER TO: (If other than Item 7)
SUPERVISOR OF SHIPBUILDING, C&R, USN
NORFOLK NAVAL SHIPYARD, BLDG. 15, 2ND FLOOR
PORTSMOUTH, VA 23705-0215
- -----------------------------------------------------------------------------------------------------------------------------------
NOTE: In sealed bid solicitations offer" and "offeror" mean "bid" and "bidder"
- -----------------------------------------------------------------------------------------------------------------------------------
SOLICITATION
- -----------------------------------------------------------------------------------------------------------------------------------
9. Sealed offers in original and 1 signed copy for furnishing the supplies or services in the Schedule will be received at the place
specified in Item 8, or if hand carried, in the depository located in Block 8 until 2:00 PM Eastern, 11:00 AM, 24 July 1997.
CAUTION: LATE Submissions, Modifications, and Withdrawals: See Section L, Provision No. 52.214-7 or 51.215-10. All offers are
subject to all terms and conditions contained in this solicitation.
- -----------------------------------------------------------------------------------------------------------------------------------
10. FOR INFORMATION A. NAME B. TELEPHONE NO. (Include area code) NO COLLECT
CALL P. TARR CALLS (757) 396-5041 EXT. 456
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II. TABLE OF CONTENTS
- -----------------------------------------------------------------------------------------------------------------------------------
X'd SEC. DESCRIPTION PAGES X'd SEC DESCRIPTION PAGES
- -----------------------------------------------------------------------------------------------------------------------------------
PART 1 - THE SCHEDULE PART II - CONTRACT CLAUSES
- -----------------------------------------------------------------------------------------------------------------------------------
X A SOLICITATION / CONTRACT FORM 1 X 1 CONTRACT CLAUSES 52-61
- -----------------------------------------------------------------------------------------------------------------------------------
X B SUPPLIES OR SERVICES & PRICES/COST 2-27 PART III - LIST OF DOCUMENTS, EXHIBITS, & OTHER ATTACH.
- -----------------------------------------------------------------------------------------------------------------------------------
X C DESCRIPTIONS/SPECS/WORK STATEMENT 28-41 X J LIST OF ATTACHMENTS 62-63
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X D PACKAGING AND MARKING PART IV - REPRESENTATIONS AND INSTRUCTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
X E INSPECTION AND ACCEPTANCE 42-43 X R REPRESENTATIONS, 64-73
CERTIFICATIONS & OTHER
STATEMENTS OF
OFFERORS
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X F DELIVERIES OR PERFORMANCE 44-45 X L INSTS. CONDS., & NOTICES 74-82
TO OFFERORS
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X G CONTRACT ADMINISTRATION DATA 46-47 X M EVALUATION FACTORS 783-84
FOR AWARD
- -----------------------------------------------------------------------------------------------------------------------------------
X H SPECIAL CONTRACT REQUIREMENTS 48-51
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OFFER (Must be fully completed by offeror)
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NOTE: Item 12 does not apply if the solicitation includes the provisions at 52.214-16. Minimum Bid Acceptance Period.
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12. In compliance with the above, the undersigned agrees, if this offer is accepted within Calendar days (60 days unless a different
period is inserted by the offeror) from the date for receipt of offers specified above, to furnish any or all items upon which
prices are offered at the price set opposite each item, delivered at the designated point(s), within the time specified in the
schedule.
- -----------------------------------------------------------------------------------------------------------------------------------
13. DISCOUNT FOR PROMPT PAYMENT 10 Calendar Days 20 Calendar Days 30 Calendar Days 40 Calendar Days
0% 0% 0% 0%
See Section I, Clause No. 52.232-61
- -----------------------------------------------------------------------------------------------------------------------------------
14. ACKNOWLEDGEMENT OF AMENDMENT NO. DATE AMENDMENT NO. DATE
AMENDMENTS
(The offeror acknowledges receipt of amendments One (1) 6-17-97 Four (4) 7-27-97
to the SOLICITATION for offers and related Two (2) 6-19-97 Five (5) 7-31-97
documents numberd and dated:) Three (3) 7-18-97 Six (6) 8-1-97
- -----------------------------------------------------------------------------------------------------------------------------------
15A. NAME AND CAGE CODE FACILITY 16. NAME AND TITLE OF PERSON AUTHORIZED TO
ADDRESS OF SIGN SIGN OFFER (Type of Print)
OFFEROR H.E.R.C. PRODUCTS, INC.
33 40 Elmhurd Lane
Portsmouth, VA 23701 Patrick E. Lien
Regional Director
DUNS NO:
TIN NO: 86-05704599
- -----------------------------------------------------------------------------------------------------------------------------------
16B. TELEPHONE # 15C. CHECK IF REMITTANCE ADDRESS IS 17. SIGNATURE 18. OFFER DATE
(Include Area Code) DIFFERENT FROM ABOVE, ENTER SUCH /s/ Patrick E. Lien Aug. 8, 1997
(757) 488-3570 ADDRESS IN SCHEDULE
- -----------------------------------------------------------------------------------------------------------------------------------
AWARD (To be completed by Government)
- -----------------------------------------------------------------------------------------------------------------------------------
19. ACCEPTED AS TO ITEMS NUMBERED 20. AMOUNT 21. ACCOUNTING AND APPROPRIATION:
$ 74,967.20 AA1771804.60BA 000 62678 A 068732 2D 05C250
Doc# N626787105C250 (AMT AWARDED $74,967.20)
- -----------------------------------------------------------------------------------------------------------------------------------
22. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION 23. SUBMIT INVOICES TO ADDRESS ITEM
SHOWN IN (4 copies unless otherwise (specified)
( ) 10 U.S.C. 2304(c) ( ) ( ) 41 U.S.C. 253(c) SEE BACK OF FORM
- -----------------------------------------------------------------------------------------------------------------------------------
24. ADMINISTERED BY (if other than item 7) CODE 25. PAYMENT WILL BE MADE BY CODE
DIRECTOR, DFAS
DAO CLEVELAND CENTER
9712 VIRGINIA AVENUE
NORFOLK, VA 2351--3297
26. NAME OF CONTRACTING OFFICER (Type or print) 27. UNITED STATES OF AMERICA 28. AWARD DATE
4/5/97
Richard W. Ydoyaga
Contracting Offier
(Signature of Contracting
Officer)
Award will be made on this Form, or on Standard Form 26, or by other authorized official written notice.
- -----------------------------------------------------------------------------------------------------------------------------------
33-133
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
BEST AND FINAL
Page 2 of 84
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
--------- ---------
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT I - FIRST YEAR EFFORT (BASE YEAR)
- -------------------------------------
<S> <C> <C> <C> <C> <C>
REQN# N62678-7105-C250
1001 SET UP EQUIPMENT AND CHEMICALLY
CLEAN SEWAGE PIPING.
1001AA PREPARE AND INSTALL TEMPORARY
WASTE WATER SYSTEM TO CHT
(Collection, Holding and
Transfer) CONNECTION ON THE
PIER PER ZONE 100 EA. $304.00 $247,338.00
---------- -----------
1001AB PREPARE AND INSTALL TEMPORARY
FRESH WATER SYSTEM WITH BACK
FLOW PREVENTER TO CONNECTION ON
THE PIER PER ZONE. 100 EA. $27.00 $2,700.00
---------- -----------
1001AC SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: CGN, LST, 4 EA. $13,258.00 $53,032.00
---------- -----------
1001AD SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: DD, DDG 8 EA. $13,015.00 $104,120.00
---------- -----------
1001AE SET UP EQUIPMENT, ISOLATE
SYSTEM WITH NECESSARY TEMPORARY
FITTINGS, PERFORM LEAK TEST,
CHEMICALLY CLEAN, FRESH WATER
FLUSH AND NEUTRALIZE. RECONNECT
PER ZONE FOR THE FOLLOWING
CLASS VESSELS: LSD, SPD, CG,
LCC, AE 12 EA. $13,015.00 $156,180.00
---------- -----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 3 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
--------- ---------
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT I - FIRST YEAR EFFORT (BASE YEAR)(continued)
- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
1001AF SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: ARS, MHC, CVN 18 EA. $13,015.00 $234,270.00
---------- -----------
1001AG SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: LPH, AS 4 EA. $22,315.00 $89,260.00
---------- -----------
1001AH SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: PC, MCM, MSO, LHA, AND
OTHER COMPATIBLE MILITARY
VESSELS 22 EA. $11,150.00 $245,300.00
---------- -----------
1001AJ SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: YTB AND MINOR
AUXILIARY CRAFT 4 EA. $14,085.00 $56,340.00
---------- -----------
1001AK SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: AO, CV, INCLUDING USS
ENTERPRISE 9 EA. $14,095.00 $126,765.00
---------- -----------
</TABLE>
<PAGE>
Page 4 of 84
BEST AND FINAL
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
--------- ---------
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT I - FIRST YEAR EFFORT (BASE YEAR)(continued)
- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
1001AL SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM LEAK
TEST, CHEMICALLY CLEAN, FRESH
WATER FLUSH AND NEUTRALIZE.
RECONNECT PER ZONE FOR THE
FOLLOWING CLASS VESSELS: SSN,
SSBN, AFDM 2 EA. $13,853.00 $27,706.00
---------- -----------
1001AM SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM LEAK
TEST, CHEMICALLY CLEAN, FRESH
WATER FLUSH AND NEUTRALIZE.
RECONNECT PER ZONE FOR THE
FOLLOWING CLASS VESSELS: AOE,
(SACRAMENTO CLASS) ZONES I, II,
AND III 3 EA. $14,085.00 $42,255.00
---------- -----------
1001AN SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM LEAK
TEST, CHEMICALLY CLEAN, FRESH
WATER FLUSH AND NEUTRALIZE.
RECONNECT PER ZONE FOR THE
FOLLOWING CLASS VESSELS: FFG,
AND OTHER COMPATIBLE MILITARY
VESSELS 2 EA. $14,085.00 $28,170.00
---------- -----------
1001AP SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM LEAK
TEST, CHEMICALLY CLEAN, FRESH
WATER FLUSH AND NEUTRALIZE.
RECONNECT PER ZONE FOR THE
FOLLOWING CLASS VESSELS: LHD 4 EA. $14,085.00 $56,340.00
---------- -----------
1001AQ PERFORM FIBER OPTIC BAROSCOPE
INSPECTION FOR ALL CLASS SHIPS,
BEFORE AND AFTER CHEMICAL
CLEANING, PR ZONE. 200 EA. $486.00 $97,200.00
---------- -----------
1001AR SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM LEAK
TEST, CHEMICALLY CLEAN, FRESH
WATER FLUSH AND NEUTRALIZE.
RECONNECT PER ZONE FOR THE
FOLLOWING CLASS VESSELS: AOE
(SACRAMENTO CLASS)IV 1 EA. $14,085.00 $14,085.00
---------- -----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 5 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
--------- ---------
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT I - FIRST YEAR EFFORT (BASE YEAR)(continued)
- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
1001AS SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: AOE, (SUPPLY CLASS)
ZONE I 1 EA. $14,085.00 $14,085.00
---------- -----------
1001AT SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: AOE (SUPPLY CLASS)ZONE
II 1 EA. $14,085.00 $14,085.00
---------- -----------
1002 REPLACE FOLLOWING MATERIALS AND
RESTORE SYSTEM TO NORMAL
OPERATION.
1002AA WATER CLOSET RUBBER BOOT AND
CLAMPS 800 EA. $4.99 $3,992.00
---------- -----------
1002AB URINAL HOSES AND CLAMPS 400 EA. $3.80 $1,520.00
---------- -----------
1003 PROVIDE PORTABLE CHEMICAL
TOILETS FOR DURATION OF
DELIVERY ORDER INCLUDING
SERVICING UP TO(2)TIMES PER
WEEK FOR THE FOLLOWING CLASS
SHIPS:
1003AA ARS & FFG - 4 TOILETS 5 EA. $286.00 $1,430.00
---------- -----------
1003AB AO & AOE - 8 TOILETS 2 EA. $572.00 $1,144.00
---------- -----------
1003AC MINOR/AUXILIARY SERVICE CRAFT -
2 TOILETS 5 EA. $143.00 $715.00
---------- -----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 6 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
--------- ---------
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT I - FIRST YEAR EFFORT (BASE YEAR)(continued)
- ------------------------------------------------
<S> <C> <C> <C> <C> <C>
1004 PIPING REPAIRS
1004AA PIPEFITTER 750 HRS $27.50 $20,625.00
---------- -----------
1004AB BRAZER/WELDER 750 HRS $27.50 $20,625.00
---------- -----------
1004AC GAS FREE CERTIFICATION 75 EA. $125.00 $9,375.00
---------- -----------
1004AD GAS FREE MAINTENANCE 150 EA. $27.50 $4,125.00
---------- -----------
1004AD MATERIAL NTE $15,000.00
-----------
1004AF MATERIAL G & A /HANDLING 10 % $1,500.00
------- -----------
1005 ORDERING ADDITIONAL WORK/
UNDISCLOSED WORK (SECTION C.8)
1005AA STRAIGHT TIME 200 HRS. $27.50 $5,500.00
---------- -----------
1005AB MATERIAL NTE $5,000.00
-----------
1005AC MATERIAL G & A /HANDLING 10 % $500.00
------- -----------
1006 TRAVEL (GOVERNMENT DIRECTED TDY
IN SUPPORT OF LOT I 1 LOT $16,000.00
-----------
1007 CONTRACT DATA REQUIREMENTS
(DD FORM 1423, Exhibit A) 1 LOT NSP NSP
TOTAL ESTIMATE LOT I......................................................................... $1,499,344.00
-------------
</TABLE>
<PAGE>
BEST AND FINAL
Page 7 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT II - SECOND YEAR EFFORT (FIRST OPTION)
- ------------------------------------------
<S> <C> <C> <C> <C> <C>
REQN# N62678-7105-C250
2001 SET UP EQUIPMENT AND
CHEMICALLY
CLEAN SEWAGE PIPING.
2001AA PREPARE AND INSTALL TEMPORARY
WASTE WATER SYSTEM TO CHT
(Collection, Holding, and
Transfer) CONNECTION ON THE
PIER PER ZONE 100 EA. $311.00 $31,100.00
---------- -----------
2001AB PREPARE AND INSTALL TEMPORARY
FRESH WATER SYSTEM WITH BACK
FLOW PREVENTER TO CONNECTION
ON THE PIER PER ZONE 100 EA. $28.00 $2,800.00
---------- -----------
2001AC SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: CGN, LST, 4 EA. $13,590.00 $54,360.00
---------- -----------
2001AD SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: DD, DDG 8 EA. $13,340.00 $106,720.00
---------- -----------
2001AE SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: LSD, LPD, CG, LCC, AE 12 EA. $13,340.00 $160,080.00
---------- -----------
2001AF SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: ARS, MHC, CVN 18 EA. $13,340.00 $240,120.00
---------- -----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 8 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT II -SECOND YEAR EFFORT(FIRST OPTION)(Continued)
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
2001AG SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: LPH, AS 4 EA. $22,872.00 $91,488.00
---------- -----------
2001AH SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: PC, MCM, MSO, LHA,
AND OTHER COMPATIBLE MILITARY
VESSELS 22 EA. $11,428.00 $251,416.00
---------- -----------
2001AJ SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: YTB, AND MINOR
AUXILIARY CRAFT 4 EA. $14,437.00 $57,748.00
---------- -----------
2001AK SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: AO, CV, INCLUDING USS
ENTERPRISE 9 EA. $14,437.00 $129,933.00
---------- -----------
2001AL SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: SSN, SSBN, AFDM 2 EA. $14,199.00 $28,398.00
---------- -----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 9 of 84
<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED TOTAL
QUANTITY U/I UNIT PRICE PRICE
-------- --- ---------- -----
LOT II -SECOND YEAR EFFORT(FIRST OPTION)(Continued)
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
2001AM SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: AOE, (SACRAMENTO
CLASS) ZONES I, II, AND III 3 EA. $14,437.00 $43,311.00
---------- -----------
2001AN SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: FFG AND OTHER
COMPATIBLE MILITARY VESSELS 2 EA. $14,437.00 $28,874.00
---------- -----------
2001AP SET UP EQUIPMENT, ISOLATE
SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: LHD 4 EA. $14,437.00 $57,748.00
---------- -----------
2001AQ PERFORM, FIBEROPTIC BAROSCOPE
INSPECTION FOR ALL CLASS SHIPS,
BEFORE AND AFTER CHEMICAL
CLEANING, PER ZONE. 200 EA. $498.00 $99,600.00
---------- -----------
2001AR SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: AOE (SACRAMENTO CLASS)
ZONES IV 1 EA. $14,437.00 $14,437.00
---------- -----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 10 of 84
<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED TOTAL
QUANTITY U/I UNIT PRICE PRICE
-------- --- ---------- -----
LOT II-SECOND YEAR EFFORT(FIRST OPTION)(Continued)
- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
2001AS SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: AOE (SUPPLY CLASS)ZONE
I 1 EA. $14,437.00 $14,437.00
---------- -----------
2001AT SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, CONNECT WITH NECESSARY
TEMPORARY FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER ZONE
FOR THE FOLLOWING CLASS
VESSELS: AOE (SUPPLY CLASS)ZONE
II 1 EA. $14,437.00 $14,437.00
---------- -----------
2002 REPLACE FOLLOWING MATERIALS AND
RESTORE SYSTEM TO NORMAL
OPERATION.
2002AA WATER CLOSET RUBBER BOOT AND
CLAMPS 800 EA. $5.11 $4,088.00
---------- -----------
2002AB URINAL HOSES AND CLAMPS 400 EA. $3.09 $1,560.00
---------- -----------
2003 PROVIDE PORTABLE CHEMICAL
TOILETS FOR DURATION OF
DELIVERY ORDER INCLUDING
SERVICING UP TO (2) TIMES PER
WEEK FOR THE FOLLOWING CLASS
SHIPS:
2003AA ARS & FFG - 4 TOILETS 5 EA. $293.00 $1,465.00
---------- -----------
2003AB AO & AOE - 8 TOILETS 2 EA. $586.00 $1,172.00
---------- -----------
2003AC MINOR/AUXILIARY SERVICE CRAFT -
2 TOILETS 5 EA. $147.00 $735.00
---------- -----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 11 of 84
<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED TOTAL
QUANTITY U/I UNIT PRICE PRICE
-------- --- ---------- -----
LOT II-SECOND YEAR EFFORT(FIRST OPTION)(Continued)
- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
2004 PIPING REPAIRS
2004AA PIPEFITTER 750 HRS. $28.19 $21,142.50
---------- -----------
2004AB BRAZER/WELDER 750 HRS. $28.19 $21,142.50
---------- -----------
2004AC GAS FREE CERTIFICATION 75 EA. $128.13 $9,609.75
---------- -----------
2004AD GAS FREE MAINTENANCE 150 EA. $28.19 $4,228.50
---------- -----------
2004AE MATERIAL NTE $15,000.00
----------
2004AF MATERIAL G & A HANDLING 10 % $1,500
------ ---------
2005 ORDERING ADDITIONAL WORK/
UNDISCLOSED WORK (SECTION C.8)
2005AA STRAIGHT TIME 200 HRS. $28.19 $5,638.00
---------- -----------
2005AB MATERIAL NTE $5,000.00
---------
2005AC MATERIAL G & A HANDLING 10 % $5,000.00
------ ---------
2006 TRAVEL (GOVERNMENT DIRECTED
TDY IN SUPPORT OF LOT I 1 LOT $16,000.00
----------
2007 CONTRACT DATA REQUIREMENTS
(DD FORM 1423, Exhibit A). 1 LOT NSP NSP
TOTAL ESTIMATE LOT II......................................................................... $1,535,788.25
-------------
</TABLE>
<PAGE>
BEST AND FINAL
Page 12 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT III-THIRD YEAR EFFORT(SECOND OPTION)(Continued)
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
REQN# N62678-7105-C250
3001 SET UP EQUIPMENT AND
CHEMICALLY CLEAN SEWAGE
PIPING.
3001AA PREPARE AND INSTALL TEMPORARY
WASTE WATER SYSTEM TO CHT
(Collection, Holding and
Transfer) CONNECTION ON THE
PIER PER ZONE 100 EA. $321.00 $32,100.00
---------- -----------
3001AB PREPARE AND INSTALL TEMPORARY
FRESH WATER SYSTEM WITH BACK
FLOW PREVENTER TO CONNECTION
ON THE PIER PER ZONE 100 EA. $29.00 $2,900.00
---------- -----------
3001AC SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: CGN, LST, 4 EA. $13,998.00 $55,992.00
---------- -----------
3001AD SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: DD, DDG 8 EA. $13,741.00 $109,928.00
---------- -----------
3001AE SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSESL:LSD, LPD, CG, LCC, AE 12 EA. $13,741.00 $164,892.00
SET UP EQUIPMENT, ISOLATE
---------- -----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 13 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT III-THIRD YEAR EFFORT(SECOND OPTION)(Continued)
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
3001AF SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: ARS, MHC, CVN 18 EA. $13,741.00 $247,338.00
---------- -----------
3001AG SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: LPH, AS 4 EA. 23,559.00 $94,236.00
---------- -----------
3001AH SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: PC, MCM, MSO, LHA,
AND OTHER COMPATIBLE MILITARY
VESSELS 22 EA. $11,771.00 $258,962.00
---------- -----------
3001AJ SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: YTB AND MINOR
AUXILIARY CRAFT 4 EA. $14,870.00 $59,480.00
---------- -----------
3001AK SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AO, CV INCLUDING USS
ENTERPRISE 9 EA. $14,870.00 $133,830.00
---------- -----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 14 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT III-THIRD YEAR EFFORT(SECOND OPTION)(Continued)
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
3001AL SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: SSN, SSBN, AFDM 2 EA. $14,625.00 $29,250.00
---------- -----------
3001AM SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SACRAMENTO
CLASS) ZONES, I, II, AND III 3 EA. $14,870.00 $44,610.00
---------- -----------
3001AN SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: FFG AND OTHER
COMPATIBLE MILITARY VESSELS 2 EA. $14,870.00 $29,740.00
---------- -----------
3001AP SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: LHD 4 EA. $14,870.00 $59,480.00
---------- -----------
3001AQ PERFORM FIBEROPTIC BAROSCOPE
INSPECTION FOR ALL CLASS
SHIPS, BEFORE AND AFTER
CHEMICAL CLEANING, PER ZONE. 200 EA. $513.00 $102,600.00
---------- -----------
3001AR SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SACRAMENTO
CLASS) ZONES IV 1 EA. $14,870.00 $14,870.00
---------- -----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 15 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT III-THIRD YEAR EFFORT(SECOND OPTION)(Continued)
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
3001AS SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SUPPLY CLASS)
ZONE I 1 EA. $14,870.00 $14,870.00
---------- -----------
3001AT SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SUPPLY CLASS)
ZONE I 1 EA. $14,870.00 $14,870.00
---------- -----------
3002 REPLACE FOLLOWING MATERIALS
AND RESTORE SYSTEM TO NORMAL
OPERATION.
