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 Commission Only
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
H.E.R.C. Products Incorporated
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previously. Identify the previous filing by registration statement number,
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H.E.R.C. PRODUCTS INCORPORATED
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AUGUST 1, 2002
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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, August 1, 2002,
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 approve an amendment to our Performance Equity Plan to increase the
number of shares of our common stock reserved for issuance pursuant to the plan
from 1,000,000 to 4,000,000.
3. To ratify the appointment of McGladrey & Pullen LLP as our independent
auditors for the fiscal year ending December 31, 2002.
4. 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 June 14, 2002 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,
Phoenix, Arizona S. Steven Carl
June 17, 2002 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, August 1,
2002, 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 June
18, 2002, to all stockholders entitled to vote at the meeting.
Voting Securities and Voting Rights
Stockholders of record at the close of business on June 14, 2002 are
entitled to notice of and to vote at the meeting. On the record date, there were
outstanding 11,944,872 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 to approve the amendment to our
Performance Equity Plan and to ratify the appointment of McGladrey & Pullen LLP
as our independent auditors for the fiscal year ending December 31, 2002.
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; (2) "for" approval of the amendment to the Performance Equity Plan to
increase the number of shares of common stock reserved for issuance pursuant to
that plan; and (3) "for" the ratification of the appointment of McGladrey &
Pullen LLP as our independent auditors for the fiscal year ending December 31,
2002.
Revocability of Proxies
Any person giving a proxy may revoke the proxy at any time before its use
by
o delivering to us written notice of revocation;
o delivering to us a duly executed proxy bearing a later date; or
o 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 2001 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, 2001 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.
2
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................. 44 Chairman of the Board of Directors, Chief Executive
Officer, and President
R. John Armstrong.............. 58 Director
Robert Affholder............... 66 Director
John B. Furman................. 58 Director
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.
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.
John B. Furman has been a director of our company since May 2002. Since
January 2000, Mr. Furman was a Crisis Management Consultant working with the
boards of various Phoenix, Arizona based publicly traded companies. From
November 1998 until January 2000, Mr. Furman was President, Chief Executive
Officer, and a Director of Rural Metro Corporation, a public company and a
provider of emergency and fire protection services. From 1983 until November
1998, Mr. Furman was a Senior Member and Chairman of the business law and
financial services group of O'Connor, Cavanagh, Anderson, Killingsworth and
Beshears. From April 1978 until December 1983, Mr. Furman was Associate General
Counsel for Waste Management, Inc.
3
Meetings and Committees of the Board of Directors
Our board of directors held six meetings during the fiscal year ended
December 31, 2001. Mr. Affholder attended fewer than 75% of the aggregate of (i)
the total number of meetings of our board of directors held during fiscal year
2001 and (ii) the total number of meetings held by all committees of our board
of directors on which such person served during fiscal year 2001.
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. Armstrong, Affholder, and Furman,
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 Performance Equity Plan and 1993
Incentive Stock Option 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:
o $1,500 semi-annually on the first day of the second and fourth
quarters following such election;
o $1,000 for personal attendance at duly convened quarterly meetings of
our board; and
o $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.
4
EXECUTIVE COMPENSATION
Summary of Cash and Other Compensation
The following table sets forth certain information concerning the
compensation for the years ended December 31, 1999, 2000, and 2001 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, 2001.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
--------------------------------
Awards
--------------------------------
Restricted Securities
Name and Stock Underlying All Other
Principal Positions Year Salary(1) Bonus Awards(2) Options(3) Compensation(4)
- ------------------- ---- --------- ----- --------- ---------- ---------------
S. Steven Carl............... 2001 $140,233 $25,000 -- 125,000 $9,285
Chairman of the Board, Chief 2000 129,706 13,600 -- -- 8,155
Executive Officer, and 1999 122,469 11,444 $16,500 -- 6,356
President
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(1) Mr. Carl also received certain perquisites, the value of which did not
exceed 10% of his salary and bonus during fiscal 2001.
(2) The awards of restricted stock are calculated by multiplying the closing
market price of our common stock on the date of grant by the number of
shares awarded. In connection with his employment agreement, Mr. Carl was
granted 50,000 shares of restricted common stock at fair market value.
(3) The exercise prices of all stock options granted were equal to the fair
market value of our common stock on the date of grant.
(4) Other compensation consists of 401(k) plan matching contributions and an
automobile allowance.
Option Grants
The following table provides information on stock options granted to Mr.
Carl during the fiscal year ended December 31, 2001.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
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Percent of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- ------------------------------------------------- ------------- --------------- ---------- ------------
S. Steven Carl............................... 50,000(1) 10.4% $ 0.19 3/29/11
75,000(2) 15.6% $ 0.10 11/01/11
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(1) All of the options vested and became exercisable on March 29, 2001.
