As filed with the Securities and Exchange Commission on August 8, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
HERTZ TECHNOLOGY GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
---------------
Delaware 3570 13-3896069
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification
Incorporation or Organization) Code Number) Number)
325 Fifth Avenue, New York, New York 10016-5012
(212 684-4141
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Executive Offices)
-----------
ELI E. HERTZ
Chairman, President and Chief Executive Officer
Hertz Technology Group, Inc.
325 Fifth Avenue
New York, New York 10016-5012
(212) 684-4141
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code of Agent for Service)
-----------
with a copy to:
HOWARD L. WEINREICH, ESQ. STEVEN WASSERMAN, Esq.
Morse, Zelnick, Rose & Lander, LLP Bernstein & Wasserman, LLP
450 Park Avenue 950 Third Avenue
New York, New York 10022 New York, New York 10022
(212) 838-4312 (212) 826-0730
(212) 838-9190 (FAX) (212) 371-4730 (FAX)
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement
becomes effective.
-----------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. |_|
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<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
Title of Each Class of Amount Being Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Aggregate Registration Fee
Per Share (1) Offering Price (1)
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<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share,(2) 1,265,000 $5.00 $6,325,000 $2,181.03
- ----------------------------------------------------------------------------------------------------------------------------
Redeemable Warrants to purchase Common 2,530,000 $.25 $632,500 218.10
Stock(3)(5)
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Common Stock issuable upon exercise of
Redeemable Warrants 2,530,000 $5.50 $13,915,000 $4,798.28
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Underwriters Option 110,000 $.001 $110 (4)
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Common Stock issuable upon exercise of
Underwriter's Option (5) 110,000 $6.00 $660,000 $227.59
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Redeemable to Warrants issuable on
exercise of Underwriter's Options 220,000 $.30 $66,000 $22.76
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Common Stock issuable upon exercise of
Redeemable Warrants issuable upon
exercise of Underwriter's Warrant 220,000 $5.50 $1,210,000 $417.24
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Common Stock to be sold by Selling 750,000 $5.00 $3,750,000 $1,293.10
Shareholders
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Total Registration Fee $9,158.10
============================================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act.
(2) Includes 165,000 shares of Common Stock issuable upon exercise of the
Underwriter's Over-Allotment Option.
(3) Includes 330,000 Redeemable Warrants issuable upon exercise of the
Underwriter's Over-Allotment Option.
(4) No registration fee required pursuant to Rule 457 under the Securities Act.
(5) Pursuant to Rule 416 of the Securities Act, there are also being registered
hereby such additional indeterminate number of Common Shares as may become
issuable pursuant to the anti-dilution provisions of the Redeemable
Warrants and the Underwriter's Warrants.
-----------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
CROSS-REFERENCE SHEET
(Showing Location in the Prospectus of Information
Required by Items 1 through 23, Part I of Form SB-2)
<TABLE>
<CAPTION>
Item and Caption in Form SB-2 Location in Prospectus
----------------------------- ----------------------
<S> <C> <C>
1. Front of SB-2 Registration Statement and
Outside Cover Page of Prospectus.................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front
Cover Page; Outside Back Cover Page
3. Summary Information and Risk Factors.............. Prospectus Summary; Risk Factors
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................... Outside Front Cover Page of Prospectus; Risk Factors;
Underwriting
6. Dilution.......................................... Risk Factors; Dilution
7. Selling Security-Holders.......................... Not Applicable
8. Plan of Distribution.............................. Outside Front Cover Page; Inside Front Cover Page;
Underwriting
9. Legal Proceedings................................. Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons................................... Risk Factors; Management
11. Security Ownership of Certain Beneficial Owners
and Management.................................... Risk Factors; Management; Principal Shareholders
12. Description of Securities......................... Description of Securities; Underwriting
13. Interests of Named Experts and Counsel............ Legal Matters
14. Disclosure of Commission Position of
Indemnification for Securities Act Liabilities.... Risk Factors; Management
15. Organization within Last Five Years............... The Company, Reorganization and Final Partnership
and S Corporation Distribution; Certain Transactions
16. Description of Business........................... Summary; Management's Discussion and Analysis of
Financial Condition and Plan of Operation; Business
17. Management's Discussion and Analysis of Plan
of Operation...................................... Management's Discussion and Analysis of Financial
Condition and Plan of Operations
18. Description of Property........................... Prospectus Summary; Management's
Discussion and Analysis of Financial Condition;
Business
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
19. Certain Relationships and Related Party
Transactions...................................... The Company; Reorganization and Final Partnership
and S Corporation Distribution; Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters............................... Outside Front Cover Page of; Prospectus
Summary; Risk Factors; Dividend Policy; Underwriting
21. Executive Compensation............................ Management
22. Financial Statements.............................. Financial Statements
23. Changes and Disagreements with Accountants
on Accounting and Financial Disclosure............ Not Applicable
</TABLE>
<PAGE>
EXPLANATORY NOTE
This registration statement (the "Registration Statement") contains two
prospectuses: one relating to this Offering of 1,100,000 Shares of Common Stock
(the "Shares") and 2,200,000 Class A Warrants by Hertz Technology Group, Inc.