3002AA WATER CLOSET RUBBER BOOT AND
CLAMPS 800 EA. $5.25 $4,200.00
---------- -----------
3002AB URINAL HOSES AND CLAMPS 400 EA. $4.00 $1,600.00
---------- -----------
3003 PROVIDE PORTABLE CHEMICAL
TOILETS FOR DURATION OF
DELIVERY ORDER INCLUDING
SERVICING UP TO (2) TIMES PER
WEEK FOR THE FOLLOWING CLASS
SHIPS:
3003AA ARS & FFG - 4 TOILETS 5 EA. $302 1,510.00$
---------- -----------
3003AB AO & AOE - 8 TOILETS 2 EA. $604.00 $1,208.00
---------- -----------
3003AC MINOR/AUXILIARY SERVICE CRAFT
- 2 TOILETS 5 EA. $151.00 $755.00
---------- -----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 16 of 84
<TABLE>
<CAPTION>
ESTIMATED UNIT ESTIMATED
QUANTITY U/I PRICE TOTAL PRICE
-------- --- ----- -----------
LOT III-THIRD YEAR EFFORT(SECOND OPTION)(Continued)
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
3004 PIPING REPAIRS
3004AA PIPEFITTER 750 HRS. $29.00 $21,750.00
------- ---------
3004AB BRAZER/WELDER 750 EA. $29.00 $21,750.00
------- ---------
3004AC GAS FREE CERTIFICATION 75 EA. $132.00 $9,900.00
------- ---------
3004AD GAS FREE MAINTENANCE 150 EA. $29.00 $4,350.00
------- ---------
3004AE MATERIAL NTE. $15,000.00
----------
3004AF MATERIAL G&A/HANDLING 10 %
3005 ORDERING ADDITIONAL WORK/
UNDISCLOSED WORK (SECTION
C.8)
3005AA STRAIGHT TIME 200 HRS. $29.00 $5,800.00
------- ---------
3005AB MATERIAL NTE $5,000.00
----------
3005AC MATERIAL G & A /HANDLING 10 % $500.00
------- ----------
3006 TRAVEL (GOVERNMENT DIRECTED TDY
IN SUPPORT OF LOT I 1 LOT $16,000.00
----------
3007 CONTRACT DATA REQUIREMENTS
(DD FORM 1423, Exhibit A) 1 LOT NSP NSP
TOTAL ESTIMATE LOT III....................................................................... $1,580,771.00
</TABLE>
<PAGE>
BEST AND FINAL
Page 17 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT IV-FOURTH YEAR EFFORT(THIRD OPTION)
- ---------------------------------------
<S> <C> <C> <C> <C> <C>
REQN# N62678-7105-C250
4001 SET UP EQUIPMENT AND
CHEMICALLY CLEAN SEWAGE
PIPING.
4001AA PREPARE AND INSTALL TEMPORARY
WASTE WATER SYSTEM TO CHT
(Collection, Holding and
Transfer) CONNECTION ON THE
PIER PER ZONE 100 EA. $331.00 $33,100.00
---------- ----------
4001AB PREPARE AND INSTALL TEMPORARY
FRESH WATER SYSTEM WITH BACK
FLOW PREVENTER TO CONNECTION
ON THE PIER PER ZONE 100 EA. $30.00 $3,000.00
---------- ----------
4001AC SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: CGN, LST, 4 EA. $14,460.00 $57,840.00
---------- ----------
4001AD SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: DD, DDG 8 EA. $14,194.00 $113,552.00
---------- ----------
4001AE SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSESL:LSD, LPD, CG, LCC, AE 12 EA. $14,194.00 $170,328.00
---------- ----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 18 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT IV-FOURTH YEAR EFFORT(THIRD OPTION)(Continued)
- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
4001AF SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: ARS, MHC, CVN 18 EA. $14,194.00 $255,492.00
---------- ----------
4001AG SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: LPH, AS 4 EA. $24,336.00 $97,344.00
---------- ----------
4001AH SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: PC, MCM, MSO, LHA,
AND OTHER COMPATIBLE MILITARY
VESSELS 22 EA. $12,160.00 $267,520.00
---------- ----------
4001AJ SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: YTB AND MINOR
AUXILIARY CRAFT 4 EA. $15,361.00 $61,444.00
---------- ----------
4001AK SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AO, CV INCLUDING USS
ENTERPRISE 9 EA. $15,361.00 $138,249.00
---------- ----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 19 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT IV-FOURTH YEAR EFFORT(THIRD OPTION)(Continued)
- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
4001AL SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: SSN, SSBN, AFDM 2 EA. $15,108.00 $30,216.00
---------- ----------
4001AM SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SACRAMENTO
CLASS) ZONES, I, II, AND III 3 EA. $15,361.00 $46,083.00
---------- ----------
4001AN SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: FFG AND OTHER
COMPATIBLE MILITARY VESSELS 2 EA. $15,361.00 $30,722.00
---------- ----------
4001AP SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: LHD 4 EA. $15,361.00 $61,444.00
---------- ----------
4001AQ PERFORM FIBEROPTIC BAROSCOPE
INSPECTION FOR ALL CLASS
SHIPS, BEFORE AND AFTER
CHEMICAL CLEANING, PER ZONE. 200 EA. $530.00 $106,000.00
---------- ----------
4001AR SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SACRAMENTO
CLASS) ZONES IV 1 EA. $15,361.00 $15,361.00
---------- ----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 20 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT IV-FOURTH YEAR EFFORT(THIRD OPTION)(Continued)
- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
4001AS SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SUPPLY CLASS)
ZONE I 1 EA. $15,361.00 $15,361.00
---------- ----------
4001AT SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SUPPLY CLASS)
ZONE I 1 EA. $15,361.00 $15,361.00
---------- ----------
4002 REPLACE FOLLOWING MATERIALS
AND RESTORE SYSTEM TO NORMAL
OPERATION.
4002AA WATER CLOSET RUBBER BOOT AND
CLAMPS 800 EA. $5.44 $4,352.00
---------- ----------
4002AB URINAL HOSES AND CLAMPS 400 EA. $4.14 $1,656.00
---------- ----------
4003 PROVIDE PORTABLE CHEMICAL
TOILETS FOR DURATION OF
DELIVERY ORDER INCLUDING
SERVICING UP TO (2) TIMES PER
WEEK FOR THE FOLLOWING CLASS
SHIPS:
4003AA ARS & FFG - 4 TOILETS 5 EA. $312.00 1,560.00$
---------- ----------
4003AB AO & AOE - 8 TOILETS 2 EA. $624.00 $1,248.00
---------- ----------
4003AC MINOR/AUXILIARY SERVICE CRAFT
- 2 TOILETS 5 EA. $156.00 $780.00
---------- ----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 21 of 84
<TABLE>
<CAPTION>
ESTIMATED UNIT ESTIMATED
QUANTITY U/I PRICE TOTAL PRICE
-------- --- ----- -----------
LOT IV-FOURTH YEAR EFFORT(THIRD OPTION)(Continued)
- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
4004 PIPING REPAIRS
4004AA PIPEFITTER 750 HRS. $29.99 $22,492.50
------ ----------
4004AB BRAZER/WELDER 750 EA. $29.99 $22,492.50
------ ----------
4004AC GAS FREE CERTIFICATION 75 EA. $132.32 $10,224.00
------ ----------
4004AD GAS FREE MAINTENANCE 150 EA. $29.99 $4,498.50
------ ----------
4004AE MATERIAL NTE. $15,000.00
----------
4004AF MATERIAL G&A/HANDLING 10 % $1,500.00
------ ----------
ORDERING ADDITIONAL WORK/
UNDISCLOSED WORK (SECTION
4005 C.8) $29.99 $5,998.00
------ ----------
4005AA STRAIGHT TIME 200 HRS. $29.99 $5,998.00
------ ----------
4005AB MATERIAL NTE $5,000.00
----------
4005AC MATERIAL G & A /HANDLING 10 % $500.00
------ ----------
4006 TRAVEL (GOVERNMENT DIRECTED TDY
IN SUPPORT OF LOT I 1 LOT $16,000.00
----------
4007 CONTRACT DATA REQUIREMENTS
(DD FORM 1423, Exhibit A) 1 LOT NSP NSP
TOTAL ESTIMATE LOT IV.............................................................................. $1,631,718.50
-------------
</TABLE>
<PAGE>
BEST AND FINAL
Page 22 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT V-FIFTH YEAR EFFORT(FOURTH OPTION)
- --------------------------------------
<S> <C> <C> <C> <C> <C>
REQN# N62678-7105-C250
5001 SET UP EQUIPMENT AND
CHEMICALLY CLEAN SEWAGE
PIPING.
5001AA PREPARE AND INSTALL TEMPORARY
WASTE WATER SYSTEM TO CHT
(Collection, Holding and
Transfer) CONNECTION ON THE
PIER PER ZONE 100 EA. $343.00 $34,300.00
---------- ----------
5001AB PREPARE AND INSTALL TEMPORARY
FRESH WATER SYSTEM WITH BACK
FLOW PREVENTER TO CONNECTION
ON THE PIER PER ZONE 100 EA. $31.00 $3,100.00
---------- ----------
5001AC SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: CGN, LST, 4 EA. $14,966.00 $59,864.00
---------- ----------
5001AD SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: DD, DDG 8 EA. $14,691.00 $117,528.00
---------- ----------
5001AE SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSESL:LSD, LPD, CG, LCC, AE 12 EA. $14,691.00 $176,292.00
---------- ----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 23 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT V-FIFTH YEAR EFFORT(FOURTH OPTION)(Continued)
- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
5001AF SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: ARS, MHC, CVN 18 EA. $14,691.00 $265,438.00
---------- ----------
5001AG SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: LPH, AS 4 EA. $25,188.00 $100,752.00
---------- ----------
5001AH SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: PC, MCM, MSO, LHA,
AND OTHER COMPATIBLE MILITARY
VESSELS 22 EA. $12,585.00 $276,870.00
---------- ----------
5001AJ SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: YTB AND MINOR
AUXILIARY CRAFT 4 EA. $15,898.00 $63,592.00
---------- ----------
5001AK SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AO, CV INCLUDING USS
ENTERPRISE 9 EA. $15,898.00 $143,082.00
---------- ----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 24 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT V-FIFTH YEAR EFFORT(FOURTH OPTION)(Continued)
- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
5001AL SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: SSN, SSBN, AFDM 2 EA. $15,636.00 $31,272.00
---------- ----------
5001AM SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SACRAMENTO
CLASS) ZONES, I, II, AND III 3 EA. $15,898.00 $47,694.00
---------- ----------
5001AN SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: FFG AND OTHER
COMPATIBLE MILITARY VESSELS 2 EA. $15,898.00 $31,796.00
---------- ----------
5001AP SET UP EQUIPMENT, ISOLATE
SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: LHD 4 EA. $15,898.00 $63,592.00
---------- ----------
5001AQ PERFORM FIBEROPTIC BAROSCOPE
INSPECTION FOR ALL CLASS
SHIPS, BEFORE AND AFTER
CHEMICAL CLEANING, PER ZONE. 200 EA. $548.50 $109,700.00
---------- ----------
5001AR SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SACRAMENTO
CLASS) ZONES IV 1 EA. $15,898.00 $15,898.00
---------- ----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 25 of 84
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
QUANTITY U/I UNIT PRICE TOTAL PRICE
-------- --- ---------- -----------
LOT V-FIFTH YEAR EFFORT(FOURTH OPTION)(Continued)
- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
54001AS SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SUPPLY CLASS)
ZONE I 1 EA. $15,898.00 $15,898.00
---------- ----------
5001AT SET UP EQUIPMENT, ISOLATE
"C" SYSTEM, FITTINGS, PERFORM
LEAK TEST, CHEMICALLY CLEAN,
FRESH WATER FLUSH AND
NEUTRALIZE. RECONNECT PER
ZONE FOR THE FOLLOWING CLASS
VESSEL: AOE (SUPPLY CLASS)
ZONE I 1 EA. $15,898.00 $15,898.00
---------- ----------
5002 REPLACE FOLLOWING MATERIALS
AND RESTORE SYSTEM TO NORMAL
OPERATION.
5002AA WATER CLOSET RUBBER BOOT AND
CLAMPS 800 EA. $5.63 $4,504.00
---------- ----------
5002AB URINAL HOSES AND CLAMPS 400 EA. $4.29 $1,716.00
---------- ----------
5003 PROVIDE PORTABLE CHEMICAL
TOILETS FOR DURATION OF
DELIVERY ORDER INCLUDING
SERVICING UP TO (2) TIMES PER
WEEK FOR THE FOLLOWING CLASS
SHIPS:
5003AA ARS & FFG - 4 TOILETS 5 EA. $323.00 $1,615.00
---------- ----------
5003AB AO & AOE - 8 TOILETS 2 EA. $646.00 $1,292.00
---------- ----------
5003AC MINOR/AUXILIARY SERVICE CRAFT
- 2 TOILETS 5 EA. $161.00 $805.00
---------- ----------
</TABLE>
<PAGE>
BEST AND FINAL
Page 26 of 84
<TABLE>
<CAPTION>
ESTIMATED UNIT ESTIMATED
QUANTITY U/I PRICE TOTAL PRICE
-------- --- ----- -----------
LOT V-FIFTH YEAR EFFORT(FOURTH OPTION)(Continued)
- -------------------------------------------------
<S> <C> <C> <C> <C> <C>
5004 PIPING REPAIRS
5004AA PIPEFITTER 750 HRS. $31.00 $23,250.00
---------- ----------
5004AB BRAZER/WELDER 750 EA. $31.00 $23,250.00
---------- ----------
5004AC GAS FREE CERTIFICATION 75 EA. $141.00 $10,575.00
---------- ----------
5004AD GAS FREE MAINTENANCE 150 EA. $35.00 $4,650.00
---------- ----------
5004AE MATERIAL NTE. $15,000.00
----------
5004AF MATERIAL G&A/HANDLING 10 % $1,500.00
------ ----------
5005 ORDERING ADDITIONAL WORK/
UNDISCLOSED WORK (SECTION
C.8) $31.00 $6,200.00
---------- ----------
5005AA STRAIGHT TIME 200 HRS. $31.00 $6,200.00
---------- ----------
5005AB MATERIAL NTE $5,000.00
- ---- ---------
5005AC MATERIAL G & A /HANDLING 10 % $500.00
------ ----------
5006 TRAVEL (GOVERNMENT DIRECTED TDY
IN SUPPORT OF LOT I 1 LOT $16,000.00
- ----------
5007 CONTRACT DATA REQUIREMENTS
(DD FORM 1423, Exhibit A) 1 LOT NSP NSP
TOTAL ESTIMATE LOT V................................................................................. $1,687,423.00
-------------
</TABLE>
<PAGE>
Page 27 of 84
B.1. ORDERING ADDITIONAL/UNDISCLOSED WORK.
(a) Additional/Undisclosed work and materials not specified under any
other contract item may be ordered by the Ordering Officer and in accordance
with procedures set forth in the "Ordering Additional Work/Undisclosed Work"
clause contained
in Section C.8 of this schedule.
(b) Total cost of services and materials shall be stated in the
modification and shall constitute the contract's fixed price amount for such
items.
B.2. PRICE AT SUBLINE ITEM LEVEL
Offeror shall insert in SECTION B of the Schedule unit prices and
amounts at the subline item level only (e.g., 0001AA, 0001AB, etc.), and not at
the line item level.
<PAGE>
Page 28 of 84
SECTION C - DESCRIPTION/SPECIFICATION/WORK STATEMENT
C.O. STATEMENT OF WORK
C.1. SCOPE
C.1.1. Contract Title: Chemical Cleaning of Sewage Piping
C.1.2. Contract Type: Indefinite Delivery/Indefinite Quantity
Type Contract with Firm-Fixed Unit Prices
C.1.3. The contractor shall provide all material, labor, services, supplies,
power, accessories, facilities and such other equipment deemed necessary for
accomplishing assigned tasks in this contract, or task orders. The contractor
shall request, in writing, permission from either the ship's Commanding officer,
Chief Engineer, Command Duty Officer, or Duty Engineer when use of the ship's
services may be required. (NOTE: the contractor is responsible for providing all
services under this contract. Should the contractor request any services that
the ship may be able to provide, such as, but not limited to power, water,
steam, air and crane services, he shall submit a request to the Ordering Officer
for approval, and be evaluated for consideration back to the Government and
shall be negotiated prior to the completion of each applicable task order).
Written notification shall also be given to CIS (Commercial Industrial Services)
Project manager or to SUPSHIP's Duty Officer (after scheduled working hours)
that ship services have been requested and approved for use. Be reminded that
ship services shall not be used for Contractor Life Support Systems (i.e.
compressors for breathing air), lifting equipment in which an unexpected
disruption of services has a high potential for loss of life, injury or damage
to ship's equipment.
C.1.3.1. Cold chemical cleaning is to be accomplished with ship's for
personnel living on board. Collection, holding and transfer (CHT)systems are to
be cleaned in zones, and can be accomplished concurrently, if adequate toilet
facilities are available. Portable chemical toilets will be provided by the
contractor for ships whose entire CHT system is down including male and female
designation and servicing up to two (2) times per week.
C.1.4. The contractor shall notify the Ordering Officer verbally and in writing
of any difficulties that may jeopardize the completions of specified work.
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C.1.5. The ship's Commanding Officer or Ship's Authorized Representative (SAR)
shall be the ship's representative on any work performed hereunder. When
required by the specifications hereunder or authorized by the Ordering Officer
to perform work aboard ships,, the Contractor shall:
C.1.5.1. Coordinate schedules and work affected areas with the Ship's
Commanding Officer or SAR daily.
C.1.5.2. Obtain a copy of the ship's operation, drills, etc., (prior to
the start of work) from the SAR, thus avoiding unnecessary delays during
performance period.
C.1.6. The contractor shall be responsible for cleaning up any spills associated
with the chemical cleaning process in accordance with all applicable
regulations.
C.1.6.1. The following applies to all cold chemical cleaning on board
all U.S. Government vessels at Naval Base Norfolk:
The contractor shall notify Public Works Center (PWC),
Utilities Code 621.3, Mr. Bruce Davis at 444-0786 during
regular work hours, and 445-6868 during nights, weekends, and
holidays at least four hours prior to start of work.
C.1.6.2. The following applies to all cold chemical cleaning on board
all U.S. Government vessels at NAB Little Creek:
The contractor shall notify Mr. Richard Padgett, Little Creek
Environmental Quality Division at 464-8343 and Mr. Ray Kimbro,
Public Works Center, Utilities Little Creek site, 464-7851, 24
hours prior to any work being done on the base.
C.1.7. The Contractor shall install blanks to isolate piping, valves and
equipment which must be removed for accomplishment of work.
C.1.7.1. Blanks installed on equipment, valves, and piping opening in
systems which are subject to pressure shall be designed to withstand maximum
system pressure and secured in place with gaskets and bolting in accordance with
reference c.2.1.2.b.
"C" C.1.7.2. Remove blanks installed in paragraph C.1.7 immediately prior to
reinstalling piping, valves or equipment.
C.1.7.3. The contractor shall notify the ship's Commanding Officer or
the SAR in writing of equipment and systems that require isolation to accomplish
work in the task orders before any work is started so that tagouts can be
accomplished as required by ship's instructions.
C.1.7.3.1. Ship's Force personnel will position equipment and install
tags when tag-out of a system, piping, or circuit is required.
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C.1.7.4. The contractor shall verify use of sufficient tags to prevent
operation of a system or component from all stations that could exercise
control.
C.1.7.4.1. A contractor's designated representative shall sign
the ship's tag-out record sheet and the tags after installation indicating
contractors satisfaction with the completeness of the tag-out and to alert
personnel removing tags
that contractor's concurrence is required.
C.1.7.5. The contractor's representative shall notify the ship's
Commanding Officer or the SAR immediately when the contractor work is complete
and the system, piping, or circuit is ready for activation to accomplish removal
of tags.
C.1.7.5.1. The contractor's representative shall sign the
ship's tag-out log sheet to show concurrence in tag removal and clearance before
removal.
C.1.7.5.2. Ship's Force personnel with remove tags after
contractor's concurrence and clearance has been recorded and removal is
authorized by the SAR.
C.1.7.6. The contractor shall install stamped or engraved metal tags on
removal piping, valves, and equipment indicating the location, system, ship's
name and task order number.
C.1.7.7. The contractor shall not disturb, modify, remove, energize, or
operate any switch, fitting, valve or other equipment affixed with a ship's
isolation tag without permission of the Ship's Force.
C.1.7.7.1. The contractor shall not remove or relocate ship's
isolation tags without concurrence of the Ship's Force.
C.1.7.8. Contractor shall provide and install a double backflow
preventer with a valve and sample line between them on all pierside or ship's
potable water supplies prior to using any government furnished potable water.
C.2. REFERENCES
C.2.1. The requirements of the following references and of the attachments in
Section J shall be accomplished in the execution of this contract unless
otherwise stated herein. The contractor is responsible to use the latest
revisions of all references, specifications and standards in effect at the
closing date of this solicitation.
C.2.1.1. CHEMICAL CLEANING AGENT
a. The chemical cleaning solution proposed for use in CHT systems must,
in a timely manner, dissolve calcium carbonate, cupreous oxide and ferric oxide.
The solution must be noncorrosive nor will it cause damage to the system and its
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components. The solution must be employed at ambient temperature and at a
pressure not to exceed the system's operating parameters. The process and
chemical utilized must provide for the habitability, health, safety and welfare
of the crew; permitting them to remain on board during the process. The chemical
solution shall be disposable and considered nonhazardous, after treatment,
meeting all Federal, state and local regulations.
