SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
H.E.R.C. PRODUCTS INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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H.E.R.C. PRODUCTS INCORPORATED
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 7, 2001
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The Annual Meeting of Stockholders of H.E.R.C. Products Incorporated, a
Delaware corporation, will be held at 10:00 a.m., on Thursday, June 7, 2001, at
the Country Inn & Suites, 20221 North 29th Avenue, Phoenix, Arizona for the
following purposes:
1. To elect four directors to serve until the next annual meeting of
stockholders and until their successors are elected and qualified.
2. To ratify the appointment of Arthur Andersen LLP as our independent
auditors for the fiscal year ending December 31, 2001.
3. To transact such other business as may properly come before the meeting
or any adjournment of the meeting.
These items of business are more fully described in the proxy statement
accompanying this notice.
Only stockholders of record at the close of business on April 26, 2001 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person. To
assure your representation at the meeting, however, we urge to mark, sign, date,
and return the enclosed proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. If you attend the meeting, you may vote in
person even if you previously have returned a proxy.
Sincerely,
/s/ S. Steven Carl
Phoenix, Arizona S. Steven Carl
April 30, 2001 President
H.E.R.C. PRODUCTS INCORPORATED
2215 WEST MELINDA LANE, SUITE A
PHOENIX, ARIZONA 85027
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PROXY STATEMENT
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VOTING AND OTHER MATTERS
GENERAL
The enclosed proxy is solicited on behalf of H.E.R.C. Products
Incorporated, a Delaware corporation, by our board of directors for use at our
Annual Meeting of Stockholders to be held at 10:00 a.m. on Thursday, June 7,
2001, or at any adjournment of the meeting, for the purposes set forth in this
proxy statement and in the accompanying notice of Annual Meeting of
Stockholders. The meeting will be held at the Country Inn & Suites, 20221 North
29th Avenue, Phoenix, Arizona.
These proxy solicitation materials are being first mailed on or about April
30, 2001, to all stockholders entitled to vote at the meeting.
VOTING SECURITIES AND VOTING RIGHTS
Stockholders of record at the close of business on April 26, 2001 are
entitled to notice of and to vote at the meeting. On the record date, there were
outstanding 11,769,634 shares of our common stock. Each holder of common stock
voting at the meeting, either in person or by proxy, may cast one vote per share
of common stock held on all matters to be voted on at the meeting.
The presence, in person or by proxy, of the holders of one half of the
total number of shares entitled to vote constitutes a quorum for the transaction
of business at the meeting. Assuming that a quorum is present, (a) the
affirmative vote of a plurality of the shares of our common stock present in
person or represented by proxy at the meeting and entitled to vote is required
for the election of directors; and (b) the affirmative vote of a majority of the
shares of our common stock present in person or represented by proxy at the
meeting and entitled to vote is required for the ratification of the appointment
of Arthur Andersen LLP as our independent auditors for the fiscal year ending
December 31, 2001.
Votes cast by proxy or in person at the meeting will be tabulated by the
election inspectors appointed for the meeting and will determine whether a
quorum is present. The election inspectors will treat abstentions as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum, but as unvoted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
VOTING OF PROXIES
When a proxy is properly executed and returned, the shares it represents
will be voted at the meeting as directed. If no specification is indicated, the
shares will be voted (1) "for" the election of nominees set forth in this proxy
statement; and (2) "for" the ratification of the appointment of Arthur Andersen
LLP as our independent auditors for the fiscal year ending December 31, 2001.
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REVOCABILITY OF PROXIES
Any person giving a proxy may revoke the proxy at any time before its use
by
* delivering to us written notice of revocation;
* delivering to us a duly executed proxy bearing a later date; or
* attending the meeting and voting in person.
SOLICITATION
We will pay the cost of this solicitation. In addition, we may reimburse
brokerage firms and other persons representing beneficial owners of shares for
expenses incurred in forwarding solicitation materials to such beneficial
owners. Some of our directors or officers may solicit proxies, personally or by
telephone or e-mail, without additional compensation.
ANNUAL REPORT AND OTHER MATTERS
Our 2000 Annual Report to Stockholders, which was mailed to stockholders
with or preceding this proxy statement, contains financial and other information
about our company, but is not incorporated into this proxy statement and is not
to be considered a part of these proxy soliciting materials or subject to
Regulations 14A or 14C or to the liabilities of Section 18 of the Securities
Exchange Act of 1934, as amended. The information contained in the "Report of
the Audit Committee of the Board of Directors" below shall not be deemed "filed"
with the Securities and Exchange Commission or subject to Regulations 14A or 14C
or to the liabilities of Section 18 of the Exchange Act.
WE WILL PROVIDE UPON WRITTEN REQUEST, WITHOUT CHARGE TO EACH STOCKHOLDER OF
RECORD AS OF THE RECORD DATE, A COPY OF OUR ANNUAL REPORT ON FORM 10-KSB FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2000 AS FILED WITH THE SEC. ANY EXHIBITS LISTED
IN THE FORM 10-KSB REPORT ALSO WILL BE FURNISHED UPON REQUEST AT THE ACTUAL
EXPENSE INCURRED BY US IN FURNISHING SUCH EXHIBITS. ANY SUCH REQUESTS SHOULD BE
DIRECTED TO OUR COMPANY'S SECRETARY AT OUR EXECUTIVE OFFICES SET FORTH IN THIS
PROXY STATEMENT.