(2) All of the options vested and became exercisable on November 1, 2001.
5
Year-end Option Holdings
The following table provides information with respect to options held by
Mr. Carl as of December 31, 2001. Mr. Carl did not exercise options during the
year ended December 31, 2001.
OPTIONS HELD AS OF DECEMBER 31, 2001
Number of Securities
Underlying Unexercised
Options at Fiscal Year-End
-----------------------------------
Name Exercisable Unexercisable
- ------------------------------------------------------------------------------- -------------- -----------------
S. Steven Carl(1).......................................................... 362,500 --
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(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 or equal to $0.10 per share, which was the closing sales
price of our common stock as quoted on the OTCBB on December 31, 2001.
Employment Agreement
During June 2001, we entered into an employment agreement with S. Steven
Carl. The employment agreement has an initial term through June 15, 2002, 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 $145,000. 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 $25,000
during fiscal 2001. 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.
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.
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.
6
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 May 24, 2002, 80,000 shares of our common stock had been issued
upon direct grant under the plan or upon exercise of options granted under the
plan, and there were outstanding options to acquire 865,000 shares of our common
stock. As of May 24, 2002, 55,000 shares remained available for issuance under
the plan. The plan will remain in effect until no further grants can be made and
no awards remain outstanding, however, incentive stock options may only be made
through May 2006. During 2002, our board of directors amended the plan to
increase the number of shares that may be issued under the plan to 4,000,000,
subject to stockholder approval at the meeting. See "Proposal to Approve the
Amendment to the Performance Equity Plan."
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 May 24, 2002, 10,000 shares of our common stock had
been issued upon exercise of
7
options granted under the plan, and there were outstanding options to acquire
242,500 shares of our common stock under the plan. As of May 24, 2002, 97,500
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 through exercise of options granted
under the plan; (b) October 2003; or (c) such earlier date as our board of
directors may determine.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information with respect to our common
stock, as of December 31, 2001, that may be issued upon the exercise of stock
options, warrants, and rights under our Performance Equity Plan, our 1993
Incentive Stock Option Plan, and other individual compensation arrangements.
(c)
(a) Number of Securities
Number of Securities (b) Remaining Available for
to be Issued Upon Weighted Average Future Issuance Under
Exercise of Exercise Price of Equity Compensation Plans
Outstanding Options, Outstanding Options, (Excluding Securities
Plan Category Warrants, and Rights Warrants, and Rights Reflected in Column (a))
- ------------------------------- ----------------------- ----------------------- ----------------------------
Equity Compensation
Plans Approved by
Stockholders............. 1,148,700 $0.27 111,300
Equity Compensation
Plans Not Approved by
Stockholders(1).......... 917,500 $1.36 --
Total.................... 2,066,200 111,300
(1) In connection with services rendered to our company, we have issued
warrants and options to purchase 917,500 shares of our common stock. Each
warrant or option entitles the holder to purchase at any time before the
expiration of the warrant or option, a specified number of shares of common
stock at a certain exercise price. The warrants and options listed will
expire on or before December 1, 2005 and have exercise prices ranging from
$0.22 to $2.00.
8
REPORT OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
The Board of Directors of our company 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 the 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 year
2001.
Based on the reviews and discussions referred to above, the committee
recommended to the Board of Directors, and the Board approved, that the audited
financial statements be included in the Annual Report on Form 10-KSB for the
year ended December 31, 2001 for filing with the Securities and Exchange
Commission. The committee and the 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."
The Board of Directors has adopted a written charter for the Audit
Committee.
Dated: May 31, 2002 John B. Furman
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, 2001, 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 beneficial
owner of more than 10% of our common stock complied with all Section 16(a)
filing requirements during such fiscal year.
9
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 June 14, 2002 by (i) each
director; (ii) the executive officer 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.
Name(1) Number of Shares(2) Percent(2)
- ----------------------------------------------- --------------------------------- --------------------------
Directors and Executive Officers
S. Steven Carl.............................. 880,209(3) 7.2%
R. John Armstrong........................... 182,318 1.5%
Robert Affholder............................ 99,613 *
John B. Furman.............................. -- --
Directors and executive officers as a group
(6 persons)............................... 1,834,340(4) 14.6%
Non-management 5% Stockholders
Lance Laifer................................ 3,375,516(5) 28.3%
Norman H. Pessin............................ 985,000(6) 8.3%
Shelby Carl................................. 638,470(7) 5.3%
- -------------------------
* 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 11,944,872 shares of common
stock outstanding on June 14, 2002. The numbers and percentages shown
include the shares of common stock actually owned as of June 14, 2002 and
the shares of common stock that the person or group had the right to
acquire within 60 days of June 14, 2002. 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 June 14, 2002 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 362,500 shares of common stock issuable upon exercise of stock
options.