C.2.1.2. MILITARY STANDARDS
a. NAVSEA STD ITEM 009-01: General Criteria; accomplish; dtd
13SEP 1996
b. NAVSEA STD ITEM 009-09: Process Control Procedure:
provide and accomplish; dtd 13
SEP 1996
c. NAVSEA STD ITEM 009-23: Interferences; remove and
install; dtd 13 SEP 1996
d. NAVSEA STD ITEM 009-24: Isolation, Blanking, and Tagging
Requirements; accomplish; dtd 13
SEP 1996
e. NAVSEA STD ITEM 009-32: Cleaning and Painting
Requirements; accomplish; dtd 13
SEP 1996
f. NAVSEA STD ITEM 009-35: Fire Prevention and Housekeeping:
accomplish; dtd 13 SEP 1996
g. NAVSEA STD ITEM 009-12: Welding, Fabrication, and
Inspection Requirements; dtd 13
SEP 1996
h. MIL-STD-777E: Schedule of Piping, Valves,
Fittings, and Associated Piping
Components for Naval Surface
Ships; dtd 7 FEB 1996
C.2.1.3. OTHER PUBLICATIONS
a. 29 CFR part 1915: Occupation Safety and Health
Administration (OSHA); dtd
February 1994
b. Standard 306: National Fire Protection
Association; dtd July 1993
c. NAVMED P-5010-7: Manual of Naval Preventative
Medicine, Chapter 7, Wastewater
Treatment and Disposal, Ashore
and Afloat; (dtd MARCH 1985)
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d. NAVSEA S90086-T-8-STM-000/CH-593: NSTM, Pollution Control dtd OCT
1976 with change 3
e. SWI 077-01: Hazardous Waste Produced on Naval Vessel; dtd 04
APR 1997
C.3. REQUIREMENTS
The contractor shall provide all material, labor, services, supplies,
power, accessories, facilities and such other equipment deemed necessary for
accomplishing assigned tasks in this
contract, or task orders.
NOTE: There are various CHECK POINTS throughout the performance of these
services. CHECK POINT is a phrase inserted in the Statement of Work to establish
a point in the sequence of accomplishment of work at which time the Supervisor
(Supervisor of Shipbuilding/COR) shall be notified a minimum of four (4) hours
in advance to permit observation of a specific test or inspection by the
Government.
C.3.1. Chemical utilized for cleaning shall comply with reference C.2.1.1.a and
be able to remove all calcium carbonate build up in sewage lines.
C.3.2. The contractor shall coordinate securing of ship's water closets and
urinals with the ship's Commanding Officer or the SAR to minimize disruption to
the crew.
C.3.3. The contractor shall submit four (4) legible copies of the Process
Control Procedure (PCP) (see Exhibit A, Attachment 1) to the Ordering Officer
for approval prior to the start of work under this contract.
C.3.4. The contractor shall install and connect temporary waste water system to
CHT (Collection, Holding and Transfer) connection on the pier prior to
commencing chemical cleaning. Make necessary connections at the holding tank to
allow the isolation and drainage of cleaning solution and test water. Install
air pump for emergency evacuation of system in the event system failure occurs.
Insure evacuation pump is connected to tanker.
C.3.4.1. The contractor shall remove and reinstall interferences
necessary to accomplish work required by this work item. The contractor shall
accomplish the requirements of reference C.2.1.2.c.
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CHECK POINT (LEAK TEST)
C.3.5. Perform water test of the piping by filling the piping system from a
pierside pumping station. Induce water at the highest point of the system and
down the sewage drains until the entire system is full, venting the system as
necessary to allow complete filling. With the entire system full, allow water to
stand while monitoring for leaks. Upon determination that the system is free of
leaks, drain the system.
C.3.5.1. The contractor shall submit four (4) legible copies of reports
of any leaks found including location in shipboard piping to the SAR and SUPSHIP
COR.
C.3.5.2. The contractor shall temporarily patch leaks in shipboard
piping to facilitate the cleaning of the system.
C.3.5.3. Upon determining the system is free of leaks, a level check
must be performed to determine proper isolation of specific system compartments.
Flush each compartment (water closet, urinal) separately to ensure that all
liquids that are pumped into the system are being recovered at the pumping
station. The level and recovery check is to be done with water. C.3.6. The
contractor shall empty, clean, contain and dispose of soil matter in existing
soil piping in way of accomplishing work required by this work item. The
contractor shall remove residual resulting from the chemical cleaning
operations.
C.3.6.1. Handling/Disposal shall be in accordance with local, state,
and/or Federal environmental regulations.
C.3.6.2. The contractor shall adhere to the sanitary, hygienic, safety
and cleaning practices as specified in paragraphs 593-3.1 through 593-4.5.20 of
reference C.2.1.3.d.
C.3.7. Inspection of sewage piping shall be accomplished using fiber optic
baroscope inspection equipment capable of video tape (VHS format) recording
before and after cleaning to prove
cleanliness.
C.3.7.1. Inspections shall only be accomplished via each water closet
rubber boot connection points, urinal hose connection points, and previously
installed clean-out connections.
C.3.7.2. Inspections shall be accomplished prior to charging system
with chemical(s), periodically after two (2) hour flush interval to determine
effectiveness of cleaning, and before
restoring system to operation.
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C.3.7.2.1. Inspections shall include inspection of all urinal piping
from urinal to first cleanout, all header piping from toilets to first cleanout,
and 10 percent of remainder of all cleaned piping, including elbows. The 10
percent inspected shall be identified by the COR.
"C" C.3.7.2.2. An acceptable cleanliness standard is that standard in
which, when inspected, bu fiber optic equipment, calcium carbonate, rust or any
other foreign matter is not present.
C.3.7.3. Videotaped inspections shall be delivered to the COR no later
than 5 calendar days after work order is completed.
C.3.7.3.1. Minimum inspections that shall be recorded are
those listed in Section C, paragraph C.3.7.2.
C.3.7.3.2. Time duration of video shall be no less that 10
minutes. Each inspection point videotaped shall be 1 minute in length minimum.
C.3.7.3.3. An itemized list of inspection points (date, time
and inspection point) shall be included with each cassette indicating location
on the video tape of each inspection
point.
CHECK POINT (INSPECTION OF SEWAGE PIPING
C.3.8. The contractor shall inspect sewage piping from each connection point to
the standards stated in paragraph C.3.7.2.2. Continue cleaning until standards
are met.
C.3.8.1. Flush the system with a neutralizing solution to achieve a ph
level between 5.5 and 8.5.
C.3.9. The contractor shall be capable of performing the following processes as
required per task order and in accordance with applicable references:
(a) Pipe bending
(b) Pipe cleaning
(c) Cutting
(d) Threading
(e) Grinding
(f) Brazing
(g) Welding
(h) Inspection
(I) QA Control
C.3.9.1. All material shall conform to the requirements of reference
C.2.1.2.H unless otherwise specified in individual task orders.
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C.3.9.2. Welding and brazing procedures and requirements, electrode
selection, inspections, personnel qualifications and workmanship qualifications
are to be in accordance with the requirements of NAVSEA Standard Item 009-12.
C.3.9.2.1. For specific welding, brazing, and inspection
operations as specified in paragraph 3.4 of NAVSEA Standard Item 009-12, the
contractor shall provide a process control procedure using NAVSEA Standard Item
009-09 for guidance.
C.3.9.4. The contractor shall submit a proposal containing a ripout
plan, major interferences, affected areas/systems, and tests for reinstallation.
The proposal shall also contain sketches for repairs/modifications listing type,
size and design of components involved when no other plans are available. The
proposal only when required shall be submitted prior to start of work for each
individual task order and shall contain all work specified in the contract.
C.3.10. The contractor shall accomplish the following:
C.3.10.1. Provide the services of a National Fire Protection
Association (NFPA) Certified marine Chemist and certify each space listed in the
task order, requiring certification in accordance with Subpart B of reference
C.2.1.3.a. safe for workers and safe for hot work.
C.3.10.1.1. Initial posting of the log shall precede the start
of work within the space on the task order.
C.3.10.1.2. The Marine Chemist's certificate may be used for
posting the log.
C.3.10.2. Accomplish the requirements of reference C.2.1.3.a. for entry
and not work,, to also include the following:
C.3.10.2.1. All competent persons shall be trained by a NFPA
Certified Marine Chemist using Subparts A, B, and 1915.152 of Subpart I of
reference C.2.1.3.1.a. as guidance or under an approved Shipyard Competent
Person Training Program.
C.3.10.2.2. In addition to the requirements of reference
C.2.1.3.a. certify annually and update with new personnel certified as competent
persons that the competent persons have received training in one of the methods
listed in C.3.10.2.1. by forwarding a copy of a company headed letter to the
Ordering Officer. The certification shall contain the following:
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(a) Competent person's name(s)
(b) Competent person's company identification number(s)
(c) Competent person's experience (years/months)
(d) Name and identification number of NFPA Certified
Marine
Chemist utilized to conduct training or name and title
of person(s) conducting approved training
(e) Date of completed training
(f) Signature of contractor's certifying official
C.3.11. The contractor shall be held responsible for continuous clean up of all
debris and fluids incidental to removal or installation of piping components
during performance of work on individual task orders.
C.3.12. Upon completion of cleaning, modification and repair, the contractor
shall immediately restore systems to operational status. The contractor shall
install new rubber boots, fasteners and clamps as directed by the Ordering
Officer.
C.3.13. The contractor shall operationally test all disturbed//cleaned sets of
urinals and water closets; zero leakage and unrestricted flow.
CHECK POINT (OPERATIONAL TEST)
C.3.14. The contractor shall test operate proving zero leakage and unrestricted
flow.
C.3.15. The contractor shall submit four (4) legible copies of test results to
the SAR and the ordering officer in accordance with Section E.
C.4. CONTRACTOR FURNISHED EQUIPMENT
C.4.1. As required for performance of individual Task Orders (Tos), the
contractor shall furnish all necessary materials and equipment to perform work
required by this contract. Connection hoses between system and pumping station
shall be 150 pound petroleum transfer hose, or equal wire reinforced with
stainless steel fittings and adequate size to accomplish cold chemical cleaning
in a timely manner.
C.4.2. It shall be the Contractor's responsibility to maintain all Contractor
furnished equipment properly calibrated, tested and in a state of repair that,
ready for use, to the extent necessary to avoid impacting the performance
requirements of this contract.
C.4.3. All contractor furnished cleaning equipment such as hoses, valves, and
filters shall be neatly routed out of walkways and pose no trip hazards to
ship's forces. Contractor shall furnish hose trees to ensure equipment is out of
the way, and line and plastic wrap joints to prevent leaks at hose connections.
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C.4.4. The contractor shall provide air boundaries/barriers on all external ship
accesses when hoses passing through accesses prevent closing of all existing
doors, hatches or scuttles. These boundaries are to be installed especially
during cold or wet weather.
C.5. SUP 5252.237-9401 PERSONNEL QUALIFICATIONS (MINIMUM) (JAN 1992)
(a) Personnel assigned to or utilized by the Contractor in the
performance of this contract shall, as a minimum, meet the experience,
educational, or other background requirements set forth below and shall be fully
capable of performing in an efficient, reliable, and professional manner. If the
offeror does not identify the labor categories listed below by the same specific
title, then a cross-reference list should be provided in the offeror's proposal
identifying the difference.
(b) The Government will review resumes of contractor personnel proposed
to be assigned, and if personnel not currently in the employ of Contractor, a
written agreement from potential employee to work will be provided.
(c) If the ordering Officer/Contracting Officer questions the
qualifications or competence of any person performing under the contract, the
burden of proof to sustain that the person is qualified as prescribed herein
shall be upon the Contractor.
(d) The Contractor must have the personnel, organization, and
administrative control necessary to ensure that the services performed meet all
requirements specified in delivery orders. The work history of each Contractor
employee shall contain experience directly related to the tasks and functions to
be assigned. The Ordering Officer/Contracting Officer reserves the right to
determine if a given work history contains necessary and sufficiently detailed,
related experience to reasonably ensure the ability for effective and efficient
performance.
Labor Categories/Minimum Requirements
1) Supervisor (Project Manager): Minimum of four (4) years supervisory
experience in the plumbing trade, relevant to repair, cleaning and testing of
CHT systems on board US military vessels and is familiar with OSHA and EPA
requirements.
2) Quality Assurance Manager: Minimum of four (4) years Q/A experience obtained
by writing procedures, implementing Q/A plans, reading and recording data and is
familiar with OSHA and EPA requirements.
3) Plumber Maintenance: minimum of four (4) years experience /training in a
recognized apprentice to mechanic program or a minimum of four (4) years
experience in the plumbing trade, relevant to repair, cleaning and testing of
CHT systems on board US military vessels.
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4) Journeyman Pipefitter: Minimum of four (4) years experience /training in a
recognized apprentice to mechanic program or a minimum of four (4) years
experience in piping assembly, fabrication and/or repair of shipboard piping
systems, and must demonstrate proficiency in the layout, fabrication,
installation, testing, and maintenance of all shipboard piping systems, fresh
and salt water, steam lube oil, fuel oil, hydraulic fluid, gaseous fuels, low
pressure air and exhaust, drain, boiler bottom blow and soot blower.
5) Journeyman Mechanic (Welder/Brazer):
(a) Trade knowledge, such as that acquired by serving an apprenticeship
in the applicable trade, or four (4) years experience.
(b) Certification. for pipe welding/brazing shall include but no
limited to carbon steel, copper-nickel and aluminum.
(c) Procedural qualifications and personnel qualifications for pipe
welding/brazing shall include but not be limited to carbon steel, copper-nickel
and aluminum.
(d) Certification for pipe welding/brazing dissimilar metals to include
but not be limited to copper-nickel to steel and copper to steel.
6) Maintenance Trades Helper: Minimum of two (2) years experience/training
assisting journeyman plumber.
7) Laborer: No experience required, the laborer performs tasks which require
mainly physical abilities and effort involving little or no specialized skill or
prior work experience.
C.6. REQUIRED STANDARD OF WORKMANSHIP
Unless otherwise specifically provided in this contract, the quality of
all services rendered hereunder shall conform to the highest standards in the
relevant profession, trade or field of endeavor. All services shall be rendered
by or supervised directly by individuals fully qualified in the relevant
profession, trade or field, and holding any licenses required by law.
C.7. CONTRACTOR PERFORMANCE
The contractor shall perform the services in this contract as may be
ordered by the issuance of task orders from the Ordering Officer(s) at the
Supervisor of Shipbuilding, Conversion and Repair, USN, Portsmouth Virginia.
When ordered, the services for Chemical Cleaning of Sewage Piping shall be in
accordance with the requirements as outlined in this contract. Services shall be
provided as specified in Section F herein.
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Contractor's facility shall be located to respond by surface travel within one
(1) hour of Supervisor of Shipbuilding, Conversion & Repair, USN, Portsmouth,
VA.
C.8. ORDERING ADDITIONAL WORK/UNDISCLOSED WORK
(a) The following procedure will be used to order additional work or
undisclosed work (any work related to chemical cleaning of piping that is not
covered by fixed price line items such as, but not limited to, lagging
replacement, urinal replacement, etc.) necessary to satisfactorily complete CHT
(Collection, Holding and Transfer) System Cleaning under the contract. Such work
may be called for by the issuance of a task order modification by the Ordering
officer during the term of the contract.
During the course of work under other contract items, the
contractor shall promptly recommend to the Ordering officer, in writing,
additional work as he discovers the need for such work. Concurrently, the
contractor shall quote a price and delivery time for the additional work. The
Ordering Officer shall promptly review the recommendation and may, after
reaching agreement with the Contractor, issue a Task Order Modification. The
Government has no obligation under this paragraph to issue any such task order
modification.
The contractor shall not proceed with the work until a task
order modification is issued. Whenever the Ordering Officer determines that it
is in the interest of the Government not to delay performance of the work until
a price is negotiated, the Ordering officer may specify in the task order that
the contractor shall proceed forthwith. In every case, prior to completion of
the work called for therein, the parties shall negotiate a price and delivery
schedule as expeditiously as possible and modify the task order accordingly.
(b) Government work requirements shall be issued as task order
modifications under this contract by the Ordering Officer. The Ordering officer
will negotiate a firm fixed price for man hours and a ceiling price for
materials. The task orders shall set forth the work to be performed and shall
refer to the Contract Line Item Number (CLIN) pursuant to which the request was
issued. They shall include or be amended to include the price of the work and
the delivery schedule therefor.
The task order modification shall cite the funds allotted for
payment of the work ordered thereby. The provisions of the contract shall be
applicable to all task orders issued under this clause. Failure to agree upon a
reasonable price shall be considered a "dispute" under the clause of this
contract entitled "Disputes". Modifications to task orders may be issued subject
to the same conditions as the original task order. The contractor's concurrence
as to the terms of the task order or modification will be evidenced by signing
the respective document. The term "Work/Task" as used herein includes both
supplies and services to the extent covered by the referenced contract item.
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(c) Due to the nature of the application of the equipment, it is
necessary that the approval of the Ordering Officer be obtained prior to
authorizing performance of additional work under CLINS 1005, 2005, 3005, 4005
and 5005.
(d) The cost of any additional work due to the negligence of the
contractor or its employees or due to their failure to follow specifications or
correct trade practices shall be borne entirely by the contractor.
C.9. PRIOR WRITTEN PERMISSION REQUIRED FOR ALL SUBCONTRACTS
None of the services required by this contract shall be subcontracted
to or performed by persons other than the contractor or the contractor's
employees without the prior written consent of the Contracting Officer.
C.10. INTERFERENCES
Offerors are advised that the prices offered for services shall include
labor and material necessary for removal and reinstallation of interferences
required in SECTION C, herein.
C.11. REIMBURSEMENT OF MATERIAL COSTS
Cost of Materials. The cost of materials, furnished pursuant to
specific authorization by the Ordering Officer shall be reimbursed at the
contractor's invoice cost less any discounts to be taken plus applicable DCAA
indirect cost(s). No fee shall be allowed on material cost. Expendable material
costs for items such as office supplies, report paper, diskettes, printer
ribbons, printer wheels/thimbles, drafting equipment and tools of the trade
items, such as word processing and reproduction equipment or any equipment that
is normally found in an office shall be absorbed by the contractor in his
applicable burden rate. The contractor shall support material invoice with
copies of paid invoices or store room requisitions to support all direct
material costs claimed.
C.12. DELAY/DISRUPTION
The contractor shall coordinate the work effort on ordered tasks on a
daily basis with Ship's Force to prevent changing situations on board ship
causing delays and disruptions. Disruptions due to drills, shifting berths,
inspections, delay in obtaining access, serving meals and operation of equipment
are to be expected and are considered to be normal rather than unusual
occurrences during the performance of work on tasks ordered under this contract.
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C.13. LIABILITY AND INSURANCE
(a) The contractor shall assume all liability for and shall indemnify
and save harmless the government, its officers, enlisted personnel, agents and
employees from and against any loss, damage or injury which may be sustained by
any person or persons, whether they be employees agents or representatives of
the parties hereto, or third persons, as a result of the performance of this
contract. In the event any such claim or demand is made upon the government, its
officers, enlisted personnel, agents and employees, or in the event any suit
therefore is instituted, the Government shall give immediate notice of such
claim or suit to the contractor and will refrain from any payment or demand with
respect to such claim or suit without first obtaining the written consent of the
contractor. The contractor shall reimburse the government, its officers,
enlisted personnel agents and employees for any judgements, payments or expenses
occasioned to them in connection with claims, demands or suits of which notice
has been given by the government.
(b) The contractor releases the government, its officers, enlisted
personnel, agents and employees from any liability for any loss damage or injury
which may be sustained by the contractor in the performance of this contract and
hereby agrees to indemnify the government, its officers, enlisted personnel,
agents and employees from any loss, damage, or injury which may be sustained by
the government, its officers, enlisted personnel, agents and employees in
connection therewith.
(c) Notwithstanding any other provision of this clause, the contractor
shall not be required to reimburse the government, its officers, enlisted
personnel, agents and employees for any judgements, payments or expenses arising
out of its or their negligence.
C.14. EMPLOYMENT OF NAVY PERSONNEL RESTRICTED
In performing this contract, the contractor will not use as a
consultant or employ (on either a full or part time basis) any active duty Navy
personnel (civilian or military) without the prior approval of the Contracting
Officer. Such approval may be given only in circumstances where it is clear that
no laws and no DOD or Navy instructions, regulations, or policies might possibly
be contravened and no appearance of a conflict of interest will result.
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SECTION E INSPECTION AND ACCEPTANCE
E.1. FAR 52.252-2 CLAUSES INCORPORATED BY REFERENCE (JUN 1988)
This contract incorporates one or more clauses by reference, with the
same force and effect as if they were given in full text. Upon request, the
Contracting officer will make their full text available.
FEDERAL ACQUISITION REGULATION CLAUSES
- --------------------------------------
52.246-4 INSPECTION OF SERVICES FIXED PRICE FEB 1992
52.246-16 RESPONSIBILITY OF SUPPLIES APR 1984
E.2. INSPECTION AND ACCEPTANCE (DESTINATION)
Inspection and acceptance of the supplies or services to be furnished
hereunder shall be made at destination by the receiving activity, Ship's QA
Officer or his designated representative, E7
or above.
Receiving activity shall execute acceptance certificate on the
applicable inspection and receiving report form (DD Form 250, DD Form 1155, or
Standard Form 44). The acceptance document shall include the following
information:
(1) Date of invoice receipt
(2) End date and percentage of work completed
(3) Amount certified for payment
(4) Certification and signature by the COR
(5) Certification by the Ordering officer for payment
(6) Date forwarded to payment office
NOTE: 1. The Ordering Officer or the Contracting Officer's Representative (COR)
may inspect work in progress, either at the Contractor's facility or on board
any Naval vessel, at any time.
2. The contractor shall respond to any Government corrective documents,
such as Quality Deficiency Reports (QDR'S), etc. issued because of
unsatisfactory contract performance. The appropriate corrective actions shall be
taken by the contractor and written response shall be provided in accordance
with the specific corrective action document requirements.
E.3. INSPECTION AND ACCEPTANCE (ADDITIONAL PROVISIONS)
The performance by the Contractor and the quality of the work delivered
including any equipment furnished, and documentary material written or compiled,
shall be subject to in-process review and inspection during performance.
Inspection may be accomplished at any work location involved and authorized
government personnel shall be permitted to observe the work or to conduct
inspection at all reasonable hours. Inspection or test by the Government of any
services rendered or supplies furnished hereunder does not relieve the
Contractor from any responsibility regarding
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defects or other failures to meet contract requirements which may be disclosed
prior to final acceptance by contract requirements which may be disclosed prior
to final acceptance by Supervisor of Shipbuilding, Portsmouth, Virginia
authorized representative(s).