ELECTION OF DIRECTORS
NOMINEES
Our bylaws provide that the number of directors shall be fixed from time to
time by resolution of our board of directors. Currently, our board of directors
is comprised of four members. All directors are elected at each annual meeting
of our stockholders. Directors hold office for one year or until their
successors have been elected and qualified.
A board of four directors is to be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for each of
the nominees named below. All of the nominees currently are directors of our
company. In the event that any such nominee is unable or declines to serve as a
director at the time of the meeting, the proxies will be voted for any nominee
designated by the current board of directors to fill the vacancy. We do not
expect that any nominee will be unable or will decline to serve as a director.
The following table sets forth certain information regarding the nominees
for directors.
NAME AGE POSITION HELD
---- --- -------------
S. Steven Carl............. 43 Chairman of the Board of Directors,
Chief Executive Officer and President
Salvatore DiMascio......... 61 Director
R. John Armstrong.......... 57 Director
Robert Affholder........... 65 Director
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S. STEVEN CARL has served as our Chairman of the Board of Directors since
February 1996, and has served as our Chief Executive Officer and as a director
of our company since August 1995. Mr. Carl has served as our President since May
1997, and also from August 1995 until February 1996. Mr. Carl served as the
President and Chief Executive Officer of CCT Corporation, a wholly owned
subsidiary of our company acquired in May 1995.
SALVATORE DIMASCIO has been a director of our 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 until
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 Fotoball USA, a public company. Mr.
DiMascio is a certified public accountant.
R. JOHN ARMSTRONG has been a director of our company since January 1, 1999.
Mr. Armstrong served 11 years in the U.S. Navy, with experience in ship design,
construction, and maintenance, with a four year tour at a SupShip (supervisor of
shipbuilding office), serving in quality assurance, contracts, and planning
departments in addition to serving two years on the engineering faculty at the
Naval Academy. Following his resignation from the Navy in 1978, Mr. Armstrong
served as a Project Manager and, ultimately, Executive Vice President of a
professional services company in Washington D.C., providing engineering and
computer services to a broad spectrum of clients until 1986. In 1986, Mr.
Armstrong became the President of Seaward Marine Services, Inc., engaged in
international diving services.
ROBERT W. AFFHOLDER has been a director of our company since October 1,
2000. Since 1996, Mr. Affholder has been Senior Executive Vice President of
Insituform Technologies, Inc., a public company. From 1995 until 1996, Mr.
Affholder was Senior Vice President-Chief Operating Officer of North American
Contracting Operations of Insituform Technologies, Inc. Mr. Affholder was
President of Insituform Mid-America, Inc. from 1994 until its acquisition by
Insituform Technologies, Inc. in 1995, and was Vice Chairman of Insituform
Mid-America from 1993 until 1995.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors held five meetings during the fiscal year ended
December 31, 2000. Each of our directors attended at least 75% of the aggregate
of (i) the total number of meetings of our board of directors held during fiscal
2000, and (ii) the total number of meetings held by all committees of our board
of directors on which such person served during fiscal 2000.
Our bylaws authorize our board of directors to appoint among its members
one or more committees consisting of one or more directors. The Audit Committee,
which currently consists of Messrs. DiMascio, Armstrong, and Affholder,
non-employee directors of our company, reviews the annual financial statements,
any significant accounting issues, and the scope of the audit with our
independent auditors and discusses with the auditors any other audit-related
matters that may arise during the year. The Compensation Committee, which
consists of all of the members of our board of directors, reviews and acts on
matters relating to compensation levels and benefit plans for key executives of
our company and administers and interprets our 1993 Incentive Stock Option Plan
and our Performance Equity Plan, with respect to grants of stock options and
awards to persons who at the time of grant are key employees, officers,
directors, and consultants of our company.
DIRECTOR COMPENSATION AND OTHER INFORMATION
Directors who are employees of our company do not receive any additional
compensation for serving as members of our board of directors. Non-employee
directors receive a retainer of $15,000 per year, payable as follows:
* $1,500 semi-annually on the first day of the second and fourth
quarters following such election;
* $1,000 for personal attendance at duly convened quarterly meetings of
our board; and
* $2,000 in restricted common stock payable on the first day of each
quarter measured on the close of trading at the last trading day of
the prior quarter.
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EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
The following table sets forth certain information concerning the
compensation for the years ended December 31, 1998, 1999, and 2000 paid to our
Chief Executive Officer. None of our other executive officers earned cash
compensation that exceeded $100,000 during the year ended December 31, 2000.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
AWARDS
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RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS AWARDS(2) OPTIONS(3) COMPENSATION(4)
- ------------------ ---- --------- ----- --------- ---------- ---------------
S. Steven Carl............... 2000 $129,706 $13,600 -- -- $8,155
Chairman of the Board, Chief 1999 122,469 11,444 $16,500 -- 6,356
Executive Officer, and 1998 82,100 -- -- 100,000 6,120
President
- ----------
(1) Mr. Carl also received certain perquisites, the value of which did not
exceed 10% of his salary and bonus during fiscal 2000.