(4) Includes 639,000 shares of common stock issuable upon exercise of stock
options and warrants.
(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 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
10
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.
PROPOSAL TO APPROVE THE AMENDMENT TO
THE PERFORMANCE EQUITY PLAN
Our board of directors has approved a proposal to amend our Performance
Equity Plan, subject to approval by our stockholders. See "Executive
Compensation - Performance Equity Plan" for a description of the material terms
of the plan.
The plan is intended to attract, retain, and motivate directors, employees,
and consultants who provide valuable services to our company by providing them
with the opportunity to acquire a proprietary interest in our company and to
link their interests and efforts to the long-term interests of our stockholders.
Currently, the plan authorizes the issuance of 1,000,000 shares of common stock.
As of May 24, 2002, we had issued an aggregate of 80,000 shares of common stock
upon direct grant under the plan or upon exercise of options granted pursuant to
the plan, there were outstanding options to acquire 865,000 shares of common
stock, and an additional 55,000 shares remained available for grant under the
plan. During 2002, our board of directors amended the plan to increase the
number of shares that may be issued under the plan to 4,000,000 shares of common
stock. If the proposal to amend the plan is approved by the stockholders at the
meeting, as of May 24, 2002, the number of shares available for grant under the
plan would increase to 3,055,000. Our board of directors has determined that an
increase is necessary to provide a sufficient number of shares to enable our
company to continue to attract, retain, and motivate our directors, employees,
and consultants by making additional shares available for grant under the plan.
Our board of directors believes it is in the best interests of our company to
amend the plan. Accordingly, our board of directors recommends a vote "FOR" the
proposal to amend the plan.
Reasons for and Effect of the Proposed Amendment
Our board of directors believes that the approval of the proposed amendment
to the plan is necessary to achieve the purposes of the plan and to promote the
welfare of our company and our stockholders generally. As described above, if
the proposal is not approved by our stockholders, we will only have 55,000
shares available for grant under the plan. We do not believe that amount of
shares will be sufficient for us to grant equity compensation to our officers,
directors, and key employees for the next few fiscal years. Our board of
directors also believes that the proposed amendment to the plan will aid our
company in attracting and retaining officers and key employees and motivating
such persons to exert their best efforts on behalf of our company. In addition,
we expect that the proposed amendment will further strengthen the identity of
interests of the officers and key employees with that of our stockholders.
Ratification by Stockholders of the Amendment to the Performance Equity Plan
Approval of the amendment to the plan will require the affirmative vote of
the holders of a majority of the outstanding shares of our common stock present
in person or by proxy at the meeting. In the event that the amendment to the
plan is not approved by our stockholders, the plan will remain in effect as
previously adopted.
11
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Our board of directors has appointed McGladrey & Pullen LLP, independent
public accountants, to audit our consolidated financial statements for the
fiscal year ending December 31, 2002 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 McGladrey & Pullen 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.
Aggregate fees billed to our company for the fiscal year ended December 31,
2001 by our principal accounting firm, McGladrey & Pullen LLP, are as follows:
Audit Fees..................................................................... $ 25,000
Financial Information Systems Design and Implementation Fees................... $ --
All Other Fees................................................................. $ 6,000
The members of our audit committee believe that the non-audit services
provided by McGladrey & Pullen LLP, referenced above in "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
year 2003 must be received by us no later than February 18, 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 year 2003, except in
circumstances where (a) we receive notice of the proposed matter no later than
May 4, 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: June 17, 2002
12
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
H.E.R.C. PRODUCTS INCORPORATED
2002 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 June 17,
2002, 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
2002 Annual Meeting of Stockholders of H.E.R.C. PRODUCTS INCORPORATED, to be
held on Thursday, August 1, 2002, 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
WITHHOLD
FOR all nominees AUTHORITY
listed at right (except to vote for all nominees
as indicated) listed at right Nominees:
1. ELECTION
OF |_| |_| John B. Furman
DIRECTORS: S. Steven Carl
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 amend the Company's Performance Equity Plan to increase the
number of shares of the Company's common stock that may be purchased under
that plan.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Proposal to ratify the appointment of McGladrey & Pullen LLP as the
independent auditors of the Company for the fiscal year ending December 31,
2002.
|_| 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 PROPOSAL TO AMEND THE
COMPANY'S PERFORMANCE EQUITY PLAN; FOR THE RATIFICATION OF THE APPOINTMENT OF
MCGLADREY & PULLEN 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: , 2002
--------------------------------- ---------------------------------------- -----------------
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.)