E.4. INSPECTION SYSTEM REQUIREMENTS
The contractor shall accomplish the requirements of Attachment I, CIS
Quality System; Provide.
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SECTION F - DELIVERIES OR PERFORMANCE
F.I. PAR 52.252-2 CLAUSES INCORPORATED BY REFERENCE (MM 1988)
This contract incorporates one or more clauses by reference, with the
same force and effect as if they were given in full text. Upon request, the
Contracting officer will make their full text available.
FEDERAL ACQUISITION REGULATION CLAUSES
- --------------------------------------
52.242-15 STOP-WORK ORDER AUG 1989
52.242-17 GOVERNMENT DELAY OF WORK APR 1984
F.2. DELIVERY OF DATA
Place and time of delivery of data shall be as specified on the DD Form
1423 (Contract Data Requirements List) which is an exhibit to this contract,
unless delivery is deferred at the Government's option by written order of the
Contracting Officer.
F.3. TIME OF DELIVERY AND OR PERFORMANCE OF SERVICES "C"
The actual performance periods will be specified on each individual
task order.
F.4. DURATION OF CONTRACT PERIOD
This contract shall become effective on the date of award, or
commencement date specified in the award information (if specified), and shall
continue in effect during the following 12 months, unless terminated in
accordance with other provisions herein.
F.5. PLACE OF DELIVERY: DESTINATION
The services to be furnished hereunder shall be performed on vessels
located in the Hampton Roads, Virginia Area or other areas as specified on each
individual task order.
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F.6. EMERGENT WORK "C"
Approximately 40 percent of all orders issued are classified as
"EMERGENT," as determined by the COR. The contractor shall begin performance of
emergent work within "24 hours" of verbal or written order by the Contracting
Officer/Ordering officer.
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SECTION G - CONTRACT ADMINISTRATION DATA
G.1. NAPS 5252.232-9000 SUBMISSION OF INVOICES (FIXED PRICE) (JUL 1992)
(a) "Invoice" as used in this clause does not include contractor's
requests for progress payments.
(b) The contractor shall submit original invoice with one (1) copy to:
Supervisor of Shipbuilding, Conversion & Repair, USN
P. 0. Box 215 Attn: Code 6101
Portsmouth, VA 23705-0215
Invoices shall be segregated by individual task order.
(c) The use of Material Inspection and Receiving Reports, DD Form 250,
as an invoice is encouraged.
(d) In addition to the Prompt Payment clause of this contract, the
contractor shall cite on each invoice:
(1) the Contract Line Item Number (CLIN)
(2) the Sub-Line Item Number (SLIN)
(3) the quantity
(4) the unit price
(5) the extended price
(6) the total amount invoiced
G.2. SUP 5252.243-9400 AUTHORIZED CHANGES ONLY BY THE CONTRACTING OFFICER (JAN
1992)
(a) Except as specified in paragraph (b) below, no order, statement, or
conduct of Government personnel who visit the Contractor's facilities or in any
other manner communicates with Contractor personnel during the performance of
this contract shall constitute a change under the "Changes" clause of this
contract.
(b) The Contractor shall not comply with any order, direction or
request of Government personnel unless it is issued in writing and signed by the
Contracting Officer, or is pursuant to specific authority otherwise included as
a part of this contract.
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G.2. SUP 5252.243-9400 AUTHORIZED CHANGES ONLY BY THE CONTRACTING OFFICER (JAN
1992) (continued)
(c) The Contracting Officer is the only person authorized to approve
changes in any of the requirements of this contract and, notwithstanding
provisions contained elsewhere in this contract, the said authority remains
solely the Contracting Officer's. In the event the contractor effects any change
at the direction of any person other than the Contracting Officer, the change
will be considered to have been made without authority and no adjustment will be
made in the contract price to cover any increase in charges incurred as a result
thereof.
The address and telephone number of the Administrative Contracting Office will
be:
Ron Cates, SUPSHIP Code 422.4
Supervisor of Shipbuilding, Conversion and Repair, USN
P. 0. Box 215
Portsmouth, VA 23705-0215
(757) 396-5041 X426
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SECTION H SPECIAL C0NTRACT REQUIREMENTS
H.1. CONTRACTING OFFICER'S REPRESENTATIVE (COR) "C"
(a) The COR for this contract is: J. C. Tenney
(b) The Alternate COR for this contract is: J. D. Weaver
(c) The COR will act as the Contracting Officer's representative for
technical matters, providing technical direction and discussion, as necessary,
with respect to the specification or statement of work, and monitoring the
progress and quality of contractor performance. The COR is not an Administrative
Contracting Officer and does not have authority to direct the accomplishment of
effort which is beyond the scope of the statement of work in the contract (or
task order).
(d) When, in the opinion of the contractor, the COR requests effort
outside the existing scope of the contract (or task order), the contractor shall
promptly notify the contracting officer (or ordering officer) in writing. No
action shall be taken by the contractor under such direction until the
contracting officer has issued a modification to the contract (or in the case of
a task order, until the ordering officer has issued a modification to the task
order) ; or until the issue has been otherwise resolved.
(e) In the event that the COR named above is absent due to leave,
illness or official business, all responsibilities and functions assigned to the
COR will be the responsibility of the alternate COR.
(f) The COR is designated as the Property Administrator to ensure
compliance with FAR Part 45 with respect to control of government property.
H.2. LIABILITY, AUTOMOBILE AND WORKMEN'S COMPENSATION INSURANCE
The following types of insurance are required in accordance with the
clause entitled "INSURANCE WORK ON A GOVERNMENT INSTALLATION" (FAR 52.228-5) and
shall be maintained in the minimum amounts shown:
1. Comprehensive General Liability: $200,000 per person and $500,000 per
accident for bodily injury.
2. Automobile Insurance: $200,000 per person and $500,000 per accident for
bodily injury and $20,000 per accident for property damage.
3. Standard Workmen's Compensation and Employer's Liability insurance (or,
where maritime employment is involved, Longshoremen's and Harbor
Workers Compensation Insurance) in the minimum amount of $100,000.
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H.3. REIMBURSEMENT OF TRAVEL COSTS
(a) Travel
(1) Area of travel. Performance under this contract may
require travel by contractor personnel. If travel, domestic or overseas, is
required, the contractor is responsible for making all needed arrangements for
his personnel. This includes but is not limited to the following:
Medical Examinations
Immunization
Passports, visas, etc.
Security Clearances
All contractor personnel required to perform work on
any U.S. military vessel will have to obtain boarding authorization from the
Commanding Officer of the vessel prior to boarding.
(2) Travel Policy. The Government will reimburse the
contractor for allowable travel costs incurred by the contractor in performance
of the contract and determined to be in accordance with FAR subpart 31.2,
subject to the following provisions:
Travel required for tasks assigned under this
contract shall be governed in accordance with rules set forth for temporary duty
travel in the Department of Defense Joint Travel Regulations: Vol. 2 for
Civilian Personnel.
(3) Travel. Travel, subsistence, and associated labor charges
for travel time are authorized for travel beyond a 50 mile radius of the local
office, whenever a task assignment requires work to be accomplished at a
temporary alternate work site. No travel, subsistence, or associated labor
charges for travel time shall be charged for work performed within a 50 mile
radius of the contractor's local office.
Travel performed for personal convenience and daily
travel to and from work at contractor's facility will not be reimbursed.
(4) Per Diem. Per them for travel on work assigned under this
contract will be reimbursed to employees consistent with company policy, but not
to exceed the amount authorized in the Department of Defense Joint Travel
Regulations.
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Page 50 of 84
H.3. REIMBURSEMENT OF TRAVEL COSTS (continued)
(5) Shipboard Stays. Whenever work assignments require
temporary duty aboard a Government ship, the contractor will be reimbursed at
the per them rates identified in paragraphs C8101.2C or C81181.3B(6) of the DOD
Joint Travel Regulations, Volume 2.
(6) Air/Rail Travel. In rendering the services, the contractor
shall be reimbursed for the actual costs of transportation incurred by its
personnel not to exceed the cost of tourist class rail, or plane fare, to the
extent that such transportation is necessary for the performance of the services
hereunder and is authorized by the Ordering Officer. Such authorization by the
Ordering officer shall be indicated in the order or in some other suitable
written form.
NOTE: To the maximum extent practicable without the impairment
of the effectiveness of the mission, transportation shall be tourist class. In
the event that only first class travel is available, it will be allowed,
provided justification therefore is fully documented and warranted.
(7) Private Automobile. The use of privately owned conveyance
within the continental United States by the traveler will be reimbursed to the
contractor at the mileage rate allowed by Joint Travel Regulations.
Authorization for use of privately owned conveyance shall be indicated on the
order. Distances traveled between points shall be shown in standard highway
mileage guides. Any deviations from distance shown in such standard mileage
guides shall be explained by the traveler on his expense sheet.
(8) Car Rental. The contractor shall be entitled to
reimbursement for car rental, exclusive of mileage charges, as authorized by
each order, when the services are required to be performed outside the normal
commuting distance from the contractor's facilities. Car rental for TDY teams
will be limited to a rate of one car for every four (4) persons on TDY at one
site.
H.4. DEPARTMENT OF LABOR DETERMINATION OF MINIMUM WAGES AND FRINGE BENEFITS
A wage determination applicable to this work has been requested from
the U.S. Department of Labor. ATTACHMENT VIII hereto sets forth the current
Department of Labor Wage Determination No.: 94-2543 REV 13 dtd 3 Feb 1997 on
file in this office. Compliance with this wage determination is mandatory until
you are notified of a more recent revision to these determinations.
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Page 51 of 84
H.5. MINIMUM AND MAXIMUM QUANTITIES
As referred to in paragraph (b) of the "Indefinite Quantity" clause of
this contract, the contract minimum quantity is a total of five (5) percent of
the contract price for the base year
only.
The contract maximum quantity is a total of $3.5 million for
each
lot.
H.6. WARRANTY OF SERVICES
(a) DEFINITIONS. "Acceptance" as used in this clause, means the act of
an authorized representative of the Government by which the Government assumes
for itself, or as an agent of another, ownership of existing and identified
supplies, or approves specific services, as partial or complete performance of
the contract.
"Correction" as used in this clause, means the elimination of a defect.
(b) Notwithstanding inspection and acceptance by the Government or any
provision concerning the conclusiveness thereof, the contractor warrants that
all services performed under this contract will at the time of acceptance, be
free from defects in workmanship and conform to the requirements of this
contract. The Contracting Officer shall give notice of any defect or
nonconformance to the Contractor within 90 days from the date of acceptance by
the Government. The notice shall state either (1) that the contractor shall
correct or reperform any defective or nonconforming services, or reperformance.
(c) If the Contractor is required to correct or reperform, it shall be
at no cost to the Government, and any services corrected or reperformed by the
contractor shall be subject to this clause to the same extent as work initially
performed. If the contractor fails or refuses to correct or reperform, the
Contracting Officer may be contract or otherwise, correct or replace with
similar services and charge to the Contractor the cost occasioned to the
Government thereby, or make an equitable adjustment in the contract price.
(d) If the Government does not reuire correction or reperformance, the
Contracting Officer shall make an equitable adjustment in the contract price.
<PAGE>
Page 52 of 84
SECTION I - CONTRACT CLAUSES
I.1. FAR 52.252-2 CLAUSES INCORPORATED BY REFERENCE (JUN 1988)
This contract incorporates one or more clauses by reference, with the
same force and effect as if they were given in full text. Upon request, the
Contracting Officer will make their full
text available.
FEDERAL ACQUISITION REGULATION CLAUSES
- --------------------------------------
52.202-1 DEFINITIONS OCT 1995
52.203-3 GRATUITIES APR 1984
52.203-5 COVENANT AGAINST CONTINGENT FEES APR 1984
52.203-6 RESTRICTIONS ON SUBCONTRACTOR SALES OCT 1995
TO THE GOVERNMENT
52.203-7 ANTI-KICKBACK PROCEDURES JUL 1995
52.203-10 PRICE OR FEE ADJUSTMENT FOR ILLEGAL JAN 1990
OR IMPROPER ACTIVITY
52.203-12 LIMITATION ON PAYMENTS TO INFLUENCE JAN 1990
CERTAIN FEDERAL TRANSACTIONS
52.204-4 PRINTING/COPYING DOUBLE SIDED ON MAY 1995
RECYCLED PAPER
52.209-6 PROTECTING THE GOVERNMENT'S INTEREST AUG 1995
WHEN SUBCONTRACTING WITH CONTRACTORS
DEBARRED, SUSPENDED, OR PROPOSED FOR
DEBARMENT
52.211-5 NEW MATERIAL MAY 1995
52.211-7 OTHER THAN NEW MATERIAL, RESIDUAL MAY 1995
INVENTORY, AND FORMER GOVERNMENT
SURPLUS PROPERTY
52.21-14 NOTICE OF PRIORITY RATING FOR NATIONAL SEP 1990
DEFENSE USE
52.211-15 DEFENSE PRIORITY AND ALLOCATION REQUIRE. SEP 1990
52.215-2 AUDIT--NEGOTIATION OCT 1995
52.215-3 PREPARATION OF OFFERS APR 1984
52.215-5 SOLICITATION DEFINITIONS JUL 1987
52.215-22 PRICE REDUCTION FOR DEFECTIVE COST OR OCT 1995
PRICING DATA
52.215-23 PRICE REDUCTION FOR DEFECTIVE COST OR OCT 1995
PRICING DATA - MODIFICATIONS
52.215-24 SUBCONTRACTOR COST OR PRICING DATA OCT 1995
52.215-25 SUBCONTRACTOR COST OR PRICING DATA - OCT 1995
MODIFICATIONS
52.215-27 TERMINATION OF DEFINED BENEFIT PENSION MAR 1996
PLANS
52.215-30 FACILITIES CAPITAL COST OF MONEY SEP 1987
52.215-33 ORDER OR PRECEDENCE JAN 1986
52.215-3 REVISION OF ADJUSTMENT OF PLANS FOR POST MAR 1996
RETIREMENT BENEFITS OTHER THAN PENSION
52.215-40 NOTIFICATION OF OWNERSHIP CHANGES FEB 1995
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Page 53 of 84
52.216-18 ORDERING OCT 1995
(a)...the effective dat of award of
contract through the twelve (12)
Months thereafter, unless
extended by the exercise of
options contained herein.
52.216-19 DELIVERY-ORDER LIMITATIONS OCT 1995
... (a)$500.00
... (b)(1)$500,000.00;
(2)$900,000.00; or
(3)30 days
... (d)two days after issuance
52.216-22 INDEFINITE QUANTITY OCT 1995
... (f) the Contractor shall not be required
To make any deliveries under this
contract 120 days after expiration
of contract effective date.
52.217-8 OPTION TO EXTEND SERVICES OCT 1995
52.217-9 OPTION TO EXTEND THE TERM OF THE CONTRACT MAR 1989
(a)... 30 days
(b)... 5 years
52.219-16 LIQUIDATED DAMAGES - SMALL BUSINESS OCT 1995
SUBCONTRACTING PLAN
52.219-8 UTILIZATION OF SMALL BUSINESS CONCERNS OCT 1995
AND SMALL DISADVANTAGE BUSINESS CONCERNS
52.219-9 SMALL BUSINESS AND SMALL DISADVANTAGE OCT 1995
BUSINESS SUBCONTRACTING PLAN
52.219-14 LIMITATION ON SUBCONTRACTING JAN 1991
52.22-1 NOTICE OF LABOR DISPUTES APR 1984
52.22-3 CONVICT LABOR APR 1984
52.22-4 CONTRACT WORK HOURS AND SAFETY STANDARDS JUL 1995
ACT - OVERTIME COMPENSATION
52.22-26 EQUAL OPPORTUNITY APR 1984
52.22-28 EQUAL OPPORTUNITY PREAWARD CLEARANCE OF APR 1984
SUBCONTRACTS
52.22-35 AFFIRMATIVE ACTION FOR SPECIAL DISABLED APR 1984
AND VIETNAM ERA VETERNAS
52.22-36 AFFIRMATIVE ACTION FOR HANDICAPPED APR 1984
WORKERS
52.22-37 EMPLOYMENT REPORTS ON SPECIAL DISABLED JAN 1988
VETERNAS AND VETERANS OF THE VIETNAM ERA
52.22-41 SERVICE CONTRACT ACT OF 1965, AS AMENDED MAY 1989
52.22-43 FAIR LABOR STANDARDS ACT AND SERVICE MAY 1989
CONTRACT ACT - PRICE ADJUSTMENT
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(MULTIPLE YEAR AND OPTION CONTRACTS)
52.22-44 FAIR LABOR STANDARDS ACT AND MAY 1989
SERVICE CONTRACT ACT PRICING ADJUSTMENTS
52.223-2 CLEAN AIR AND WATER APR 1984
52.223-3 HAARDOUS MATERIAL IDENTIFICATION AND NOV 1991
MATERIAL AFETY DATA
52.223-6 DRUG-FREE WORKPLACE JUL 1990
52.225-10 DUTY FREE ENTRY APR 1984
52.225-11 RESTRICTIONS ON CERTAIN FOREIGN PURCHASES MAY 1992
52.227-1 AUTHORIZATION AND CONSENT JUL 1995
52.227-2 NOTICE AND ASSISTANCE REGARDING PATENT APR 1984
AND COPYRIGHT INFRINGEMENT
52.228-5 INSURANCE-WORK ON A GOVERNMENT INSTALL. SEP 1989
52.229-3 FEDERAL, STATE, AND LOCAL TAXES JAN 1991
52.229-5 TAXES - CONTRACTS PERFORMED IN U.S. APR 1984
POSSESSIONS OR PUERTO RICO
52.230-2 COST ACCOUNTING STANDARDS APR 1996
52.232-1 PAYMENTS APR 1984
52.232-7 PAYMENTS UNDER TIME AND MATERIAL AND APR 1984
LABOR HOUR CONTRACTS (ALTERNATE I)
*5% WITHHOLDING WAIVED
52.232-8 DISCOUNTS FOR PROMPT PAYMENT APR 1989
52.232-11 EXTRAS APR 1984
52.232-17 INTEREST JUN 1996
52.232-23 ASSIGNMENT OF CLAIMS JAN 1986
52.232-25 PROMPT PAYMENT MAR 1994
52.232-28 ELECTRONIC FUNDS TRANSFER PAYMENT METHODS APR 1989
52.232-33 MANDATORY INFORMATION OR ELECTRONIC FUNDS AUG 1996
TRANSFER PAYMENT
52.232-34 OPTIONAL INFORMATION FOR ELECTRONIC AUG 1996
FUNDS TRANSFER PAYMENT
52.233-1 DISPUTES (ALTERNATE I) (DEC 1991) OCT 1995
52.233-3 PROTEST AFTER AWARD OCT 1995
52.237-2 PROTECTION OF GOVERNMENT BUILDINGS, JAN 1991
EQUIPMENTS, AND VEGETATION
52.237-3 CONTINUITY OF SERVICES JAN 1991
52.242-13 BANKRUPTCY JUL 1995
52.243-1 CHANGES (ALTERNATE I) AUG 1987
52.244-1 SUCONTRACTS (FIXED-PRICE CONTRACTS) FEB 1995
52.245-2 GOVERNMENT PROPERTY FIXED PRICE AUG 1987
52.246-25 LIMITATION OF LIABILITY - SERVICES APR 1984
52.244-5 COMPETITION IN SUBCONTRACTING JAN 1996
52.248-1 VALUE ENGINEERING MAR 1989
52.249-4 TERMINATION FOR CONVENIENCE OF THE APR 1984
GOVERNMENT (SERVICES) (SHORT FORM)
52.249-8 DEFAULT (FIXED-PRICE SUPPLY AND SERVICE) APR 1984
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DEPARTMENT OF DEFENSE FEDERAL ACQUISITION REGULATION SUPPLEMENT CLAUSES
252.201-7000 CONTRACTING OFFICER'S REPRESENTATIVE DEC 1991
252.203-7000 STATUTORY PROHIBITION ON COMPENSATION NOV 1995
TO FORMER DEPARTMENT OF DEFENSE
EMPLOYEES
252.203-7001 SPECIAL PROHIBITION ON EMPLOYMENT NOV 1995
252.203-7002 DISPLAY OF DOD HOTLINE POSTER DEC 1991
252.204-7003 CONTROL OF GOVERNMENT PERSONNEL WORK APR 1992
PRODUCT
252.205-7000 PROVISION OF INFORMATION TO COOPERATIVE DEC 1991
AGREEMENT HOLDERS
252.215-7000 PRICING ADJUSTMENTS DEC 1991
252.215-7002 COST ESTIMATING SYSTEM REQUIREMENTS DEC 1991
252.223-7001 HAZARD WARNING LABELS DEC 1991
252.223-7004 DRUG-FREE WORK FORCE SEP 1988
252.233-7005 HAZARDOUS WASTE LIABILITY OCT 1992
252.223-7006 PROHIBITION ON STORAGE AND DISPOSAL OF APR 1993
TOXIC WASTE AND HAZARDOUS MATERIALS
252.225-7031 SECONDARY ARAB BOYCOTT OF ISRAEL JUN 1992
252.225-7032 WAIVER OF UNITED KINGDOM LEVIES OCT 1992
252.227-7013 RIGHTS IN TECHNICAL DATA AND COMPUTER NOV 1995
SOFTWARE
252.227-7018 RIGHTS IN NONCOMMERCIAL TECHNICAL DATA JUN 1995
AND COMPUTER SOFTWARE - SMALL BUSINESS
INNOVATION RESEARCH PROGRAM
252.227-7028 TECHNICAL DATA OR COMPUTER SOFTWARE JUN 1995
DELIVERED TO THE GOVERNMENT
252.227-7030 TECHNICAL DATA--WITHHOLDING OF PAYMENT OCT 1988
252.227-7036 CERTIFICATION OF TECHNICAL DATA CONFORMITY MAY 1987
252.227-7037 VALIDATION OF RESTRICTIVE MARKINGS ON NOV 1995
TECHNICAL DATA
252.231-7000 SUPPLEMENTAL COST PRINCIPLES DEC 1991
252.232-7006 REDUCTION OR SUSPENSION OF CONTRACT AUG 1992
PAYMENTS UPON FINDING OF FRAUD
252.233-7000 CERTIFICATION OF CLAIM AND REQUESTS FOR MAY 1994
ADJUSTMENT OR RELIEF
252.424-7000 POST AWARD CONFERENCE DEC 1991
252.246-7000 MATERIAL INSPECTION AND RECEIVING REPORT DEC 1991
252.246-7001 WARRANTY OF DATA DEC 1991
252.249-7001 NOTIFICATION OF SUBSTANTIAL IMPACT ON DEC 1991
EMPLOYMENT
I.2. FAR 52.203-8 CANCELLATION, RESCISSION, AND RECOVERY OF FUNDS FOR ILLEGAL OR
IMPROPER ACTIVITY (JAN 1997)
(a) If the Government receives information that a contractor or a
person has engaged in conduct constituting a violation of subsections (a), (b),
(c ) or (d) of Section 27 of the Office of Federal Procurement Policy Act (41
U.S.C. 423) (the Act), as amended by Section 4304 of the National Defense
Authorization Act for Fiscal Year 1996 (Pub. L. 104-106), the Government may--
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(1) Cancel the solicitation, if the contract has not yet been
awarded or issued; or
(2) Rescind the contract with respect to which--
(i) The Contractor or someone acting for the
Contractor has been convicted for an offense where the conduct constitutes a
violation of subsection 27(a) or (b) of the Act for the purpose of either--
(A) Exchanging the information covered by such
subsections for anything of value; or
(B) obtaining or giving anyone a competitive
advantage in the award of a Federal agency procurement contract; or
(ii) The head of the contracting activity has
determined, based upon a preponderance of the evidence, that the Contractor or
someone acting for the Contractor has engaged in conduct constituting an offense
punishable under subsection 27(e) (1) of the Act.