(2) The awards of restricted stock are calculated by multiplying the closing
market price of our common stock on the date of grant by the number of
shares awarded. In connection with his employment agreement, Mr. Carl was
granted 50,000 shares of restricted common stock at fair market value.
(3) The exercise prices of all stock options granted were equal to the fair
market value of our common stock on the date of grant.
(4) Other compensation consists of 401(k) plan matching contributions and an
automobile allowance.
OPTION GRANTS
We did not grant stock options to Mr. Carl during the fiscal year ended
December 31, 2000.
RECENT GRANTS OF STOCK OPTIONS
On March 29, 2001, we granted to Mr. Carl options to purchase 50,000 shares
of our common stock at an exercise price of $0.19.
YEAR-END OPTION HOLDINGS
The following table provides information with respect to options held by
Mr. Carl as of December 31, 2000. Mr. Carl did not exercise options during the
year ended December 31, 2000.
OPTIONS HELD AS OF DECEMBER 31, 2000
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT FISCAL YEAR-END
-------------------------------
NAME EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------
S. Steven Carl(1)............................. 230,000 20,000
- ----------
(1) None of the unexercised options listed had any value at fiscal year-end,
because the exercise price of all the options held by the listed officer
was greater than $0.17 per share, which was the closing sales price of our
common stock as quoted on the OTCBB on December 29, 2000.
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EMPLOYMENT AGREEMENT
Effective June 15, 1999, we entered into an employment agreement with S.
Steven Carl. The employment agreement has an initial term through June 15, 2001,
and is subject to automatic renewal for successive one-year terms unless either
party requests to renegotiate or terminates the agreement by giving the other
party at least six months' written notice.
Mr. Carl's employment agreement provides for him to serve as our President
and Chief Executive Officer. The employment agreement provides for Mr. Carl to
receive a base salary of $115,500 with annual increases of 15% per year during
the term of the agreement, which salary is currently $132,825 per year. However,
in the event the agreement is automatically renewed, the base salary shall not
increase without approval by our board of directors. Mr. Carl is also entitled
to receive annual bonuses, payable in cash or with shares of our common stock,
equal to 7.5% our annual EBITDA before giving effect to any extraordinary
accounting events or accounting impacts from discontinued operations. Mr. Carl
received a bonus of $13,600 during fiscal 2000. The value of bonuses paid in
common stock shall be based on the closing bid price of our common stock on the
last trading day of the relevant year to which the bonus relates. Our board of
directors may also award Mr. Carl such other bonuses and increases in base
salary as warranted from time to time. During any fiscal year during the term of
the agreement, if we achieve our projected EBITDA, as projected by our annual
budget approved by our board of directors at the beginning of the fiscal year,
Mr. Carl shall be entitled to receive an additional incentive bonus of 25,000
shares of common stock.
In addition, the employment agreement requires us to
o provide Mr. Carl with a monthly car allowance of $500 or an automobile
suitable for business use;
o reimburse Mr. Carl for all travel, entertainment, and other ordinary
and necessary expenses incurred in connection with our business and
his duties under the employment agreements; and
o provide such other fringe benefits that we make generally available to
our other senior executives.
Upon execution of the employment agreement, we granted Mr. Carl 50,000
shares of restricted common stock.
The employment agreement may be terminated by reason of resignation, death,
disability, or as a result of termination of employment "for cause," as defined
in the agreement. In the event of a termination of the agreement or if the
agreement expires without being renewed or extended, Mr. Carl will resign as a
director of our company effective on the date of termination or expiration.
The employment agreement also prohibits Mr. Carl from
o competing with us for a period of 18 months following the termination
of his employment with our company;
o taking certain actions intended to solicit other persons to terminate
their business relationship with us or to terminate his or her
employment relationship with us; and
o making unauthorized use or disclosure of our trade secrets or other
confidential information.
PERFORMANCE EQUITY PLAN
During 1996, we adopted the Performance Equity Plan to enable our company
to offer to our key employees, officers, directors, and consultants an
opportunity to acquire a proprietary interest in our company and to link their
interests and efforts to the long-term interests of our stockholders. Our
stockholders approved the plan in July 1996. The plan provides for the granting
of awards to employees, officers, directors, and consultants eligible to receive
awards under the plan. These awards may include stock options, restricted stock,
stock appreciation rights, deferred stock, stock reload options, and other stock
based awards. A total of 1,000,000 shares of common stock may be issued under
the plan. As of April 19, 2001, no shares of our common stock had been issued
upon exercise of options granted under the plan, and there were outstanding
options to acquire 818,500 shares of our common stock. As of April 20, 2001,
181,500 shares remained available for issuance under the plan. The plan will
remain in
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effect until no further grants can be made and no awards remain outstanding,
however, incentive stock options may only be made through May 2006.
Awards may be made or granted only to persons who at the time of grant are
key employees, officers, directors, and consultants who are deemed to have
rendered or to be able to render significant services to our company, and who
are deemed to have contributed or to have the potential to contribute to the
success of our company. Options that are incentive stock options may only be
granted to employees of our company. To the extent that granted options are
incentive stock options, the terms and conditions of those options must be
consistent with the qualification requirements set forth in the Internal Revenue
Code.
The plan is administered by our board of directors, except that our board
of directors may delegate its power to administer the plan to a committee
appointed by our board of directors. Our board of directors or the committee
will have the authority to administer all matters governing the plan, including
the persons eligible to receive awards, the terms and conditions of grants of
awards, the specified performance goals or other criteria that need to be
attained for the vesting of awards, and the substitution of any awards.
The exercise prices, expiration dates, maximum number of shares
purchasable, and the other provisions of the options will be established at the
time of grant. The exercise prices of options may not be less than 100% (110% if
the option is granted to a stockholder who, at the time of grant, owns common
stock possessing more than 10% of the combined voting power of all class of
stock of our company) of the fair market value of our common stock on the date
of grant. Options may be granted for terms determined by the committee and
become exercisable in whole or in one or more installments at such time as may
be determined upon grant of the options, and may be waived at any time by the
committee.
Under the plan, our board of directors or the committee also may award
shares of restricted stock or other stock-based awards either alone or in
addition to other awards granted under the plan. The committee will determine
the eligible persons, the number of shares to be awarded, the price (if any) to
be paid by the holder, and all other terms and conditions of such awards.
Upon a merger or other recapitalization of our company, such substitution
or adjustment will be made in the aggregate number of shares reserved for
issuance under the plan, in the number, terms of, and exercise price of shares
subject to outstanding awards, as may be determined to be appropriate by the
committee in order to prevent dilution or enlargement of rights. Upon a change
of control of our company that is not authorized by our board of directors, the
vesting periods of all awards granted and outstanding under the plan will
accelerate and become fully vested and immediately exercisable.
1993 INCENTIVE STOCK OPTION PLAN
During October 1993, we adopted, and our stockholders approved, the 1993
Incentive Stock Option Plan to advance the interests of our company by
encouraging and enabling key employees to acquire a financial interest in our
company and to link their interests and efforts to the long-term interests of
our stockholders. The plan provides for the granting of stock options to key
employees of our company. A total of 350,000 shares of common stock may be
issued under the plan. As of April 19, 2001, 10,000 shares of our common stock
had been issued upon exercise of options granted under the plan, and there were
outstanding options to acquire 88,000 shares of our common stock under the plan.
As of April 19, 2001, 252,000 shares remained available for issuance under the
plan.
Options may be granted only to persons who at the time of grant are key
employees of our company. The plan is administered and interpreted by the
compensation committee of our board of directors. The committee determines the
individuals to whom, and the time or times at which, options are granted, the
number of shares subject to each option, the duration, exercise price, vesting,
and other terms and conditions of options granted.
In no event will the exercise price of an option be less than the fair
market value of our common stock on the date of grant. Options may be granted
for terms of up to but not exceeding ten years from the date of grant.
In the event of any recapitalization of our company, the committee will
adjust the number of shares of stock available for options, as well as the
shares and exercise prices subject to any options. The plan will terminate on
the earliest of (a) the date when all shares of common stock reserved for
issuance under the plan have been acquired
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through exercise of options granted under the plan; (b) October 2003; or (c)
such earlier date as our board of directors may determine.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
REPORT OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Our board of directors has appointed an audit committee, currently
consisting of three directors as of the date of this proxy statement. All of the
members of the committee are "independent" of our company and management, as
that term is defined in the NASD's listing standards.
The primary responsibility of the committee is to oversee our company's
financial reporting process on behalf of our board of directors. Management has
the primary responsibility for the financial statements and the reporting
process, including the systems of internal controls. The independent auditors
are responsible for auditing our financial statements and expressing an opinion
on the conformity of those audited financial statements with generally accepted
accounting principles in the United States.
In fulfilling its oversight responsibilities, the committee reviewed and
discussed the audited financial statements with management and the independent
auditors. The committee discussed with the independent auditors the matters
required to be discussed by Statement of Auditing Standards No. 61. This
included a discussion of the auditors' judgments as to the quality, not just the
acceptability, of our accounting principles and such other matters as are
required to be discussed with the committee under generally accepted auditing
standards. In addition, the committee received from the independent auditors
written disclosures and the letter required by Independence Standards Board
Standard No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES. The committee
also discussed with the independent auditors the auditors' independence from
management and our company, including the matters covered by the written
disclosures and letter provided by the independent auditors.
The committee discussed with our independent auditors the overall scope and
plans for the audits. The committee meets with the independent auditors, with
and without management present, to discuss the results of their examinations,
their evaluation of our company, the internal controls, and the overall quality
of the financial reporting. The committee held four meetings during fiscal 2000.
Based on the reviews and discussions referred to above, the committee
recommended to our board of directors, and our board approved, that the audited
financial statements be included in the Annual Report on Form 10-KSB for the
year ended December 31, 2000 for filing with the Securities and Exchange
Commission. The committee and our board of directors also have recommended,
subject to stockholder approval, the selection of the company's independent
auditors. See "Ratification of Appointment of Independent Auditors."
Our board of directors has adopted a written charter for the Audit
Committee. A copy of that charter is included as "Appendix A" to this proxy
statement.