(b) If the Government rescinds the contract under paragraph (a) of this
clause, the Government is entitled to recover, in addition to any penalty
prescribed by law, the amount expended
under the contract.
(c) The rights and remedies of the Government specified herein are not
exclusive, and are in addition to any other rights and remedies provided by law,
regulation, or under this
contract.
I.3. 52.203-10 PRICE OR FEE ADJUSTMENT FOR-ILLEGAL OR IMPROPER ACTIVITY (JAN
1997)
(a) The Government, at its election, may reduce the price of a fixed
price type contract and the total cost and fee under a cost-type contract by the
amount of profit or fee determined as set forth in paragraph (b) of this clause
if the head of the contracting activity or designee determines that there was a
violation of subsection 27 (a), (b) or (c) or the office of Federal Procurement
Policy Act, as amended (41 U.S.C. 423), as implemented in Section 3.104 of the
Federal Acquisition Regulation.
(b) The price or fee reduction referred to in paragraph (a) of this
clause shall be
(1) For cost-plus-fixed-fee contracts, the amount of the fee
specified in the contract at the time of award;
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(2) For Cost-plus-incentive-fee contracts, the target fee
specified in the contract at the time of award, notwithstanding any minimum fee
or "fee floor" specified in the contract;
(3) For cost-plus-award-fee contracts contract award;
(i) The base fee established in the contract at the
time of contract award;
(ii) If no base fee is specified in the contract, 30
percent of the amount of each award fee otherwise payable to the Contractor for
each award fee evaluation period or at each award fee determination point.
(4) For fixed-price-incentive contracts, the Government may--
(i) Reduce the contract target price and contract
target profit by an amount equal to the initial target profit specified in the
contract at the time of contract award; or
(ii) If an immediate adjustment to the contract
target price and contract target profit would have a significant adverse impact
on the incentive price revision relationship under the contract, or adversely,
affect the contract financing provisions, the Contracting Officer may defer such
adjustment until establishment of the total final price of the contract. The
total final price established in accordance with the incentive price revision
provisions of the contract shall be reduced by an amount equal to the initial
target profit specified in the contract at the time of contract award and such
reduced price shall be the total final contract price.
(5) For firm-fixed-price contracts, by 10 percent of the
initial contract price or a profit amount determined by the Contracting Officer
from records or documents in existence prior to the date of the contract award.
(c) The Government may, at its election, reduce a prime contractor's
price or fee in accordance with the procedures of paragraph (b) of this clause
for violations of the Act by its subcontractors by an amount not to exceed the
amount of profit or fee reflected in the subcontract at the time the subcontract
was first definitively priced.
(d) In addition to the remedies in paragraphs (a) and (c) of this
clause, the Government may terminate this contract for default. The rights and
remedies of the Government specified herein are not exclusive, and are in
addition to any other rights and remedies provided by law or under this
contract.
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I.4. 52.215-26 INTEGRITY OF UNIT PRICES (JAN 1997)
(a) Any proposal submitted for the negotiation of prices for items of
supplies shall distribute costs within contracts on a basis that ensures that
unit prices are in proportion to the items' base cost (e.g., manufacturing or
acquisition costs). Any method of distributing costs to line items that distorts
unit prices shall not be used. For example, distributing costs equally among
line items is not acceptable except when there is little or no variation in base
cost. Nothing in this paragraph requires submission of cost or pricing data not
otherwise required by law or regulation.
(b) The Offeror/Contractor shall also identify those supplies which it
will not manufacture or to which it will not contribute significant value when
requested by the Contracting Officer.
I.5. 52.222-42 STATEMENT OF EQUIVALENT RATES FOR FEDERAL HIRES (MAY 1989)
In compliance with the Service Contract Act of 1965, as amended, and
the regulations of the Secretary of Labor (29 CFR part 4), this clause
identifies the classes of service employees expected to be employed under the
contract and states the wages and fringe benefits payable to each if they were
employed by the contracting agency subject to the provisions of 5 U.S.C. 5341 or
5332.
THIS STATEMENT IS FOR INFORMATION ONLY: IT IS NOT A WAGE DETERMINATION
EMPLOYEE CLASS HOURLY WAGE
Plumber Maintenance 23800 $12.87
Maintenance Trades-
Helper 23580 $10.49
Laborer 11180 $ 8.58
FRINGE BENEFITS
Ten (1) paid holidays as follows: New Years Day, Martin Luther King's Birthday,
Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veteran's Day, Thanksgiving Day and Christmas Day.
Paid annual leave (vacation) as follows:
a. Two (2) hours of annual leave each week for an employee with
less than three (3) years of service.
b. Three (3) hours of annual leave each week for employee with
three (3), but less than fifteen (15) years of service.
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c. Four (4) hours of annual leave each week for an employee with
fifteen (15) or more years of service.
Paid sick leave of two (2) hours per week.
Health Insurance--The Government pays 60-75 percent of the premium for health
insurance. The percentage paid depends upon the plan selected by the employee,
if the employee elects to carry health insurance.
Basic Life Insurance--one third of the cost of basic life insurance is paid by
the Government, if the employee elects to carry life insurance.
Retirement--Under the Civil Service Retirement system, the Government matches up
to a 7%) contribution by the employee towards retirement. In the event an
employee does not retire (i.e., resignation, removals, etc.), there is not
Government contribution. Under the new Federal Employees Retirement System, The
Government matches up to a five percent (5%) contribution.
1.6. ORAL ORDERS (INDEFINITE DELIVERY CONTRACTS)
(a) oral orders may be placed providing the following conditions are
complied with:
(1) Contractor will furnish with each shipment a delivery
ticket, in triplicate, showing: contract number, order number under the
contract, date order was placed, name and title of person placing order, an
itemized listing of supplies or services furnished, unit price and extension of
each item, and delivery or performance date.
(2) Invoices for supplies or services furnished in response to
oral orders will be accompanied with a received copy of each related delivery
ticket.
(3) Ordering activity shall designate in writing the names of
individuals authorized to place oral orders and will furnish a copy thereof to
the contractor.
(4) Written confirmation of oral orders will be issued as a
means of documenting the oral order within ten (10) working days.
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1.7. SUP 5252.216-9403 WRITTEN ORDERS (INDEFINITE DELIVERY CONTRACTS) (JAN 1992)
Written orders (on DD Form 1155) will contain the following information
consistent with the terms of the contract:
(a) Date of order
(b) Contract number and order number.
(c) Item number and description, quantity ordered,
unit price and contract price.
(d) Delivery or performance date.
(e) Place of delivery or performing (including
consignee)
(f) Packaging, packing, and shipping instructions if
any required.
(g) Accounting and appropriation data.
(h) Inspection invoicing and payment provisions to
the
extend not covered in the contract; and any other
pertinent information.
I.8. HAZARDOUS MATERIALS (JUN 1994) (NAVSUP)
(a) Hazardous materials as used in this clause means any material
defined as hazardous within the applicable modal regulations governing
packaging, handling, storage and transportation (including revisions adopted
during the term of this contract). Such definitions include the following:
CLASS/DIVISION DEFINITION
-------------- ----------
1 Explosives
2.1 Flammable Gas
2.2 Non-flammable Compressed Gas
2.3 Gas Poisonous by Inhalation
3 Flammable Liquid (not more than 141 F
Flash point
4.1 Flammable Solid
4.2 Spontaneously Combustible Material
4.3 Dangerous When Wet Material
5.1 Oxidizer
5.2 Organic Peroxides
6.1 Poisonous Material
6.2 Infectious Substances
7 Radioactive Material
8 Corrosive Material
9 Miscellaneous Hazardous Material/Other
Regulated Material (ORM)
(b) Preservation, packaging and packing of hazardous materials shipped
hereunder shall be in accordance with the requirements of Department Of
Transportation Code of Federal Regulation, Title 49, Part 100-199, as
applicable. In the event of any discrepancy between the contract and Title 49,
Title 49 shall govern, unless another modal regulation is applicable (See
paragraphs (e), (f) and (g) below.
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(c) Marking and labeling shall be in accordance with MIL-STD-129 and
Title 49, as applicable. In the event of any contradiction between the two
documents, Title 49 shall govern.
(d) Transportation shall be in accordance with Title 49; however,
hazardous material shipped via the U. S. Postal Service shall be shipped in
accordance with U. S. Postal Service Publication #52.
(e) Hazardous materials intended for shipment via water transportation
shall be packaged, packed, marked and labeled in accordance with the
International Maritime Organization International Maritime Dangerous Goods
(IMDG) Code.
(f) Hazardous materials intended for shipment, via commercial air,
shall be packaged, packed, marked, labeled and certified in accordance with the
International Civil Aviation Organization (ICAO) Technical Instructions for the
Safe Transport of Dangerous Goods By Air or the International Air Transport
Association (IATA) Dangerous Goods Regulations.
(g) Hazardous materials intended for shipment, via military aircraft
shall be packaged, packed, marked, labeled, and certified in accordance with
AFJMAN 24-204 (Formerly AFT 71-4) TM 38-250/NAVSUP PUB 505/MCO P4030.19/DLAM
4145.3 (Preparing Hazardous Material For Military Air Shipments).
(h) If the hazardous material required to be. shipped under this
contract is a non-regulated limited quantity as defined by applicable modal
regulations, it shall be packaged to meet the requirements of Level A packaging
listed in MIL-STD-2073.
(i) In additional to the above, packaging (container and containment
components) designs shall pass all applicable packaging performance tests in
accordance with Title 49, the ICAO/IATA and IMDG, as applicable. Compressed
gases are excluded from these tests. Each packaging of acceptable design shall
bear certification markings outlined in Title 49. All certificates and test
reports indicating test compliance shall be available for inspection by
authorized government representatives.
(j) A test report and special packaging instruction shall be submitted
in accordance with DD Form 1423, Contact Data Requirements List, referencing
Data Item Description (DIDs) DI-PACK-81059 (Performance Oriented Packaging Test
Report) and DI-PACK-80121 (Special Packaging Instruction) . When these DIDs are
referenced, only packaging materials controlled by Military or Federal
Specifications may be used, unless superseded by commercial standards which have
been adopted for government use.
(k) A Material Safety Data Sheet, prepared in accordance with
FED-STD-313 and a copy of the Hazard Warning Labels shall be forwarded to the
applicable contracting activity.
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SECTION J - LIST OF ATTACHMENTS
THE FOLLOWING LIST OF DOCUMENTS (ATTACHMENTS) ATTACHED HEREOT FORM A PART OF
- --------------------------------------------------------------------------------
THIS SOLICITATION:
- ------------------
1. EXHIBIT A - DD FORM 1423: CONTRACT DATA REQUIREMENTS LIST,
A001 THROUGH A009
2. ATTACHMENT I - SUPSHIP Portsmouth CIS Quality System; Provide
(6 pages)
3. ATTACHMENT II - GWI/042-01 titled, GENERAL REQUIREMENTS FOR
WORK WITHIN COMNAVBASE NORFOLK (PCP), DATED 21
Jan 1997 (6 pages)
4. ATTACHMENT III - GWI/042-02 titled, GENERAL REQUIREMENTS FOR
WORK WITHIN NAVAL AMHPIBIOUS BASE LITTLE CREEK;
ACCOMPLISH, dated 21 Jan 1997. (8 pages)
5. ATTACHMENT IV - GWI/O42-03 titled, GENERAL REQUIREMENTS FOR
WORK WITHIN THE CONTRACTOR'S PLANT (PCP), dated
21 Jan 1997 (4 pages)
6. ATTACHMENT V - GWI/042-11 titled, GENERAL REQUIREMENTS FOR
WORK WITHIN NORFOLK NAVAL SHIPYARD (PCP), dated
27 Feb 1997. (19 pages)
7. ATTACHMENT VI - NAVSEA Standard Work Item (SWI File Number
077-01) titled, HAZARDOUS WASTE PRODUCED ON
NAVAL VESSELS, CONTROL, dated 04 Apr 1997. (5
pages)
8. ATTACHMENT VII - NAVSEA Standard Work Item (ITEM NO. 009-32),
CLEANING and PAINTING REQUIREMENTS; ACCOMPLISH,
dated 13 Sep 1996. (54 pages)
9. ATTACHMENT VIII - DEPARTMENT OF LABOR WAGE DETERMINATION NO:
94-2543 (REV 13) dated 3 Feb. 1997. (9 pages)
10. ATTACHMENT IX - NAVY VALUE ENGINEERING GUIDE FOR CONTRACTORS
WITH VALUE ENGINEERING INCENTIVES FLYER (7
pages).
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SECTION J - LIST OF ATTACHMENTS (continued)
THE FOLLOWING LIST OF DOCUMENTS (ATTACHMENTS) ATTACHED HEREOT FORM A PART OF
- --------------------------------------------------------------------------------
THIS SOLICITATION:
- ------------------
11. ATTACHMENT X - CLIENT AUTHORIZATION LETTER
12. ATTACHMENT XI - GW/1/042-08 titled, GENERAL REQUIREMENTS FOR
WORK WITHIN NORFOLK NAVAL SHIPYARD (PCP) (FOR
SHIPS UTILIZING CONVENIENCE BERTHING), dated 27
Feb 1997. (16 pages).
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SECTION K-REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS
K.1. far 52.252-1 SOLICITATION PROVISIONS INCORPORATED BY REFERENCE (JUN 1998)
This solicitation incorporates one or more solicitation provisions by
reference, with the same force and effect as if they were given in full text.
Upon request, the Contracting Officer will make their full test available.
FEDERAL ACQUISITION REGULATION PROVISIONS
- -----------------------------------------
52.203.11 CERTIFICATION AND DISCLOSURE REGARDING PAYMENTS APR 1991
TO INFLUENCE CERTAIN FEDERAL TRANSACTIONS
52.222.21 CERTIFICATION OF NONSEGREGATED FACILITIES APR 1984
52.223-5 CERTIFICATION REGARDING A DRUG-FREE WORKPLACE JUL 1995
K.2 FAR 52.203.2 CERTIFICATE OF INDEPENDENT PRICE DETERMINATION (APR 1985)
(a) The offeror certifies that -
(1) The prices in this offer have been arrived at
independently, without, for the purpose of restricting competition, any
consultation, communication, or agreement with any other offeror or competitor
relating to (i) those prices, (ii) the intention to submit an offer, or (iii)
the methods or factors used to calculate the prices offered.
(2) The prices in this offer have not been and will not be
knowingly disclosed by the offeror, directly or indirectly, to any other offeror
or competitor before bid opening (in the case of a sealed bid solicitation) or
contract award (in the case of a negotiated solicitation unless otherwise
required by law; and
(3) No attempt has been made or will be made by the offeror to
induce any other concern to submit or not to submit an offer for the purpose of
restricting competition.
(b) Each signature on the offer is considered to be a certification by
the signatory that the signatory -
(1) Is the person in the offeror's organization responsible
for determining the prices being offered in this bid or proposal, and that the
signatory has not participated and will not participate in nay action contrary
to subparagraphs (a)(1) through (a)(3) above; or
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K.2 FAR 52.203.2 CERTIFICATE OF INDEPENDENT PRICE DETERMINATION (APR 1985)
(2)(i) Has been authorized, in writing, to act as agent for
the following principals in certifying that those principals have not
participated, and will not participate in any action contrary to subparagraphs
(a)(1) through (a)(3) above Patrick E. Lien, Regional Director (insert full name
of person(s) in the offeror's organization responsible for determining the
prices offered in this bid or proposal, and the title of his or her position in
the offeror's organization):
(ii) As an authorized agent, does certify that the principals
named in subdivision (b)(2)(i) above have not participated, and will not
participate, in any action contrary to subparagraphs (a)(1) through (a)(3)
above; and
(iii) As an agent, has not personally participated, and will
not participate, in any action contrary to subparagraphs (a)(1) through (a)(3)
above.
(c) If the offeror deletes or modified subparagraph (a)(2) above, the
offeror must furnish with its offer a signed statement setting forth in detail
the circumstances of the disclosure.
K.3 FAR 52.204-3 TAXPAYER IDENTIFICATION (MAR 1994)
(a) "Common parent," as used in this solicitation provision, means that
corporately entity that owns or controls an affiliated group or corporations
that files its Federal income tax returns on a consolidated basis, and of which
the offeror is a member.
"Corporate status," used in this solicitation provision, means a
designation as to whether the offeror is a corporate entity, an unincorporated
entity (e.g., sole proprietorship or partnership), or a corporation providing
medical and health care services.
"Taxpayer Identification Number (TIN), "as used in this solicitation
provision, means the number required by the IRS to be used by the offeror in
reporting income tax and other returns.
(b) All offerors are required to submit the information required in
paragraphs (c) through (o) of this solicitation provision in order to comply
with reporting requirements of 26 U.S.C. 6041A, and 6050M and the implementing
regulations issued by the Internal Revenue Service (IRS). If the resulting
contract is subject to the reporting requirements described in FAR 4.903, the
failure or refusal by the offeror to furnish the information may result in a 31
percent reduction of payments otherwise due under the contract.
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K.3 FAR 52.204-3 TAXPAYER IDENTIFICATION (MAR 1994) (continued)
(c) Taxpayer Identification Number (TIN):
( X) TIN: 86-0570800.
( ) TIN has been applied for.
( ) TIN is not required because:
( ) Offeror is a nonresident alien, foreign corporation, or
foreign partnership that does not have income effectively connected with the
conduct of a trade or business in the U.S. and does not have an office or place
of business or a fiscal paying agent in the U.S.:
( ) Offeror is an agency or instrumentality of a foreign
government,
( ) Offeror is an agency or instrumentality of a Federal,
state or local government;
( ) Other. State basis.
(d) Corporate Status.
( ) Corporation providing medical and health care services, or
engaged in the billing and collecting of payments for such services;
( ) Other corporate entity;
( ) Not a corporate entity;
( ) Sole proprietorship;
( ) Partnership
( ) Hospital or extended care facility described in 26 CFR
501(c)(3) that is exempt from taxation under 26 CFR 501(a).
(e) Common parent.
( ) Offeror is not owned or controlled by a common parent as
defined in paragraph (a) of this clause.
( ) Name and TIN of common parent:
Name:
-------------------------------------
TIN:
-------------------------------------
K.4. FAR 52.209-5 CERTIFICATION REGARDING DEBARMENT, SUSPENSION, PROPOSED
DEBARMENT, AND OTHER RESPONSIBILITY MATTERS (MAR 1996)
(a) (1) The Offeror certifies, to the best of its knowledge and belief,
that --
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(i) The Offeror and/or any of its Principals --
(A) Are [ ] I are not [ X ] presently debarred,
suspended, proposed for debarment, or declared ineligible for the award of
contracts by any Federal agency;
(B) Have [ ] I have not [ X ] , within a three-year
period preceding this offer, been convicted of or had a civil judgement rendered
against them for: commission of fraud or a criminal offense in connection with
obtaining, attempting to obtain, or performing a public (Federal, state, or
local) contract or subcontract; violation of Federal state antitrust statutes
relating to the submission of offers; or commission of embezzlement, theft,
forgery, bribery, falsification or destruction of records, making false
statements, tax evasion, or receiving stolen property; and
(C) Are [ ] are not [ X ] presently indicted for, or
otherwise criminally or civilly charged by a governmental entity with,
commission of any of the offenses enumerated in subdivision (a) (1) (i) (B) of
this provision.
(ii) The Offeror has [ ]I has not [ X ] within a three-year
period preceding this offer, bad one or more contracts terminated for default:
by any Federal agency
(2) "Principals," for the purposes of this certification,
means officers; directors; owners; partners; arid, persons having primary
management or supervisory responsibilities Within a business entity (e.g.,
general manager; plant manager; head of a subsidiary, division, or business
segment, and similar positions).
THIS CERTIFICATION CONCERNS A MATTER WITHIN THE JURISDICTION OF AN AGENCY OF THE
UNITED STATES AND THE MAKING OF A FALSE, FICTITIOUS, OR FRAUDULENT CERTIFICATION
MAY RENDER THE MAKER SUBJECT TO PROSECUTION UNDER SECTION 1001, TITLE 18, UNITED
STATES CODE.
(b) The Offeror shall provide immediate written notice to the
Contracting Officer if, at any time prior to contract award, the Offeror learns
that its certification was erroneous when submitted or has become erroneous by
reason of changed circumstances.
(c) A certification that any of the items in paragraph (a) of this
provision exists will not necessarily result in withholding of an award under
this solicitation. However, the certification will be considered in connection
with a determination of the Offeror's responsibility. Failure of the Offeror to
furnish a certification or provide such additional information as requested by
the Contracting Officer may render the Offeror nonresponsible.
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K.4. FAR 52.209-5 CERTIFICATION REGARDING DEBARMENT, SUSPENSION, PROPOSED
DEBARMENT, AND OTHER RESPONSIBILITY MATTERS (MAR 1996)
(continued)
(d) Nothing contained in the foregoing shall be construed to require
establishment of a system of records in order to render, in good faith, the
certification required by paragraph (a) of this provision. The knowledge and
information of an Offeror is not required to exceed that which is normally
possessed by a prudent person in the ordinary course of business dealings.