April 23, 2001
Salvatore DiMascio
R. John Armstrong
Robert Affholder
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, officers, and
persons who own more than 10% of a registered class of our equity securities to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Directors, officers, and greater than 10% stockholders are
required by SEC regulations to furnish us with copies of all Section 16(a) forms
they file. Based solely upon our review of the copies of such forms that we
received during the fiscal year ended December 31, 2000, and written
representations that no other reports were required, we believe that each person
who at any time during such fiscal year was a director, officer, or
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beneficial owner of more than 10% of our common stock complied with all Section
16(a) filing requirements during such fiscal year, except that during fiscal
2000, Mr. Affholder filed a late Form 5 covering his initial statement of
beneficial ownership.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
DIRECTORS, AND OFFICERS
The following table sets forth certain information regarding the shares of
our outstanding common stock beneficially owned as of April 26, 2001 by (i) each
director; (ii) the executive officers set forth in the Summary Compensation
Table under the section entitled "Executive Compensation;" (iii) all of our
directors and executive officers as a group; and (iv) each other person who is
known by us to beneficially own or to exercise voting or dispositive control
over more than 5% of our common stock.
NUMBER OF SHARES
NAME AND ADDRESS OF AND NATURE OF APPROXIMATE PERCENTAGE
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) OF OUTSTANDING SHARES(2)
- ------------------- ----------------------- ------------------------
DIRECTORS AND EXECUTIVE OFFICERS
S. Steven Carl.............................. 797,709(3) 6.6%
R. John Armstrong........................... 110,572 *
Salvatore D. DiMascio....................... 97,683(4) *
Robert Affholder............................ 27,867 *
Directors and executive officers as a group
(6 persons).............................. 1,544,531 12.7%
NON-MANAGEMENT 5% STOCKHOLDERS
Lance Laifer................................ 3,375,516(5) 28.7%
Norman H. Pessin............................ 985,000(6) 8.4%
Shelby Carl................................. 638,470(7) 5.4%
- ----------
* Less than 1%
(1) Except as indicated, and subject to community property laws when
applicable, each officer, director, and 5% stockholder named in the table
above has sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. Except as otherwise
indicated, each director, officer, or 5% stockholder may be reached through
our offices at 2215 West Melinda Lane, Suite A, Phoenix, Arizona 85027.
(2) The percentages shown are calculated based upon 11,769,634 shares of common
stock outstanding on April 26, 2001. The numbers and percentages shown
include the shares of common stock actually owned as of April 26, 2001 and
the shares of common stock that the person or group had the right to
acquire within 60 days of April 26, 2001. In calculating the percentage of
ownership, all shares of common stock that the identified person or group
had the right to acquire within 60 days of April 26, 2001 upon the exercise
of options and warrants are deemed to be outstanding for the purpose of
computing the percentage of the shares of common stock owned by such person
or group, but are not deemed to be outstanding for the purpose of computing
the percentage of the shares of common stock owned by any other person.
(3) Includes 280,000 shares of common stock issuable upon exercise of stock
options.
(4) Includes 20,000 shares of common stock issuable upon exercise of stock
options.
(5) Hilltop Partners, L.P., Laifer Capital Management, Inc., and Lance Laifer
are affiliates with respect to each other. Hilltop beneficially owns
1,664,616 shares of our common stock, and Laifer Capital Management, Inc.
beneficially owns 3,375,516 shares of our common stock in its capacity as
investment advisor to various investment entities including Hilltop. Mr.
Laifer is the president, sole director, and principal stockholder of Laifer
Capital Management, Inc., and is deemed to have the same beneficial
ownership as Laifer Capital Management, Inc. Mr. Laifer has sole voting and
investment power with respect to 2,185,316 shares of common stock and
shares investment power with respect to 1,190,200 shares of common stock.
The address for Hilltop Partners, Laifer Capital Management, and Lance
Laifer are c/o Laifer Capital Management, Inc. is 450 Seventh Avenue, Suite
1604, New York, New York 10123. The
8
information is based solely upon a Schedule 13D/A filed with the Securities
and Exchange Commission as of April 11, 2001.
(6) Norman H. Pessin is a principal of Neuberger & Berman, LLC, a registered
broker/dealer and registered investment advisor. Mr. Pessin has sole voting
and dispositive power with respect to all shares of our common stock held
by him. The address for Mr. Pessin is c/o Neuberger & Berman, LLC, 605
Third Avenue, New York, NY 10158.
(7) Includes 50,000 shares of common stock issuable upon exercise of stock
options and warrants.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Aggregate fees billed to our company for the fiscal year ended December 31,
2000 by our principal accounting firm, Arthur Andersen LLP, are as follows:
Audit Fees....................................................... $ 29,500
Financial Information Systems Design and Implementation Fees..... $ --
All Other Fees................................................... $ 29,800
Our board of directors has appointed Arthur Andersen LLP, independent
public accountants, to audit our consolidated financial statements for the
fiscal year ending December 31, 2001 and recommends that the stockholders vote
in favor of the ratification of such appointment. In the event of a negative
vote on such ratification, our board of directors will reconsider its selection.
We anticipate that representatives of Arthur Andersen LLP will be present at the
meeting. These representatives will have the opportunity to make a statement if
they desire and will be available to respond to appropriate questions. The
members of our audit committee believe that the non-audit services provided by
Arthur Andersen LLP, referenced above in "Financial Information Systems Design
and Implementation Fees" and "All Other Fees," are compatible with maintaining
our principal accounting firm's independence.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals that are intended to be presented by such
stockholders at our annual meeting of stockholders to be held during calendar
2002 must be received by us no later than February 7, 2002, in order to be
included in the proxy statement and form of proxy relating to such meeting.
Pursuant to Rule 14a-4 under the Exchange Act, we intend to retain discretionary
authority to vote proxies with respect to stockholder proposals for which the
proponent does not seek to have us include the proposed matter in the proxy
statement for the annual meeting to be held during calendar 2002, except in
circumstances where (a) we receive notice of the proposed matter no later than
April 23, 2002; and (b) the proponent complies with the other requirements set
forth in Rule 14a-4.
OTHER MATTERS
We know of no other matters to be submitted to the meeting. If any other
matters properly come before the meeting, it is the intention of the persons
named in the enclosed proxy card to vote the shares they represent as our board
of directors may recommend.
Dated: April 30, 2001
9
APPENDIX A
CHARTER
OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
H.E.R.C. PRODUCTS INCORPORATED
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its responsibilities to oversee: the financial reports
and other financial information provided by H.E.R.C. Products Incorporated ("the
Corporation") to any governmental body or the public; the Corporation's systems
of internal controls regarding finance, accounting and legal compliance that
management and the Board have established; and the Corporations' auditing,
accounting and financial reporting processes generally. Consistent with these
functions the Audit Committee should encourage continuous improvement of, and
should foster adherence to, the Corporation's policies, procedures and practices
at all levels. The Audit Committee's primary duties and responsibilities are to:
1. Serve as an independent and objective party to monitor the Corporation's
financial reporting process and internal control system while overseeing
that management has maintained the reliability and integrity of the
accounting policies, financial reporting and disclosure practices, and an
adequate system(s) of internal control.
a. In discharging its oversight role, the Audit Committee is empowered to
investigate any matter brought to its attention with full access to
all books, records, facilities, and personnel of the Corporation. The
Audit Committee is authorized to retain outside or special counsel,
auditors, accounting or other consultants, experts, and professionals
for this purpose.
b. The Audit Committee may request any officer or employee of the
Corporation or the Corporation's outside counsel or independent
auditors to attend a meeting of the Audit Committee or to meet with
any members of, or consultants or advisors to, the Audit Committee.
2. Select, evaluate, and replace the independent accountants.
3. Review and appraise the audit efforts of the Corporation's independent
accountants, including requiring the independent accountants to submit a
formal written statement regarding relationships and services that may
affect objectivity and independence.
4. Provide an open avenue of communications among the independent accountants,
financial and senior management, and the Board of Directors, including
discussions of any relevant matters with independent accountants and making
recommendations that the full Board take appropriate action to ensure
independence of the accountants.
5. Oversee that management has established and maintained processes to assure
compliance by the Corporation with all applicable laws, regulations and
Corporation policy.
The Audit Committee will primarily fulfill these responsibilities by carrying
out the activities enumerated in Article IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three (3) or more directors as
determined by the Board, each of whom shall be an independent director and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his or her independent judgment as a member of the Audit
Committee under the rules and regulations of the Nasdaq Stock Market, as such
rules and regulations may be amended or supplemented from time-to-time.
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1. INDEPENDENT DIRECTOR. For the purposes of this Audit Committee Charter, the
term "independent director" shall mean a person other than an officer or
employee of the Corporation or its subsidiaries or any other individual
having a relationship which, in the opinion of the Corporation's Board of
Directors, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director. The following persons
shall not be considered independent:
a. a director who is employed by the Corporation or any of its affiliates
for the current year or any of the past three years;
b. a director who accepts any compensation from the Corporation or any of
its affiliates in excess of $60,000 during the previous fiscal year,
other than compensation for Board service, benefits under a
tax-qualified retirement plan, or non-discretionary compensation;
c. a director who is a member of the immediate family of an individual
who is, or has been in any of the past three years, employed by the
Corporation or any of its affiliates as an executive officer.
Immediate family includes a persons' spouse, parents, children,
siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law,
son-in-law, daughter-in-law, and anyone who resides in such person's
home;
d. a director who is a partner in, or a controlling shareholder or an
executive officer of, any for-profit business organization to which
the Corporation made, or from which the Corporation received, payments
(other than those arising solely from investments in the Corporation's
securities) that exceed 5% of the Corporation's or business
organization's consolidated gross revenues for that year, or $200,000,
whichever is more, in any of the past three years;
e. a director who is employed as an executive of another entity where any
of the Corporation's executives serve on that entity's compensation
committee.
2. FINANCIAL SOPHISTICATION. All members of the Audit Committee shall have a
working familiarity with basic finance and accounting practices, and at
least one (1) member of the Audit Committee shall have accounting or
related financial management expertise. The following financial
sophistication requirements shall apply to the Audit Committee:
a. Each independent director shall be able to demonstrate the ability to
understand fundamental financial statements, including the
Corporation's balance sheet, income statement, and cash flow statement
or will become able to do so within a reasonable period of time after
his or her appointment to the Audit Committee.
b. The Corporation shall be able to certify that it has, and will
continue to have, at least one (1) member of the Audit Committee that
has past employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable
experience or background which results in the individual's financial
sophistication, including being or having been a chief executive
officer, chief financial officer or other senior officer with
financial oversight responsibilities.