(e) The certification in paragraph (a) of this provision is a material
representation of fact upon which reliance was placed when making award. If it
is later determined that the Offeror knowingly rendered an erroneous
certification, in addition to other remedies available to the Government, the
Contracting Officer may terminate the contract resulting from this solicitation
for default.
K.5. FAR 52.215-6 TYPE OF BUSINESS ORGANIZATION (JUL 1987)
The offeror or quoter, by checking the applicable box, represents
that
(a) It operates as (X) a corporation incorporated under the
laws of the State of Delaware, ( ) an individual, ( ) a partnership, ( ) a
nonprofit organization, or ( ) a joint venture; or
(b) If the offeror or quoter is a foreign entity, it operates
as ( ) an individual, ( ) a partnership, ( ) a nonprofit organization, ( ) a
joint venture, or ( ) a corporation, registered for business in (Country).
K.6. FAR 52.215-11 AUTHORIZED NEGOTIATORS (APR 1984)
The offeror or quoter reprsents that the following persons are
authorized to negotiate on its behalf with the Government in connection with
this request for proposals or quotations:
Patrick E. Lien, Regional Director 757-488-3570
Jimmy D. Humrich, Program Manager 757-488-3570
K.7. FAR 52.219-1 SMALL BUSINESS CONCERN REPRESENTATIVES (OCT 1995)
(a) (1) The standard industrial classification (SIC) code for this
acquisition is 7699.
(2) The small business size standard is $5 million.
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K.7. FAR 52.219-1 SMALL BUSINESS CONCERN REPRESENTATIVES (OCT 1995) (continued)
(3) The small business size standard for a concern which
submits an offer in its own name, other than a construction or service contract,
but which proposes to furnish a product which it did not itself
manufacture, is 500 employees.
(b) Representation.
(1) The offeror represents and certifies as part of its offer
that it ( X ) is, ( ) is not a small business concern.
(2) (Complete only if offeror represented itself as a small
business concern in block (b)(1) of this section.) The offeror represents as
part of its offeror that it ( ) is ( X ) is not a small disadvantaged business
concern.
(3) (Complete only if offeror represented itself as a small
business concern in block (b)(1) of this section.) The offeror represents as
part of its offer that it ( ) is, ( X ) is not a women-owned small business
concern.
(c) Definitions.
"Small business concern," as used in this provision, means a concern
including its affiliates, that is independently owned and operated, not dominat
in the field of operation in which it is bidding on Government contracts, and
qualified as a small business under the criteria in 13 CFR Part 121 and size
standard in paragraph (a) of this provision.
"Small disadvantage business concern," as used in this provision, means
a small business concern that
(1) is at least 51 percent unconditionally owned by one or
more individuals who are both socially and economically disadvantaged, or a
publicly owned business having at least 51 percent of its stock unconditionally
owned by one or more socially and economically disadvantaged individuals, and
(2) has its management and daily business controlled by one or
more such individuals. This term also means a small business concern that is at
least 51 percent unconditionally owned by an economical advantaged Indian tribe
or Native Hawaiian organization, or a publicly owned business having at least 51
percent of its stock unconditionally owned by one or more of these entities,
which as its management and daily business controlled by members of an
economically disadvantaged Indian tribe or Native Hawaiian Organization, and
which meets the requirements of 13 CFR Part 124.
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K.7. FAR 52.219-1 SMALL BUSINESS CONCERN REPRESENTATIVES (OCT 1995) (continued)
"Women owned small business concern," as used in this provision means
a small business concern --
(1) Which is at least 51 percent owned by one or more women
or, in the case of any publicly owned by one or more women; and
(2) Whose management and daily busines soperations are
controlled by one or more women.
(d) Notice.
(1) If this solicitation is for supplies and has been set
aside, in whole or in part, for small business concerns, then the clause in this
solicitation providing notice of the set-aside contains restrictions on the
source of the end items to be furnished.
(2) Under 15 U.S.c. 645(d), any person who misrepresents a
firm's status as a small or small disadvantaged business concern in order to
obtain a contract to be awarded under the preference programs established
pursuant to sections 8(a), 8(d), 9, or 15 of the Small business Act or any other
provisiono f Federal law that specifically references section 8(d) for a
definition of program eligibility, shall --
(i) Be punished by imposition of a fine,
imprisonment, or both;
(ii) Be subject to administrative remedies,
including suspension and debarment; and
(iii) Be ineligible for participation in
programs conducted under the authority of
the Act.
K.8. FAR 52.222-22 PREVIOUS CONTRACTS AND COMPLIANCE REPORTS (APR 1984)
The offeror represents that -
(a) It ( X ) has, ( ) has not participated in a previous contract or
subcontract subject either to the Equal Opportunity clause of this solicitation,
the clause originally contained in Section 310 of Executive Order No. 10925, or
the clause contained in Section 201 of Executive Order No. 11114;
(b) It ( X ) has, ( ) has not, filed all required compliance reports;
and
(c) Representations indicating submission of required compliance
reports, signed by proposed subcontractors, will be obtained before subcontract
awards.
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K.9 FAR 52.22-25 AFFIRMATIVE ACTION COMPLIANCE (APR 1984)
The offeror represents that (a) it ( X ) has developed and has on file,
( ) has not developed and does not have on file, at each establishment,
affirmative action programs required by the rules and regulations of the
Secretary of Labor (41 CFR 60-1 and 60-2), or (b) it ( ) has not previously had
contracts subject to the written affirmative action programs requirement of the
rules and regulations of the Secretary of Labor.
K.10. FAR 52.223-1 CLEAN AIR AND WATER CERTIFICATION (APR 1984)
The Offeror certifies that -
(a) Any facility to be used in the performance of this proposed
contract is ( ), is not ( X ) listed on the Environmental Protection Agency
(EPA) List of Violating Facilities;
(b) The Offeror will immediately notify the Contracting Officer, before
award, of the receipt of any communication from the Administrator, or a
designee, of the EPA, indicating that any facility that the Offeror proposes to
use for the performance of the contract is under consideration to be listed on
the EPA List of Violating Facilities; and
(c) The Offeror will include a certification substantially the same as
this certification, including this paragraph (c), in every nonexempt
subcontract.
K.11 DFARS 252.219-7000 SMALL DISADVANTAGED BUSINESS CONCERN REPRESENTATION (DOD
CONTRACTS) (APR 1994)
(a) Definition.
"Small disadvantaged business concern," as used in this provision,
means a small business concern, owned and controlled by individuals who are both
socially and economically disadvantaged, as defined by the Small business
Administration at 13 CFR Part 124, the majority of earnings of which directly
accrue to such individuals. This term also means a small business concern owned
and controlled by an economically disadvantaged Indian tribe or native Hawaiian
organization which meets the requirements of 13 CFR 124.112 or 13 CFR 124.113,
respectively. In general, 13 CFR 124 describes a small disadvantaged business
concern as a small business concern -
(1) Which is at least 51 percent unconditionally owned by one
or more socially and economically disadvantaged individuals; or
(2) In the case of any publicly owned business, at least 51
percent of the voting stock is unconditionally owned by one or more socially and
economically disadvantaged individuals; and
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K.11 DFARS 252.219-7000 SMALL DISADVANTAGED BUSINESS CONCERN REPRESENTATION (DOD
CONTRACTS) (APR 1994) (continued)
(3) Whose management and daily business operations are
controlled by one or more such individuals.
(b) Representations.
Check the category in which your ownership falls --
( ) Subcontinent sian (Asian-Indian) American (U.S. citizen with
origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, or Nepal).
( ) Asian-Pacific American (U.S. citizen with origins from Japan,
China, the Philippines, Vietnam, Korea, Samoa, Guam, U.s. Trust Territory of the
Pacific Islands (Republic of Palau), the Northern Mariana Islands, Laos,
Kampuchea (Cambodia), Taiwan, Burma, Thailand, Malaysia, Indonesia, Singapore,
Brunei, Republic of the Marshall Islands, or the Federated States of Micronesia)
( ) Black American (U.S. citizen)
( ) Hispanic American (U.S. citizen with origins from South America,
Central America, Mexico, Cuba, the Dominican Republic, Puerto Rico, Spain, or
Portugal)
( ) Native American (American Indians, Eskimos, Aleuts, or Native
Hawaiians, including Indian tribes or Native Hawaiian organizations)
( ) Individual/concern, other than one of the preceding, currently
certified for participation in the Minority Small Business and Capital Ownership
Development Program under Section 8(a) of the Small Business ct.
( ) Other
(c) Certifications.
Complete the following --
(1) The Offeror is ( ) is not ( X ) a small disadvantaged business
concern.
(2) The Small Business Administration (SBA) has ( ) has not ( ) made a
determination concerning the offeror's status as a small disadvantaged business
concern. If the SBA has made a determination, the date of the determination was
and the offeror --
( ) Was found by SBA to be socially and economically disadvantaged and
no circumstances have changed to vary that determination.
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K.11 DFARS 252.219-7000 SMALL DISADVANTAGED BUSINESS CONCERN REPRESENTATION (DOD
CONTRACTS) (APR 1994) (continued)
( ) Was found by SBA not to be socially and economically disadvantaged
but circumstances which caused the determination have changed.
(d) Penalties and Remedies. Anyone who misrepresents the status of a
concern as a small disadvantaged business for the purpose of securing a contract
or subcontract shall --
(1) Be punished by imposition of a fine, imprisonment, or
both;
(2) Be subject to administrative remedies, including
suspension and disbarment; and
(3) Be ineligible for participation in programs conducted
under authority of the Small Business Act.
K.12. 52.204-5 WOMEN OWNED BUSINESS (OCT 1995)
(a) Representation. The offeror represents that it ( ) is ( X ) is not
a women-owned business concern.
(b) Definition. "Women-owned business concern" as used in this
provision, means a concern which is at least 51 percent owned by one or more
women; or in the case of any publicly owned business, at least 51 percent of the
stock of which is owned by one or more women; and whose management and daily
business operations are controlled by one or more women.
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SECTION L - INSTRUCTIONS, CONDITIONS, AND NOTICES TO OFFERORS
L.1. 52.252-1 SOLICITATION PROVISIONS INCORPORATED BY REFERENCE (JUN 1988)
This solicitation incorporates one or more solicitation provisions by
reference, with the same force and effect as if they were given in full text.
Upon request, the Contracting Officer will make their full text available.
FEDERAL ACQUISITION REGULATION PROVISIONS
- -----------------------------------------
52.209-7 ORGANIZATIONAL CONFLICTS OF INTEREST OCT 1995
CERTIFICATE - MARKETING CONSULTANTS
52.215-5 SOLICITATION DEFINITIONS JUL 1987
52.215-7 UNNECESSARILY ELABORATE PROPOSALS APR 1984
OR QUOTATIONS
52.215-8 AMENDMENTS TO SOLICITATIONS DEC 1989
52.215-9 SUBMISSION OF OFFERS JUL 1995
52.215-10 LATE SUBMISSIONS, MODIFICATIONS, AND JUL 1995
WITHDRAWALS OF PROPOSALS
52.215-12 RESTRICTION ON DISCLOSURE AND USE OF DATA APR 1984
52.215-13 PREPARATION OF OFFERS APR 1984
52.215-14 EXPLANATION TO PROSPECTIVE OFFERORS APR 1984
52.215-15 FAILURE TO SUBMIT OFFER JUL 1995
52.215-16 CONTRACT AWARD (ALTERNATE II - OCT 95) OCT 1995
52.216-1 TYPE OF CONTRACT APR 1984
- indefinite Delivery/Indefinite Quantity
Firm Fixed Unit Price -
52.22-24 PREAWARD ON-SITE EQUAL OPPORTUNITY COMPLIANCE APR 1984
REVIEW
DEPARTMENT OF DEFENSE FEDERAL ACQUISITION REGULATION SUPPLEMENT PROVISIONS
- --------------------------------------------------------------------------
252.204-7001 COMMERCIAL AND GOVERNMENT ENTITY (CAGE) DEC 1991
CODE REPORTING
252.209-7001 DISCLOSURE OF OWNERSHIP OR CONTROL BY THE SEP 1994
GOVERNMENT OF A TERRORIST COUNTRY
252.227-7028 TECHNICAL DATA OR COMPUTER SOFTWARE PREVIOUSLY JUN 1995
DELIVERED TO THE GOVERNMENT
<PAGE>
Page 75 of 84
L.2. FAR 52.233-2 SERVICE OF PROTEST (OCT 1995)
(a) Protests, as defined in section 33.101 of the Federal Acquisition
Regulation, that are filed directly with an agency, and copies of any protests
that are filed with the General Accounting Office (GAO) or the General Services
Administration Board of Contract Appeals (GSBCA), shall be served on the
Contracting Officer (addressed as follows) by obtaining written and dated
acknowledgment of receipt from PRISCILLA TARR, CONTRACTING OFFICER, SUPERVISOR
OF SHIPBUILDING, C&R, USN, P.O. BOX 215, PORTSMOUTH, VA. 23705-0215 CODE 410.2
(b) The copy of any protest shall be received in the office designated
above on the same day a protest is filed with the GSBCA or within one day of
filing a protest with the GAO.
L.3. GENERAL AND ADMINISTRATIVE (G&A / MATERIAL HANDLING)
If it is the company's practice to apply G&A rate(s) or material
handling charges to the below listed items, offeror(s) shall indicate the
applicable rate as follows:
Material (Handling Charge)
LOT I 10%
LOT II 10%
LOT III 10%
LOT IV 10%
LOT V 10%
The rate(s) inserted herein should be the actual, current rates
experienced by the offeror. If the offeror proposes rates other than actual and
current, offeror should specify that these rates are ceiling rates that will not
be exceeded for reimbursement.
L.4. INSPECTION OF VESSEL(S)
(a) The vessel(s) will be available for inspection as follows:
On JUNE 2 AND 3, 1997
(b) Arrangements for inspection may be made by communicating with:
Mr. JOHN TENNEY (757) 396-3850
L.5. SUBMISSION OF PROPOSALS
I. GENERAL
-------
Offerors are required to submit their proposals in three separate parts
as follows:
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Page 76 of 84
PART I - Technical Proposal - Original and 4 copies to include all data
and information required for evaluation, and exclude any reference to
the pricing aspects of the offer. Each page of each copy
should be affixed with the following legend:
Source Selection Information
See FAR 3.104
PART II - Past Performance - Original and 4 cpies to include all data
and information required for evaluation, excluding any reference to the
pricing aspects of the offer. Each page of each copy should be affixed
with the following legend:
Source Selection Information
See FAR 3.104
PART III - Price Proposal - Original and 1 copy to include the
completed solicitation documents and a complete and detailed cost
breakdown with all supporting information. Each page of each copy
should be affixed with the following legend:
Source Selection Information
See FAR 3.104
IMPORTANT NOTES:
(1) Offerors shall respond to all requirements of the solicitation
document. Offerors are cautioned not to alter or disassemble the solicitation.
(2) In the event any portion of the technical proposal is written by
anyone who is not a bona fide employee of the firm submitting the proposal, a
certificate to this effect shall be furnished. The certificate shall be signed
by a responsible officer of the offeror and shall also identify the person's
name, employment capacity, the name of the person's firm, the relationship of
that firm to the offeror, and the portion of the technical proposal the person
wrote.
(3) Offerors may identify Federal, State, Local Governments and private
contracts that are similar to work in the solicitation.
II. REQUIREMENTS FOR PROPOSAL CONTENT
---------------------------------
(1) Introduction and Purpose - This section specifies the format that
offerors shall use in this Request for Proposal (RFP). The intent is not to
restrict the offerors in the manner in which they will perform their work but
rather to ensure a certain degree of uniformity in the format of
the responses for evaluation purposes.
(2) As explained in paragraph III below, Part I (Technical Proposal)
consists of the following sections: Chemical Solution and Technical
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Page 77 of 84
Approach; Part II (Past Performance) consists of the following various sections:
Schedule Performance, Technical Performance, and Management Performance. Part
III (Price Proposal) is comprised of the price proposal and supporting
documentation. The Technical Proposal and Past Performance are considered of
equal importance with the Price Proposal being of less importance.
III. PROPOSAL CONTENT
----------------
"C" The technical evaluation factors are listed below with Chemical
Solution being equally important to Technical Approach. Pages 81 and 82
will be used to collect and evaluate technical proposal information.
CHEMICAL SOLUTION
The offeror shall provide the following information concerning the "Chemical
Solution" which will be utilized in cleaning the CHT system:
a. Commercial name of chemical solution:
b. Chemical identification of ingredients:
c. Hazardous ingredients:
d. Toxicity Index:
e. Corrosive Effect on base metal:
"C" f. Length of time to dissolve scale and blockage:
The Chemical Solution identified above:
a. Shall be non-corrosive nor will it cause damage to CHT system
piping.
b. Shall be non-toxic and pose no hazard to ship's personnel.
c. Shall not affect CHT system components (including gaskets and seals.
d. Shall not be a fire/explosion hazard.
e. Shall not generate hazardous waste.
f. Shall be disposable, after treatment, meeting all federal, state,
and local regulations.
"C" The offeror shall provide as a part of the technical proposal an
original and one copy of an independent laboratory report on the
proposed chemical cleaning solution's effect on base metals specified
for piping, fittings, and valves in category R-4 of MIL-STD-777.
<PAGE>
Page 78 of 84
TECHNICAL APPROACH
The offeror shall provide their approach to the following:
a. Plan to complete chemical cleaning of one or more CHT system
zones aboard ship in a timely manner with minimum disruption
to the crew and operating schedule of the ship.
b. Plan to respond to more than one requirement (simultaneous
task orders for more than one ship).
c. Plan to respond to urgent requirements.
d. Plan to respond to disruption in schedule caused by changes in
ship operating schedules, ship's force drills, plus the
various changing conditions found on military vessels.
PART II PAST PERFORMANCE
Past performance factors are weighted according to their importance to the
Government. The Government may use past performance from other sources than
those identified by the offeror.
Page 82 of 84 will be used to collect past performance information. Provide the
following information regarding past three performances within the last three
years on similar contracts: (Attachment X, Client Letter Sample)
1. Contract Number
2. Names and phone numbers of two points of contact for each
contract.
3. Dollar value of each contract.
4. Description of work performed.
5. Subcontractor plan, names of subcontractors used, and a
description of the work they performed.
PART III PRICE PROPOSAL
The price proposal shall include all contract line items as delineated within
Section B of the solicitation. The pricing information shall be complete in
accordance with the following:
(a) Separate pricing information shall be submitted for each year
of the services specified in Section B of the solicitation.
(b) Offerors shall respond to all requirements of the solicitation
document. Offerors are cautioned not to alter or disassemble
the solicitation.
EVALUATION CRITERIA AND THE BASIS FOR AWARD
-------------------------------------------
(1) The Government intends to make award to the eligible,
responsible offeror whose offer, conforming to the
solicitation, is determined most advantageous to the
Government, price and other factors considered. The offeror's
proposal shall be in the form prescribed by, and shall contain
a response to each of the areas identified in the Section L
solicitation provision entitled "Submission of Proposals." The
evaluation of proposals
<PAGE>
Page 79 of 84
will consider the offeror's technical proposal and past
performance equally with the price proposal being of less
importance.
(2) The Technical Proposal evaluation factors are listed below:
A. CHEMICAL SOLUTION
1. Lab Report provided and adequate in all respects.
2. Non-corrosive nor will it cause damage to CHT
system piping.
3. Non-detrimental to system components.
4. Non-toxic to ship's personnel.
5. Not a fire or explosion hazard.
6. Length of time to dissolve corrosion.
7. Does not generate a hazardous waste.
8. Disposable, after treatment, meeting all federal,
state, and local regulations.
B. TECHNICAL APPROACH
1. Ability to complete all CHT zones in a timely
manner.
2. Ability to respond to several ships at one time.
3. Ability to respond to emergent requirements.
4. Ability to cope with ship's schedule changes.
5. Experience in CHT system cleaning.
6. Experience in other systems cleaning.
(3) The past performance evaluation factors are listed below:
A. SCHEDULE PERFORMANCE
1. Met pre-planned milestone and completed work on
schedule.
2. Revised schedules with little delay or disruption
when customers operation schedules changed and
solved performance problems without extensive
guidance from the Government/Contractor.
B. TECHNICAL PERFORMANCE
1. Effectively accomplished specified work.
2. Performed to satisfaction of customer.
3. Maintained care and preservation of installed and
removed equipment.
4. Maintained cleanliness of components,
passageways, and docks.
5. Utilized good safety and environmental practices.
C. MANAGEMENT PERFORMANCE
1. Employed and utilized qualified and experienced
personnel in all labor categories.
2. Submitted required reports in a timely manner,
including video/baroscope inspections.
3. Negotiated and definitized change orders in a
timely manner.
4. Selected and managed qualified subcontractors.
<PAGE>
Page 80 of 84
5. Committed adequate resources in a timely manner
and responded to "Emergent Work" requests.
6. Extent to which offeror identifies and commits to
small business, small disadvantaged business,
historically black colleges and universities or
minority institutions.
(4) The Government reserves the right to obtain information for use in
the evaluation of past performance from any and all sources including sources
outside of the Government. Offerors lacking relevant past performance history
will receive a neutral rating for past performance. However, the proposal of an
offeror with no relevant past performance history, while rated neutral in past
performance, may not represent the most advantageous proposal to the Government
and thus, may be an unsuccessful proposal when compared to the proposals of
other offerors.
(5) The offeror must provide the information requested above for past
performance evaluation or affirmatively state that the offeror possesses no
relevant past performance. The Government will consider the quality of offeror's
past performance; this consideration is separate and distinct from the
Contracting Officer's responsibility determination.
(6) The assessment of the offeror's past performance will be used as a
means of evaluating the relative capability of the offeror and other competitors
to successfully meet the requirements of the RFP. In determining the rating for
the past performance evaluation factor, the Government will give greater
consideration to the contracts which the Government feels are most relevant to
the RFP.
(7) If the offeror's proposal is determined unacceptable in any of the
past performance evaluation factors and/or sub-factors, the proposal may not be
considered within a competitive range.
(8) The Government reserves the right to amend the contract to other
than the lowest priced offeror.
<PAGE>
Page 81 of 84
TECHNICAL PROPOSAL EVALUATION
-----------------------------
Date:____________
Solicitation Number:___________________________
Contractor Evaluated:__________________________
Performance Evaluator:_________________________
RATING GUIDELINE
----------------
(0) UNSATISFACTORY ................... Totally unacceptable
(1) POOR ............................. Less than minimum requirements
(2) FAIR ............................. Met minimum requirements.