3. NON-INDEPENDENT DIRECTOR EXCEPTION. Notwithstanding Article II,
sections 1 and 2, one (1) director who is not independent as defined
in section 1, and is not a current employee or an immediate family
member of such employee, may be appointed to the Audit Committee, if
the Board, under exceptional circumstances, determines that membership
on the Audit Committee by the individual is required by the best
interests of the Corporation and its shareholders, and the Board
discloses, in the next annual proxy statement subsequent to such
determination, the nature of the relationship and the reasons for that
determination and the Corporation complies with all other requirements
of the rules and regulations of the Nasdaq Stock Market with respect
to non-independent members of the Audit Committee, as such rules and
regulations may be amended or supplemented from time to time.
4. SMALL BUSINESS FILERS AUDIT COMMITTEE COMPOSITION EXCEPTION. Should
the Corporation qualify for and file financial reports under the
exception for "small business" issuers pursuant to Securities and
Exchange Commission Regulation S-B, the Audit Committee may be
comprised of two (2) or more directors a majority of
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whom shall be independent directors as provided under section 1
Article II hereof and who shall not otherwise be subject to the
requirements of sections 2 and 3 of Articles II.
5. ELECTION. The members of the Audit Committee shall be elected by the
Board at the annual organizational meeting of the Board or until their
successors shall be duly elected and qualified. Unless a Chair is
elected by the full Board, the members of the Audit Committee may
designate a Chair by majority vote of the full Audit Committee
membership.
III. MEETINGS
The Audit Committee shall meet at least four (4) times annually, or more
frequently as circumstances dictate. Minutes of the meetings of the Audit
Committee shall be kept by the secretary to the Committee and shall be reported
to the Board of Directors. As part of its job to foster open communication, the
Committee should meet at least annually with management and the independent
accountants in separate executive sessions to discuss any matters that the
Committee or each of these groups believe should be discussed privately. In
addition, the Committee or at least its Chair should meet with the independent
accountants and management quarterly to review the Corporations financials
consistent with section 4 of Article IV below.
IV. RESPONSIBILITIES AND DUTIES
The primary responsibility of the Audit Committee is to oversee the
Corporation's financial reporting process on behalf of the Board and to report
the results of the Committee's activities to the Board. The Committee recognizes
that management shall be responsible for preparing the Corporation's financial
statements and the independent auditors shall be responsible for auditing those
financial statements. The functions set forth below shall be the principal
recurring activities of the Committee in carrying out its oversight function. In
carrying out its responsibilities, however, the Committee shall remain flexible
in order to best react to changing conditions and circumstances. The following
functions are set forth as a guide with the understanding that the Committee may
deviate from this guide and supplement these functions as the Committee deems
appropriate under the circumstances.
1. AUDIT CHARTER REVIEW. Review and update this Charter periodically, at least
annually and recommend any proposed changes to the Board for approval, as
conditions dictate.
2. FORM 10-KSB FINANCIAL STATEMENTS AND ANNUAL REPORT REVIEW. Review with
management and the independent auditors the financial statements to be
included in the Corporation's Annual Report on Form 10-K (or the Annual
Report to Shareholders if distributed prior to the filing of the Form
10-K), including the auditors' judgment about the quality, not just
acceptability, of the Corporation's accounting principles, the consistency
of the Corporation's accounting policies and their application, and the
clarity and completeness of the Corporation's financial statements and
related disclosures.
3. MANAGEMENT REPORTS REVIEW. Review the regular internal reports to
management and management's response.
4. FORM 10-QSB REVIEW; PRERELEASE OF EARNINGS REVIEW. If so requested by the
independent auditors or the Corporation's management, review with financial
management and the independent accountants the Form 10-QSB prior to its
filing and prior to the announcement of or release of earnings by
management to the public in the form of formal press release or otherwise.
The Chair of the Committee may represent the entire Committee for purposes
of this review.
5. INDEPENDENT ACCOUNTANT RECOMMENDATION. Recommend to the Board of Directors
the selection of the independent accountants, considering independence and
effectiveness and approve the fees and other compensation to be paid to the
independent accountants, and, if appropriate, to replace the independent
auditors. On an annual basis, the Committee should review and discuss with
the accountants all significant relationships the accountants have with the
Corporation to determine the accountant's independence. The Committee shall
have a clear understanding with management and the independent auditors
that the independent auditors are ultimately accountable to the Board and
the Committee, as representatives of the Corporation's shareholders.
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6. INDEPENDENT ACCOUNTANT PERFORMANCE AND RETENTION REVIEW. Review the
performance of the independent accountants and approve any proposed
discharge of the independent accounts when circumstances warrant.
7. INDEPENDENT ACCOUNTANTS CONSULTATIONS. Periodically consult with the
independent accountants out of the presence of management about internal
controls and the fullness and accuracy of the organization's financial
statements.
8. FINANCIAL REPORTING PROCESS REVIEW. In consultation with the independent
accountants, review the integrity of the organization's financial reporting
processes, both internal and external.
9. ACCOUNTING PRINCIPLES REVIEW. Consider the judgments of independent
accountant and management, including the Chief Executive Officer, Chief
Financial Officer, and General Counsel, about the quality and
appropriateness of the Corporation's accounting principles as applied in
its financial reporting.
10. AUDITING AND ACCOUNTING PRINCIPLES CHANGES AND PRACTICE. Consider and
approve, if appropriate, major changes to the Corporation's auditing and
accounting principles and practice as suggested by the independent
accountants or management.