(3) GOOD ............................. Exceeded minimum requirements.
(4) EXCELLENT ........................ Considerably surpassed minimum
requirements.
(5) PLUS ............................. Demonstrated exceptional technical
level that justifies adding a point
to the score. Summarize contractor
performance and circle in the column
on the right the number which
corresponds to the performance
rating for each rating category.
A. CHEMICAL CLEANING SOLUTION Score
1. Lab Report provided and adequate in all respects. 0 1 2 3 4 5
2. Non-corrosive and will not damage CHT system piping. 0 1 2 3 4 5
3. Non-disruptive to system components. 0 1 2 3 4 5
4. Non-toxic to ship's personnel. 0 1 2 3 4 5
5. Not a fire or explosion hazard. 0 1 2 3 4 5
6. Length of time to dissolve corrosion. 0 1 2 3 4 5
7. Does not generate hazardous waste. 0 1 2 3 4 5
8. Disposable after treatment, meeting all federal,
state, and local regulations 0 1 2 3 4 5
B. TECHNICAL APPROACH
1. Ability to complete all zones in timely manner. 0 1 2 3 4 5
2. Ability to respond to several ships at one time. 0 1 2 3 4 5
3. Ability to respond to emergent requirements. 0 1 2 3 4 5
4. Ability to cope with ship's schedule changes. 0 1 2 3 4 5
5. Experience in CHT System cleaning. 0 1 2 3 4 5
6. Experience in other systems cleaning. 0 1 2 3 4 5
<PAGE>
Page 82 of 84
PERFORMANCE EVALUATION
----------------------
Date:___________________
Solicitation Number:_______________________________
Contractor Contacted:______________________________
Reference Questioned:______________________________
Type of Reference: Technical - Contracting Officer - End User -
Performance Evaluator______________________________
RATING GUIDELINE
----------------
(0) UNSATISFACTORY ................... Totally unacceptable
(1) POOR ............................. Less than minimum requirements
(2) FAIR ............................. Met minimum requirements.
(3) GOOD ............................. Exceeded minimum requirements.
(4) EXCELLENT ........................ Considerably surpassed minimum
requirements.
(5) PLUS ............................. Demonstrated exceptional technical
level that justifies adding a point
to the score. Summarize contractor
performance and circle in the column
on the right the number which
corresponds to the performance
rating for each rating category.
A. SCHEDULE PERFORMANCE
<TABLE>
<CAPTION>
<S> <C> <C> <C><C><C><C><C>
1. Met pre-planned milestones and completed work on time. 0 1 2 3 4 5
2. Revised schedules with little delay or disruption when customer's operation
schedules changed and solved performance problems without extensive guidance
from the Government. 0 1 2 3 4 5
B. TECHNICAL PERFORMANCE
1. Effectively accomplished specified work. 0 1 2 3 4 5
2. Performed to the satisfaction of the customer 0 1 2 3 4 5
3. Maintained care and preservation of installed and removed equipment 0 1 2 3 4 5
4. Maintained cleanliness of components, passageways, and docks. 0 1 2 3 4 5
5. Utilized good safety and environmental practices. 0 1 2 3 4 5
C. MANAGEMENT PERFORMANCE
1. Employed and utilized qualified and experienced personnel in labor categories.
0 1 2 3 4 5
2. Submitted required reports in a timely manner, including video/baroscope
inspections. 0 1 2 3 4 5
3. Negotiated and definitized change orders in a timely manner. 0 1 2 3 4 5
4. Selected and managed qualified subcontractors. 0 1 2 3 4 5
5. Committed adequate resources in a timely manner and responded to "Emergent
Work" requirements. 0 1 2 3 4 5
6. Extent to which offeror identifies and commits to small business, small
disadvantaged business, historically black colleges and universities, or
minority institutions. (Large Business Only) 0 1 2 3 4 5
</TABLE>
<PAGE>
Page 83 of 84 SECTION M EVALUATION FACTORS FOR AWARD
M.1. 52.252-1 SOLICITATION PROVISIONS INCORPORATED BY REFERENCE (JUNE 1988)
This solicitation incorporates one or more solicitation provisions by
reference, with the same force and effect as if they were given in full text.
Upon request, the Contracting Officer will make their full text available.
FEDERAL ACQUISITION REGULATION PROVISIONS
52.217-5 EVALUATION OF OPTIONS JUL 1990
52.232-15 PROGRESS PAYMENTS NOT INCLUDED APR 1984
M.2 AWARD SINGLE AWARD FOR ALL ITEMS
The Government intends to make a single award to the responsible
acceptable offeror whose total offer on all items is determined to be fair and
reasonable and meets the requirements of the solicitation.
M.3 EVALUATION OF PROPOSALS WHICH INCLUDE G&A AND MATERIAL HANDLING
For evaluation purposes, proposals which include G&A and/or material
handling as described in provision L.3 will be evaluated by applying such
expenses to the proposed cost area and adding these costs to the total price
proposed.
M.4 EVALUATION OF PAST PERFORMANCE
(a) The Government will evaluate the quality of the offeror's past
performance. This evaluation is separate and distinct from the Contracting
Officer's responsibility determination. The assessment of the offeror's past
performance will be used to evaluate the relative capability of the offeror and
other competitors to successfully meet the requirements of the RFP. Past
performance of significant and/or critical subcontractors will be considered to
the extent warranted by the subcontractor's involvement in the proposed effort.
<PAGE>
Page 84 of 84
M.4 EVALUATION OF PAST PERFORMANCE (continued)
(b) The Government reserves the right to obtain information for use in
the evaluation of past performance from any and all sources including source
outside of the Government. Offerors lacking relevant past performance history
will receive a neutral rating for past performance. However, the proposal of an
offeror with no relevant past performance history, while rated neutral in past
performance may not represent the most advantageous proposal to the Government
and thus may be an unsuccessful proposal when compared to the proposals of other
offerors. The offeror must provide the information requested above for past
performance evaluation or affirmatively state that it possesses no relevant
directly related or similar past performance experience. The Government reserves
the right not to evaluate or consider for award the entire proposal from an
offeror which fails to provide the past performance information or which fails
to assert that it has no relevant directly related or similar past performance
experience.
(c) Contracting Officers will use the following adjective definitions
as guidelines in evaluating past performance:
RATING GUIDELINE
----------------
(0) UNSATISFACTORY ........... Totally unacceptable
(1) POOR ..................... Less than minimum requirements
(2) FAIR ..................... Met minimum requirements.
(3) GOOD ..................... Exceeded minimum requirements.
(4) EXCELLENT ................ Considerably surpassed minimum requirements.
(5) PLUS...................... Demonstrated exceptional technical level
that justifies adding a point to the score.
STANDARD INDUSTRIAL LEASE-MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This Lease, dated, for reference purposes only, May, 14, 1996, is
made by and between Roger Buttrum (herein called "Lessor") and H.E.R.C. PRODUCTS
INCORPORATED, a Delaware corporation (herein called "Lessee").
2. Premises, Parking and Common Areas.
2.1 Premises. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of Maricopa, State of Arizona,
commonly known as 2202 West Lone Cactus Place, Suites 9, 10, 11, 12, 13, 14 &
15: Phoenix, Arizona, and described as an approximate 15,708 st. office /
industrial bay; part of a larger multi-tent industrial building, Lone Cactus
Commerce Center, herein referred to as the "Premises," as may be outlined on an
Exhibit attached hereto, including rights to the Common Areas as hereinafter
specified but not including any rights to the roof of the Premises or to an
Building in the Industrial Center. The Premises are a portion of a building,
herein referred to as the "Building." The Premises, the Building, the Common
Areas, the land upon which the same are located, along with all other buildings
and improvements thereon, are herein collectively referred to as the "Industrial
Center."
2.2 Vehicle Parking. Lessee shall be entitled to 21 vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces than
said number. Said parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pick-up trucks, herein called
"Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are
herein referred to as "Oversized Vehicles."
2.2.1 Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited
activities described in paragraph 2.2 of this Lease, then Lessor shall have the
right, with notice, In addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.3 Common Areas--Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor. Lessee and of other
lessees of the Industrial Center and their respective employees, suppliers,
shippers, customers and invitees, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas.
2.4 Common Areas--Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of the Lease, the non-exclusive right to use. In
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, with notice, In addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.5 Common Areas--Rules and Regulations. Lessor or such other prior
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable rules and regulations with respect thereto.
Lessee agrees to abide by and conform to all such rules and regulations, and to
cause its employees, suppliers, shippers, customers, and invitees to so abide
and conform. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees of the Industrial Center.
2.6 Common Areas--Changes. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways; (b) To close
temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available; (c ) To designate other
land outside the boundaries of the Industrial Center to be a part of the Common
Areas; (d) To add additional buildings and improvements to the Common Areas; (e)
To use the Common Areas while engaged in making additional improvements, repairs
or alterations to the Industrial Center, or any portion thereof; (f) To do and
perform such other acts and make such other changes in, to or with respect to
the Common Areas and Industrial Center as Lessor may, In the exercise of sound
business judgment, deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking
facilities required by applicable law and in no event shall the number of
parking spaces that Lessee is entitled to under paragraph 2.2 be reduced.
3. Term.
3.1 Term. The term of this Lease shall be for sixty (60) months
commencing on August 1, 1996 and ending on July 31, 2001, unless sooner
terminated pursuant to any provisions hereof.
3.2 Delay in Possession. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligation of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent or perform any other obligation of Lessee under the terms of this
Lease, except as may be otherwise provided in this Lease, until possession of
the Premises is tendered to Lessee: provided, however, that if Lessor shall not
have delivered possession of the Premises within sixty (60) days from said
commencement date, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, In which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor, within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. Rent.
4.1 Base Rent. Lessee shall pay to Lessor, as Base Rent for the
Premises, without any offset or deduction, except as may be otherwise expressly
provided in this Lease, on the first day of each month of the term hereof,
monthly payments in advance of $8,796.48 plus applicable rental sales tax
(currently 4.15%), see rent schedule to addendum. (NEW FIGURE OF $9,073.57).
Lessee shall pay Lessor upon execution hereof $8,796.48 AS BASE RENT FOR August
1, 1996. Rent for any period during the term hereof which is for less than one
month shall be a pro rata portion of the Base Rent. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or to
such other persons or at such other places as Lessor may designate in writing.
<PAGE>
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$8,796.48 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge In default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount then required of Lessee. If the monthly
rent shall, from time to time, increase during the term of this Lease, Lessee
shall at the time of such Increase, deposit with Lessor additional money as a
security deposit so that the total amount of the security deposit held by Lessor
shall at all times bear the same proportion to the then current Base Rent as the
Initial security deposit bears to the Initial Base Rent set forth in paragraph
4. Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder, said
deposit, or so much thereof as has not theretofore been applied by Lessor, shall
be returned, without payment of Interest or other Increment for its use, to
Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after Lessee has
vacated the Premises. No trust relationship is created herein between Lessor and
Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for manufacturing
and distribution of cleaning products, or any other use which is reasonably
comparable and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, In the state
existing on the date that the Lease term commences and use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record,
or any applicable building code, regulation or ordinance In effect on such Lease
term commencement date. In the event It is determined that this warranty has
been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any
such violation. In the event Lessee does not give to Lessor written notice of
the violation of this warranty within six months from the date that the Lease
term commences, the correction of same shall be the obligation of the Lessee at
Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of
no force or effect if, prior to the date of this Lease. Lessee was an owner or
occupant of the Premises and, In such event, Lessor shall correct any such
violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term or any part of the term hereof,
relating in any manner to the Premises and the occupation and use by Lessee of
the Premises and of the Common Areas. Lessee shall not use nor permit the use of
the Premises or the Common Areas in any manner that will tend to create waste or
a nuisance or shall tend to disturb other occupants of the Industrial Center.
6.3 Condition of Premises
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris on the Lease commencement date (unless Lessee is already in
possession) and Lessor warrant to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the obligation
of Lessor, after receipt of written notice from Lessee selling forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation, Lessee's failure to give such written notice to Lessor
within one hundred-eighty (180) days after the Lease commencement date shall
cause the conclusive presumption that Lessor has complied with all of Lessor's
obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be
of no force or effect if prior to the date of this Lease, Lessee was an owner or
occupant of the Premises:
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the future suitability of the Premises for the conduct of
Lessee's business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Subject to the provisions of paragraphs
4.2(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage. Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls, structural condition or
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
Common Areas and all parts thereof, as well as providing the services for which
there is an Operating Expense pursuant to paragraph 4.2. Lessor, shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors, or plate glass of the Premises. Lessor shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt of
written notice from Lessee of the need for such repairs. Lessee expressly waives
the benefits of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Premises in good order, condition
and repair. Lessor shall not be liable for damages or loss of any kind or nature
by reason of Lessor's failure to furnish any Common Area Services when such
failure is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbances or disputes of any character, or by any other cause beyond
the reasonable control of Lessor.
7.2 Lessee's Obligations.
(a) Subject to the provisions of paragraphs 6 (Use) 7.1
(Lessor's Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's
expense, shall keep in good order, condition and repair the Premises and every
part thereof (whether or not the damaged portion of the Premises or the means or
repairing the same are reasonably or readily accessible to Lessee) including,
without limiting the generality of the foregoing, all fixtures, interior walls
and interior surfaces of exterior walls, ceilings, within the Premises.
(b) If Lessee fails to perform Lessee's obligations under
this paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter
upon the Premises after ten (10) days prior written notice to Lessee (except in
the case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next Base Rent Installment.
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings, and equipment.
Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee
shall leave the air lines, power panels, electrical distribution systems,
lighting fixtures, space heaters, air conditioning, plumbing and fencing on the
Premises in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, or Utility installations in, on
or about the Premises, or the Industrial Center, except for nonstructural
alterations to the Premises not exceeding $2,500 in cumulative costs, during the
term of this Lease. In any event, whether or not in excess of $2,500 in
cumulative cost, Lessee shall make no change or alteration to the exterior of
the Premises nor the exterior of the Building nor the Industrial Center without
Lessor's prior written consent. As used in this paragraph 7.3 the term "Utility
Installation" shall mean carpeting, window coverings, air lines, power panels,
electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing, and fencing. Lessor may require that Lessee remove any
or all of said alterations, improvements, additions or Utility Installations at
the
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expiration of the term, and restore the Premises and the Industrial Center
to their prior condition. Lessor may require Lessee to provide Lessor, at
Lessee's sole cost and expense, a lien and completion bond in an amount equal to
one and one-half times the estimated cost of such improvements, to insure Lessor
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Lessee make any alterations, improvements,
additions or Utility Installations without the prior approval of Lessor, Lessor
may, at any time during the term of this Lease, require that Lessee remove any
or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Industrial Center that Lessee
shall desire to make and which requires the consent of the Lessor shall be
presented to Lessor in written form, with proposed detailed plans. If Lessor
shall give its consent, the consent shall be deemed conditioned upon Lessee
acquiring a permit to do so from appropriate governmental agencies, the
furnishing of a copy thereof to Lessor prior to the commencement of the work and
the compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or an
interest therein. Lessee shall give Lessor not less than ten (10) days notice
prior to the commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises or the Industrial Center, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises and the Industrial Center free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's reasonable attorney's
fees and costs in participating in such action if Lessor shall decide it is to
Lessor's best interest to do so.
(d) All alterations, improvements, additions and Utility
Installations (not including trade fixtures of Lessee), which may be made on the
Premises, shall be the property of the Lessor and shall remain upon and be
surrendered with the Premises at the expiration of the Lease term, unless Lessor
requires their removal pursuant to paragraph 7.3(a). Notwithstanding the
provisions of this paragraph 7.3(d). Lessee's machinery and equipment, other
than that which is affixed to the Premises so that it cannot be removed without
material damage to the Premises, and other than Utility Installations, shall
remain the property of Lessee and may be removed by lessee subject to the
provisions of paragraph 7.2.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of lessor or Lessee, or any other Lessee of the Industrial Center,
including but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance--Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of the Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance Insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and the Industrial Center. Such insurance shall be in an amount not
less that $500,000.00 per occurrence. The policy shall insure performance by
Lessee of the indemnity provisions of the paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.
8.2 Liability Insurance--Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, Insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less that $500,000.00 per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of Insurance covering loss or damage
to the Industrial Center Improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (In the event same is
required by a lender having a lien on the Premises), special extended perils
("all risk," as such term is used in the Insurance Industry), plate glass
insurance and such other Insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
lessor, which Insurance shall also cover all Operating Expenses for said period.
8.4 [deleted]
8.5 Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at lease 8 plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current Issue of "Bosl's Insurance Guide." Lessee shall
not do or permit to be done anything which shall Invalidate the Insurance
policies carried by Lessor. Lessee shall deliver to Lessor copies of liability
Insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such Insurance within seven (7) days after the
commencement date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such polices, furnish Lessor with renewals or "binders"
thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or Incident to the perils insured against
which perils occur in, on, or about the Premises, whether due to the negligence
of Lessor or Lessee ro their agents, employees, contractors and/or invitees.
Lessee and Lessor shall, upon obtaining the policies of Insurance required
hereunder, give notice to the Insurance carrier or carriers that the foregoing
mutual waiver of subrogation is contained in this Lease.
8.7 Indemnity. Lessee shall Indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's manner of use of the Industrial
Center, or from the conduct of Lessee's business or from any activity, work or
things done, permitted or suffered by Lessee in or about the Premises or
elsewhere and shall further Indemnify and hold harmless. Lessor from and against
any and all claims arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, or employees, and from and against all costs, attorney's fees,
expenses and liabilities Incurred in the defense of any such claim or any action
or proceeding brought thereon, and in case any action or proceeding be brought
against Lessor by reason of any such claim. Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor
and Lessor shall cooperate with Lessee in such defense. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property of Lessee or injury to persons, in, upon or about the Industrial Center
arising from any cause and Lessee hereby waives all claims in respect thereof
against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises or the Industrial Center, nor shall Lessor be liable for injury to
the person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures,
or from any other cause, whether said damage or Injury results from conditions
arising upon the Premises or upon other portions of the Industrial Center, or
from other sources or places and regardless of whether the cause of such damage
or injury or the means of repairing the same is Inaccessible to Lessee. Lessor
shall not be liable for any damages arising from any act or neglect of any other
Lessee, occupant or user of the Industrial Center, nor from the failure of
Lessor to enforce the provisions of any other lease of the Industrial Center.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is less than fifty
percent of the then replacement cost of the Premises.
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(b) "Premises Total Destruction" shall mean if the Premises
are damaged or destroyed to the extent that the cost of repair is fifty percent
or more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is less than fifty percent of the then replacement cost
of the Building.
(d) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent or more of the then replacement cost of
the Building.
(e) "Industrial Center Buildings" shall mean all of the
buildings on the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean
if the Industrial Center Buildings are damaged or destroyed to the extent that
the cost of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was
caused by an extent required to be covered by the Insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring excluding all
improvements made by Lessees.
9.2 Premises Partial Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's expense, repair such damage to the Premises, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this Lease
shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs
9.4 and 9.5, if at any time during the term of this Lease there is damage which
is not an Insured Loss and which falls within the classification of Premises
Partial Damage or Premises Building Partial Damage, unless caused by a negligent
or willful act of Lessee (In which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from using the Premises, Lessor
may at Lessor's option either (l) repair such damage as soon as reasonably
possible at Lessor's expense, In which event this Lease shall continue in full
force and effect, or (il) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be canceled and
terminated as of the date of the occurrence of such damage.
9.3 Premises Total Destruction; Premises Building Total Destruction;
Industrial Center Buildings Total Destruction.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, If at
any time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classifications of either (i) Premises
Total Destruction, or (ii) Premises Building Total Destruction, or (iii)
Industrial Center Buildings Total destruction, then Lessor may at Lessor's
option either (i) repair such damage or destruction, but not Lessee's fixtures,
equipment or tenant Improvements, as soon as reasonably possible at Lessor's
expense, and this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after the date of occurrence of
such damage of Lessor's intention to cancel and terminate this Lease, in which
case this Lease shall be canceled and terminated as of the date of the
occurrence of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), If at any time during the
last six months of the term of this Lease there is substantial damage, whether
or not an Insured Loss, which falls within the classification of Premises
Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as
of the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(n), In the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Partial Damage, during the last six months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option terminate
and cancel this Lease as of the expiration of said twenty (20) day period by
giving written notice to Lessee of Lessor's election to do so within ten (10)
days after the expiration of said twenty (20) day period, notwithstanding any
term or provision in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Premises
pursuant to the provisions of this paragraph 9, the rent payable hereunder for
the period during which such damage, repair or restoration continues shall be
abated in proportion to the degree to which Lessee's use of the Premises is
Impaired. Except for abatement of rent, if any, Lessee shall have no claim
against Lessor for any damage suffered by reason of any such damage,
destruction, repair, restoration, or shall not finish such restoration as soon
as reasonably possible.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this paragraph 9 and shall not commence such
repair or restoration within ninety (90) days after such obligation shall
accrue. Lessee may at Lessee's option cancel and terminate this Lease by giving
Lessee written notice of Lessee's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
9.6 Termination--Advance Payments. Upon termination of this Lease
pursuant to this paragraph 9, as equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease. 10. Real Property
Taxes.
10. Real Property Taxes.
10.1 Payment of Tax Increase. Lessor shall pay the real property tax as
defined in paragraph 10.3, applicable to the Industrial Center, provided,
however, that Lessee shall pay, In addition to rent, Lessee's Share (as defined
in paragraph 4.2(a) of the amount, if any, by which real property taxes
applicable to the Premises increase over the fiscal real estate tax year
19 -19 . Such payment shall be made by Lessee within thirty (30) days after
receipt of Lessor's written statement selling forth the amount of such increase
and the computation thereof. If the term of this Lease shall not expire
concurrently with the expiration of the tax fiscal year, Lessee's liability for
increased taxes for the partial lease year shall be prorated on an annual basis.
10.2 Additional Improvements. Lessee shall not be responsible for
paying Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other Lessees or by Lessor for the
exclusive enjoyment of such other Lessees.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage, or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer either partial or
total of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written statement
selling for the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay for all utilities and services supplied to the
Premises, together with any taxes thereon.