11. SYSTEMS OF REPORTING MANAGEMENT JUDGMENT. Establish regular and separate
systems of reporting to the Audit Committee by each of management and the
independent accountants regarding any significant judgments made in
management's preparation of the financial statements and the view of each
as to appropriateness of such judgments.
12. ANNUAL AUDIT PLAN, SCOPE AND REVIEW. Prior to undertaking the annual audit,
the Committee shall discuss with management and the independent auditors
the overall scope and plans for the audit, including the adequacy of
staffing and the compensation to be paid to the independent auditors.
Following completion of the annual audit, review separately with each of
management and the independent accountants any significant difficulties
encountered during the course of the audit, including any restrictions on
the scope of work or access to required information. The Committee shall
discuss the results of the annual audit and any other matters required to
be communicated to the Committee by the independent auditors under
generally accepted auditing standards, including SAS No. 61, as such may be
amended or supplemented.
13. SIGNIFICANT DISAGREEMENT REVIEW. Review any significant disagreement among
management and the independent accountants in connection with the
preparation of the financial statements.
14. FINANCIAL ACCOUNTING PRACTICE IMPROVEMENTS, CHANGES AND IMPLEMENTATION
REVIEW. Review with the independent accountants and management the extent
to which changes or improvements in financial or accounting practices, as
approved by the Audit Committee, have been implemented. (This review should
be conducted at an appropriate time subsequent to implementation of changes
or improvements, as decided by the Committee.)
15. LEGAL COMPLIANCE REVIEW. Review with the organization's legal counsel,
legal compliance matters including corporate securities trading policies.
16. SIGNIFICANT LEGAL MATTERS REVIEW. Review with the organization's counsel,
any legal matter that could have a significant impact on the organization's
financial statements, the Corporation's compliance policies, and any
material reports or inquiries received from regulators or governmental
agencies.
17. ANNUAL SHAREHOLDERS MEETING PROXY STATEMENT. Prepare the report required by
the rules of the Securities and Exchange Commission to be included in the
Corporation's Proxy Statement to be delivered to shareholders in connection
with the Corporation's annual meeting of shareholders.
18. PERFORM ACTIVITIES NECESSARY AND APPROPRIATE. Perform any other activities
consistent with this Charter, the Corporation's By-laws and governing law,
as the Committee or the Board deems necessary or appropriate.
With respect to the foregoing responsibilities and processes, the Committee
recognizes that the Corporation's financial management as well as the
independent auditors have more time, knowledge, and more detailed information
regarding the Corporation than do Committee members. Consequently, in
discharging its oversight
A-4
responsibilities, the Committee will not provide or be deemed to provide any
expertise or special assurance as to the Corporation's financial statements or
any professional certification as to the independent auditors' work. While the
Committee has the responsibilities and powers set forth in this Charter, it is
not the duty of the Committee to plan or conduct audits or to determine that the
Corporation's financial statements are complete and accurate and are in
accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditors. Nor is it the duty of
the Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditors, or to assure compliance with
laws and regulations and the Corporation's internal policies and procedures.
Dated: August 10, 2000
A-5
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
H.E.R.C. PRODUCTS INCORPORATED
2001 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of H.E.R.C. PRODUCTS INCORPORATED, a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement of the Company, each dated May 10,
2001, and hereby appoints S. Steven Carl and John Gulick, and each of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
2001 Annual Meeting of Stockholders of H.E.R.C. PRODUCTS INCORPORATED, to be
held on Thursday, June 7, 2001, at 10:00 a.m., local time, at the Country Inn &
Suites, 20221 North 29th Avenue, Phoenix, Arizona, and at any adjournment or
adjournments thereof, and to vote all shares of common stock that the
undersigned would be entitled to vote if then and there personally present on
the matters set forth on the reverse side of this proxy card.
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
FOR all nominees WITHHOLD AUTHORITY
listed at right to vote for all nominees
(except as indicated) listed at right NOMINEES:
1. ELECTION OF [ ] [ ] S. Steven Carl
DIRECTORS: Salvatore DiMascio
R. John Armstrong
Robert Affholder
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name in the list at right.
2. Proposal to ratify the appointment of Arthur Andersen LLP as the
independent auditors of the Company for the fiscal year ending December 31,
2001.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
and upon such matters that may properly come before the meeting or any
adjournment or adjournments thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF DIRECTORS; FOR THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY;
AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE
MEETING.
A majority of such attorneys-in-fact or substitutes as shall be present and
shall act at said meeting or any adjournment or adjournments thereof (or if only
one shall be present and act, then that one) shall have and may exercise all of
the powers of said attorneys-in-fact hereunder.
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
Signature Dated: , 2001
----------------------------------------- -------------
-----------------------------------------
Signature if held jointly
NOTE: (THIS PROXY SHOULD BE DATED, SIGNED BY THE STOCKHOLDER(S) EXACTLY AS HIS
OR HER NAME APPEARS HEREON, AND RETURNED PROMPTLY IN THE ENCLOSED
ENVELOPE. PERSONS SIGNING IN A FIDUCIARY CAPACITY SHOULD SO INDICATE. IF
SHARES ARE HELD BY JOINT TENANTS OR AS COMMUNITY PROPERTY, BOTH
STOCKHOLDERS SHOULD SIGN.)