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12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all of any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
encumbrance or subletting without such consent shall be void, and shall
constitute a breach of this Lease without the need for notice to Lessee under
paragraph 13.1.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions of Assignment. Regardless of Lessor's
consent, no assignment shall release Lessee of Lessee's obligations hereunder or
after the primary liability of Lessee to pay the Base Rent and Lessee's Share of
Operating Expenses, and to perform all other obligations to be performed by
Lessee hereunder. Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies for
the breach of any of the terms or conditions of this paragraph 12 or this Lease.
Consent to one assignment shall not be deemed consent to any subsequent
assignment. In the event of default by any assignee of Lessee or any successor
of Lessee, in the performance of any of the terms hereof, Lessor may proceed
directly against Lessee without the necessity of exhausting remedies against
said assignee. Lessor may consent to subsequent assignments of this lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or their
consent thereto and such action shall not relieve Lessee of liability under this
Lease.
12.4 Terms and Conditions Applicable to Subletting. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be included in
subleases:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's Interest in all rentals and income arising from any sublease heretofore
or hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however, that
until a default shall occur in the performance of Lessee's obligations under
this Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under sub
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be reasonably
effective unless and until it has been approved in writing by Lessor. In
entering into any sublease, Lessee shall use only such form of sublease as is
satisfactory to Lessor, and once approved by Lessor, such sublease shall not be
changed or modified without Lessor's prior written consent. Any sublessee shall,
by reason of entering into a sublease under this Lease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every obligation herein to be performed by Lessee other than such
obligations as are contrary to or inconsistent with provisions contained in a
sublease to which Lessor has expressly consented in writing.
(c) If Lessee's obligations under this Lease have been
guaranteed by third parties, then a sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(d) The consent by Lessor to any subletting shall not release
Lessee from its obligations or alter the primary liability of Lessee to pay the
rent and perform and comply with all of the obligations of Lessee to be
performed under this Lease.
(e) The consent by Lessor to any subletting shall not
constitute a consent to any subsequent subletting by Lessee or to any assignment
or subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or modifications
thereto without notifying Lessee or anyone else liable on the Lease or sublease
and without obtaining their consent and such action shall not relieve such
persons from liability.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible for
the performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to allorn to Lessor, in which
event Lessor shall undertake the obligations of Lessee under such sublease from
the time of the exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to Lessee or for any other prior defaults of
Lessee under such sublease.
(h) Each and every consent required of Lessee under a sublease
shall also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises
by Lessee shall not constitute an acknowledgment that no default then exists
under this Lease of the obligations to be performed by Lessee nor shall such
consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default by Lessee to
the sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in connection
therewith, such attorney's fees not to exceed $350.00 for each such request.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of fifteen (15) days after written
notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee
with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer
statutes such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by
Lessee to observe or perform any of the covenants, conditions or provisions of
this Lease to be observed or performed by Lessee, other than described in
paragraph (b) above, where such failure shall continue for a period of thirty
(30) days after written notice thereof from Lessor to Lessee: provided, however,
that if the nature of Lessee's noncompliance is such that more than thirty (30)
days are reasonably required for its cure, then Lessee shall not be deemed to be
in default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becomes a "debtor"
as defined in 11 U.S. C. &101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment if a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, was materially false.
13.2 Remedies. In the event of any such material default by Lessee,
Lessor may at any time thereafter, with notice and demand and without limiting
Lessor in the exercise of any right or remedy which Lessor may have by reason of
such default:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
any event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises, expenses of reletting, reasonable
attorney's fees, and any real estate commission actually paid; the worth at the
time of award by the court having jurisdiction thereof of the amount by which
the unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could be
reasonably avoided;
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(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Industrial Center. Accordingly, if any Installment of
Base Rent, Operating Expenses, or any other sum due from Lessee shall not be
received by Lessor or Lessor's designee with twenty (20) days after such amount
shall be due, then, without any requirement for notice to Lessee, Lessee shall
pay to Lessor a large charge equal to 4% of such overdue amount. The parties
hereby agree that such late charge shall in no even constitute a waiver of
Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof of the Industrial
Center are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises, or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Industrial Center
is taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this Lease
as of the date the condemning authority take such possession. If Lessee does not
terminate this Lease. In accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining except that
the rent shall be reduced in the proportion that the floor area of the Premises
taken bears to the total floor area of the Premises. No reduction of rent shall
occur if the only area taken is that which does not have the Premises located
thereon. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
cause by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. Broker's Fee.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
Johnson Commercial Real Estate, Inc., Bob Deninger/Dean Busk and Lee &
Associates (Marc Pierce). Licensed real estate broker(s), a fee as set forth in
a separate agreement between Lessor and said broker(s), or in the event there is
no separate agreement between Lessor and said broker(s), the sum of $33,929.28,
or brokerage services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the scheduled of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interests in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this paragraph 15.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance. If any, and (ii)
acknowledging that there are not, to the responding partys' knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Premises or of the business
of the requesting party.
(b) At the requesting party's option, it shall be conclusive upon such
party that (i) this Lease is in full force and effect, without modification
except as may be represented by the requesting party, (ii) there are no uncured
defaults in the requesting party's performance, and (iii) if Lessor is the
requesting party, not more than one month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Industrial
Center, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past two (2) years financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a Lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest, Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective period of ownership.
18. Severability. The Invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. [deleted]
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee under the terms of this
Lease, including but not limited to Lessee's Share of Operating Expenses and
Insurance and tax expenses payable shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise states
in this lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to lessee relative to the condition or use
by Lessee of the Premises or the Industrial Center and Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health Act,
the legal use and adaptability of the Premises and the compliance thereof with
all applicable laws and regulations in effect during the term of this Lease
except as otherwise specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
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24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee or any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a of this Lease for recording
purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
30. Subordination.
(a) This Lease, and any Option granted hereby, at Lessor's option,
shall be subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements, and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgages, trustee or ground Lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall given written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) business days
after written demand shall constitute a default by Lessee hereunder with further
notice to Lessee or, at Lessor's option, Lessor shall execute such documents on
behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make,
constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in
Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorney's Fees. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purposes of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Industrial Center as Lessor may deem necessary or desirable. Lessor may at any
time place on or about the Premises or the Building any ordinary "For Sale"
signs and Lessor at any time during the last 120 days of the term hereof place
on or about the Premises any ordinary "For Lease" signs. All activities of
Lessor pursuant to this paragraph shall be without abatement of rent, nor shall
Lessor have any liability to Lessee for the same.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises of the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. 33. Signs. Lessee shall not place any sign upon the Premises or the
Industrial Center without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Industrial Center.
34. Signs. Lessee shall not place any sign upon the premises or the Industrial
Center without Lessor's prior written concent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party such consent shall not be
unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Industrial Center.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor or the right of first offer to lease other space within the Industrial
Center or other property of Lessor; (3) the right or option to purchase the
Premises or the Industrial Center, or the right of first refusal to purchase the
Premises or the Industrial Center, or the right of first offer to purchase the
Premises or the Industrial Center, or the right or option to purchase other
property of Lessor, or the right of first refusal to purchase other property of
Lessor or the right of first offer to purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee, provided, however, that an Option may be
exercised by or assigned to any lesse Affiliate as defined in paragraph 12.2 of
this lease. The Options, if any, herein granted to Lessee are not assignable to
separate and part from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(b) or 13.1(c ) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the date after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid, or (iii) at any time after an event of default
described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee) or (iv) in the event that
Lessor has given to Lessee three or more notices of default under paragraph
13.1(b) or paragraph 13.1(c), whether or not the defaults are cured, during the
12 month period of time immediately prior to the time that Lessee attempts to
exercise the subject Option.
(b) The period of time within an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 38.4(n).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due (with
any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails
to commence to cure a default specified in paragraph 13.1(c) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraphs 13.1 (a), 13.1(d) or
13.1(e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Lessee three or more notices of default under
paragraph 13.1(b), or paragraph 13.19(c)), whether or not the defaults are
cured.
40. Security Measures. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties.
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41. Easements. Lessor reserves to itself the right, from time to time, to grant
such easement, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
42. Performance Under Protest. If at any time a amount or sum of money to be
paid by provisions hereof, the party against whom the obligation to pay the
money is shall have the right to make payment under protest and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum if it shall
be adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee not be deemed an offer to lease. This Lease shall become
binding upon Lessor and Lessee only when fully executed by Lessor and Lessee.
46. Addendum. Attached hereto is an addendum or addenda containing paragraphs 47
through 63 which constitute a part of this Lease.
Addendum to lease dated May 14, 1996.
47. Rent Schedule
-------------
Months 1-12: $8,796.48/month gross*
Months 13-24: $9,110.64/month gross*
Months 25-36: $9,424.80/month gross*
Months 37-48: $9,738.96/month gross*
Months 49-60: $10, 053.12/months gross*
*Plus applicable rental sales tax (currently 4.15%)
48. Lessee shall have the First Right of Refusal on leasing suites 3,
4, 5, 6, & 7.
49. Lessee shall have the First Right of Refusal on the sale of the
property or part of.
50. Lessor Improvements:
1. Lessor to build out 100% A/C office for suites 14, 15, test
area in evap-cooler warehouse, 2" water main, 2 floor drains - per
plans submitted to Ball Architect May 10, 1996, attached hereto as
Exhibit "A".
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR
APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECTS ON TAX
CONSEQUENCES OF THIS LEASE ON THE TRANSACTION RELATING THERETO. THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS
TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
Robert Buttrum H.E.R.C. Products Inc., a Delaware Corp.
- ------------------------------------- ----------------------------------------
By Signature on Addendum Only By Signature on Addendum Only
-------------------------------- -----------------------------------
By Roger Buttrum By Gary S. Glatter, President
-------------------------------- -----------------------------------
Executed on 5-15-96 Executed on
---------------------- -------------------------
ADDRESS FOR NOTICES AND RENT ADDRESS
Roger Buttrum 3622 N. 34th Ave.
- ------------------------------------- ----------------------------------------
21602 N. 21st Ave. Phoenix, AZ 85017-4401
- ------------------------------------- ----------------------------------------
Phoenix, AZ 85027
- ------------------------------------- ----------------------------------------
<PAGE>
ADDENDUM
THIS ADDENDUM is a part of that certain Standard Industrial Lease Agreement by
and between Roger Buttrum (Lessor) and H.E.R.C. Products Incorporated, a
Delaware Corporation, (Lessee), dated May 14, 1996.
51. Notwithstanding and anything in 2.2.1/2.2.2.4 to the contrary, Exhibit
"B" illustrates Lessee's designated parking/storage areas for MRU's
ramp, and outdoor storage areas. Exhibit "B" shall be provided by Ball
Architects, Inc., to Lessee no later than May 17, 1996.
52. Notwithstanding anything in 2.6/2/6a to the contrary, Lessor shall have
right to make only those changes to said Common Areas which do not
restrict or hinder Lessee's use or manner of use of the Premises.
53. Notwithstanding anything in 3.2 to the contrary, any delay in
possession shall extend the Lease term by the amount of delay of
possession to reflect a full five (5) year lease term.
54. Delete 7.1 in its entirety and replace with:
Lessor's Obligation. Subject to the provisions of paragraphs 6 (Use),
7.2 (Lessee's Obligations) and 9 (Damage or Destruction) and except for
damage caused by any negligent or intentional act of omission of the
Lessee, Lesse's employees, suppliers, shippers, customers, or invitees,
in which event Lessee shall repair the damage, Lessor, at Lessor's
expense shall keep in good condition and repair the foundations,
exterior walls, structural condition of interior bearing walls, and
roof of the Premises, as well as the parking lots, walkways, driveways,
landscaping, fences, signs, and utility Installations of the Common
Areas and all parts thereof, as well as providing the services
described as an Operating Expenses pursuant to paragraph 4.2
(notwithstanding that paragraph 4.2 has been deleted and is otherwise
inapplicable). Lessor shall not, however, be obligated to paint the
interior surface of exterior walls, but Lessor shall be required to
maintain, repair or replace windows, doors and plate glass of the
Premises unless the need for same was caused by Lessee's negligent or
intentional acts or omissions. Lessor shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt
of written notice from Lessee of the need for such repairs. Lessee
shall have the right to make repairs of written notice from Lessee of
the need for such repairs. Lessee shall have the right to make repairs
at Lessor's expense or terminate this Lease because of Lessor's failure
to keep the Premises in good order, condition and repair, provided
Lessee shall have notified Lessor of the need for such repairs and a
reasonable period of time shall have elapsed without Lessor making such
repairs. Lessor shall not be liable for damages or loss of any kind or
nature by reason of Lessor's failure to furnish and Common Area
Services when such failure is caused by accident, breakage, repairs,
strikes, lockouts, or other disturbances or disputes of any character,
or any other cause beyond the reasonable control of Lessor. Lessor
shall keep in good order, condition and repair all plumbing, heating,
ventilating and air conditioning systems, electrical and lighting
facilities and equipment within the Premises, unless the need to repair
same is caused by Lessee's negligent or intentional acts or omissions,
in which case Lessee shall repair same.
55. Notwithstanding anything in 7.3 to the contrary, Lessor does not need
to be notified, nor is Lessor's prior consent required for any
alterations, additions, or Utility Installations made by Lessee in or
about the Premises, except for those which alter the Building systems,
exterior or structural elements of the Building.
56. Notwithstanding anything in 7.3b to the contrary, Lessee shall only be
required to obtain a permit if needed.
57. Notwithstanding anything in 8.8 to the contrary, Lessor's exemption
from liability does not include Lessor's negligent or intentional acts
or omissions.
58. Notwithstanding anything in 9.2(a) and (b), and 9.3(a) to the contrary,
the Lease shall be extended by time of rebuilding to reflect a full
five (5) year lease. Notwithstanding the provisions of 9.2 and 9.3
hereof to the contrary, whenever Lessor is required to or elects to
repair the damages to the Premises, Lessor shall also repair the
damages to those tenant improvements built and installed by Lessor at
the inception of the Lease pursuant to paragraph 49 hereof (since the
cost of such tenant Improvements have been included in the Base Rent).
<PAGE>
59. Notwithstanding anything in 9.4(a) to the contrary, the right to cancel
and terminate this Lease due to substantial damage during the last six
(6) months of the term of this Lease shall be both the Lessor's and
Lessee's option.
60. Notwithstanding anything in 10 to the contrary, Base year for Taxes
shall be the tax year in which the tax lot of which the Premises is a
part shall be assessed at full assessed valuation as an improved
property. Lessor represents that the Building, of which the Premises is
a part, constitutes a separate tax lot. Accordingly, Lessee's Share
shall be 87.5%. If Lessor receives a tax rebate (reduction) for any tax
year where Lessee paid a Real Property Tax escalation as Additional
Rent, then Lessor shall promptly pay Lessee a refund as and when Lessor
receives the tax rebate, equal to the rebate less the expenses of
obtaining same, multiplied by Lessee's Share.
61. Notwithstanding anything in 11 to the contrary, Lessee shall only be
required to pay for power and telephone. Lessor shall pay for all other
utilities (water, gas, etc.).
62. Notwithstanding anything in 23 to the contrary, notice shall be deemed
given upon receipt and shall be delivered either by hand or by
Certified Mail.
63. Notwithstanding anything in 34 to the contrary, Lessor shall, at
Lessor's cost, provide reasonable signage for Lessee on the Building
exterior.
LESSOR LESSEE
Roger Buttram H.E.R.C. Products Inc.,
a Delaware Corporation
By: /s/ Roger Buttrum By: /s/ Gary S. Glatter
---------------------------- -------------------------------
Roger Buttrum Gary S. Glatter, President
Date: 5-15-96 Date: 5/14/96
-------------------------- -----------------------------
2 of 2
Exhibit 10.22
9/3/97 H.E.R.C. Products Inc.
2202 W Lone Cactus Dr. # 15
Jerry Ludwig Phoenix, AZ 85027
Ludwig and Associates (602)492-0336
8840 N 57th St (602)233-1107
Paradise Valley, AZ 85253
Dear Dr. Ludwig:
This is the engagement offer letter we have been discussing. The form we have
agreed to is warrants in HERC Products, Inc. in lieu of your $1000.00 per month
fee. Specifically, the details are as follows:
Monthly Fee: $500.00 Payable to Jerry Ludwig and Assoc., Inc.
Warrants: 40,000
The warrants will vest on two dates. The first half, or 20,000, will vest at the
end of the six month anniversary of this agreement. The second half, again
20,000, will vest at the end of the eighteen month anniversary of our agreement.
The exercise price will be 1.06 or the closing trading price on the day you sign
this agreement, whichever is higher. The warrants will expire five (5) years
from the date of vesting.
The list of your actions items include the following:
1. Oversight of the Company's patent program.
2. Interaction on behalf of the company with International Licensees.
Including the U.K., Europe, Latin America, and the Far East.
3. Technical assistance when required for Pipe-Klean operations.
This agreement is for two years and is renewable if agreed upon by both parties.
If you have any questions please let me know. I am very excited about
opportunities we have before us and the part Ludwig and Assiciates can play. I
am looking forward to a mutually profitable relationship.
Sincerely,
Steven Carl Agreed to by:___________________________
Chairman/CEO Jerry Ludwig
cc: HERC Board of Directors Date:___________________________________
John Johnson
Exhibit 10.23
9/3/97 H.E.R.C. Products Inc.
2202 W Lone Cactus Dr. # 15
Shelby Carl Phoenix, AZ 85027
6028 N 129th Ave (602)492-0336
Litchfield Park, AZ 85340 (602)233-1107
Dear Shelby:
This is the engagement offer letter we have been discussing. The form we have
agreed to is warrants in HERC Products, Inc. in lieu of your $500.00 per month
fee. Specifically, the details are as follows:
Warrants: 40,000
The warrants will vest on two dates. The first half, or 20,000, will vest at the
end of the one year anniversary of this agreement. The second half, again
20,000, will vest at the end of the second year of our agreement. The exercise
price will be 1.06 or the closing trading price on the day you sign this
agreement, whichever is higher. The warrants will expire five (5) years from the
date of vesting.
The list of your actions items include the following:
1. Oversight of the Company's relationship with Calgon.
2. Interaction on behalf of the company with CCT contacts within the
agribusiness community, including state university and USDA contacts.
3. Technical assistance when required for general operations.
This agreement is for two years and is renewable if agreed upon by both parties.
If you have any questions please let me know. I am very excited about
opportunities we have before us and the part you can play. I am looking forward
to a mutually profitable relationship.
Sincerely,
Steven Carl Agreed to by:___________________________
Chairman/CEO Shelby Carl
cc: HERC Board of Directors Date:___________________________________
John Johnson
AMENDMENT TO STOCK OPTION AGREEMENT
AMENDMENT TO STOCK OPTION AGREEMENT, made and entered into as of March
23, 1995, by and between Gary S. Glatter ("Glatter") and H.E.R.C. Products
Incorporated ("HERC").
WHEREAS, Glatter and HERC entered into a Stock Option Agreement dated
as of January 1, 1994 ("Stock Option Agreement"); and
WHEREAS, Glatter and HERC wish to amend the Stock Option Agreement on
the terms and conditions set forth herein.
IT IS AGREED:
1. Paragraph 2 (a) of the Stock Option Agreement is hereby amended by
deleting the phrase "$5.00 per share" therefrom and by substitute the phrase
"$2.50 per share" in lieu thereof.
2. Paragraph 2 (b) of the Stock Option Agreement is hereby amended by
deleting the phrase "$6.25 per share" therefrom and by substituting the phrase
"$3.125 per share" in lieu thereof.
3. Paragraph 2 (c) of the Stock Option Agreement is herby amended by
deleting the phrase "$7.50 per share" therefrom and by substituting the phrase
"$3.75 per share" in lieu thereof.
The undersigned have executed this Agreement as of the 23rd day of
March 1995.
H.E.R.C. Product Incorporated
By: /s/ Shelby A. Carl
------------------------------
SHELBY A. CARL
Chairman of the Board and
Chief Executive officer
/s/ Gary S. Glatter
------------------------------
GARY S. GLATTER
AMENDMENT NO. 2 TO OPTION AGREEMENT
Amendment No. 2 to Option Agreement, dated as of February 1,
1997, by and between Gary S. Glatter ("Executive") and H.E.R.C. Products
Incorporated ("Company").
WHEREAS, Executive and Company have entered into the Option
Agreement, dated January 1, 1994, as amended ("Option Agreement'); and
WHEREAS, Executive and Company desire to further amend the
terms of the Option Agreement in consideration for the services to the Company
rendered by Executive, to take into consideration the price range of the Common
Stock of the Company during the last 18 months, and the cancellation of the
Group C Option.
NOW, in consideration of the above, it is agreed:
1. Section 1 of the Option Agreement is modified to provide
that the grant of the option henceforth applies only to the Group A Option and
the Group B Option, and the Group C Option is canceled.
2. Section 2 of the Option Agreement is modified to provide
that henceforth the Group A Option and Group B Option shall have a purchase
price per share of $1.75.
3. Section 3.1 of the Option Agreement is deleted and in its
place the following is inserted:
"The Group A Option is fully vested as of the date of
this Amendment and the Group B Option will fully vest on June
1, 1997, and the Group A Option and the Group B Option shall
be exercisable, in whole or in part, until the close of
business on May 31, 2003 as to the as to the Group A Option
and until the close of business on December 1, 2005 as to the
Group B Option."
4. Sections 3.3, 3.4 and 8 of the Open Agreement are deleted.
5. Terms not otherwise defined in this Amendment shall have
the meanings assigned to them in the Option Agreement.
H.E.R.C. PRODUCTS INCORPORATED
By: /s/ S. Steven Carl
-------------------------------------
S. Steven Carl,
Chief Executive Officer
/s/ Gary S. Glatter
----------------------------------------
GARY S. GLATTER
Exhibit 21
SUBSIDIARIES
Name State of Incorporation
---- ----------------------
H.E.R.C. Consumer Products, Inc. Arizona
CCT Corporation Arizona
Exhibit 23
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
H.E.R.C. PRODUCTS INCORPORATED
Phoenix, Arizona
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the previously filed Registration Statements (Nos.
33-92870, 333-5175, 333-13349 and 333-19361) of H.E.R.C. PRODUCTS INCORPORATED
of our report dated January 31, 1998, relating to the consolidated financial
statements of H.E.R.C. PRODUCTS INCORPORATED and subsidiaries appearing in the
Company's Annual Report on Form-10KSB for the year ended December 31, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
\s\ BDO Seidman, LLP
Chicago, Illinois
March 31, 1998
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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0
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