(the "Company"), plus 165,000 Shares and 330,000 Warrants to cover
over-allotments, if any (the "Prospectus"), and one relating to the Offering of
750,000 Shares (the "Selling Shareholder Shares"), held by the two principal
shareholders of the Company (the "Selling Shareholder Prospectus"). Following
the Prospectus are certain substitute pages of the Selling Shareholder
Prospectus, including alternate front outside and back cover pages, an alternate
"The Offering" section of the "Prospectus Summary" and sections entitled
"Concurrent Offering" and "Plan of Distribution." Each of the alternate pages
for the Selling Shareholder Prospectus included herein is labeled "Alternate
Page for Selling Shareholder Prospectus." All other sections of the Prospectus,
other than "Underwriting", are to be used in the Selling Shareholder Prospectus.
In addition, cross-references in the Prospectus will be adjusted in the Selling
Shareholder Prospectus to refer to the appropriate sections.
<PAGE>
PROSPECTUS
1,100,000 Shares of Common Stock
2,200,000 Class A Warrants
HERTZ TECHNOLOGY GROUP, INC.
Hertz Technology Group, Inc. ("Company"), a Delaware corporation, is
offering 1,100,000 shares of common stock, $.001 par value per share ("Shares"),
and 2,200,000 redeemable Class A Warrants ("Class A Warrants" or "Warrants").
The Shares and Class A Warrants are sometimes collectively referred to as the
"Securities". The Shares and Class A Warrants may only be purchased together on
the basis of one Share and two Class A Warrants at initial offering prices of
$5.00 per Share and $.25 per Class A Warrant. See "Risk Factors" and
"Description of Securities."
The Class A Warrants shall be exercisable commencing one year after the
date of this Prospectus ("Effective Date"). Each Class A Warrant entitles the
holder to purchase one Share at $5.50 per share during the four year period
commencing one year from the Effective Date. The Class A Warrants are redeemable
by the Company for $.01 per Warrant, if the average closing price or bid price
of the Shares, as reported by the principal exchange on which the Shares are
traded, equals or exceeds $8.75 per share, for any twenty (20) consecutive
trading days ending within five (5) days prior to the date of the notice of
redemption. See "Description of Securities."
The Company has applied for inclusion of the Shares and Class A Warrants on
the Nasdaq SmallCap Market, although there can be no assurance that such
securities will be accepted for quotation or, if accepted, that an active
trading market will develop. Additionally, if the Company's Securities are
accepted for quotation and active trading develops, the Company is required to
maintain certain minimum criteria established by Nasdaq and there can be no
assurance that the Company will be able to continue to fulfill such criteria.
See "Risk Factors."
The registration statement of which this Prospectus is a part also covers
the offering of 750,000 Shares, 375,000 of which are being offered by Eli E.
Hertz, Chairman, President and Chief Executive Officer of the Company, and
375,000 of which are being offered by his wife I. Marilyn Hertz, Vice
Chairperson and a director of the Company (Mr. and Mrs. Hertz are sometimes
hereinafter referred to as the "Selling Shareholders"). Of the 750,000 Shares
being offered by the Selling Shareholders, 225,000 shares may be sold during the
twelve (12) months from the Effective Date at such time within such 12 month
period as is acceptable to Biltmore Securities, Inc. (the "Underwriter") and the
balance, consisting of 525,000 Shares, may be sold at any time after the
expiration of eighteen (18) months from the Effective Date, subject to earlier
release at the sole discretion of the Underwriter. Certificates evidencing these
securities will bear a legend reflecting such restrictions. The Underwriter may
release the Securities held by the Selling Shareholders at any time after all
Securities subject to the Over-Allotment Option (as hereinafter defined) have
been sold or such option has expired. The Underwriter's Over-Allotment Option
period will expire thirty (30) days following the date of this Prospectus. In
other offerings where Biltmore Securities, Inc. has acted as the managing
underwriter, it has released similar restrictions applicable to selling
shareholders prior to the expiration of the lock-up period and in some cases
immediately after the exercise of the Over-Allotment Option or the expiration of
the Over-Allotment Option period. The resale of the Securities held by the
Selling Shareholders is subject to prospectus delivery and other
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<PAGE>
requirements of the Securities Act of 1933, as amended (the "Securities Act").
Sales of such securities or the potential for such sales at any time may have an
adverse effect on the market prices of the securities offered hereby. See
"Selling Shareholders."
Prior to this offering, there has been no public market for the Shares or
Class A Warrants. The prices of the Shares and Class A Warrants, as well as the
exercise price of the Class A Warrants, have been determined by negotiations
between the Company and the Underwriter, and does not necessarily bear any
relationship to the Company's assets, book value, net worth or results of
operations or any other established criteria of value. For additional
information regarding the factors considered in determining the initial public
offering price of the Securities and the exercise price of the Class A Warrants,
see "Risk Factors - Arbitrary Offering Price," "Description of Securities" and
"Underwriting."
The Company does not presently file reports and other information with the
Securities and Exchange Commission ("Commission"). However, following the
completion of this offering, the Company intends to furnish its shareholders
with annual reports containing audited financial statements and such interim
reports, in each case as it may determine to furnish or as may be required by
law.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE SHARES AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS", WHICH BEGINS ON PAGE _____ , AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Underwriting Discounts Proceeds to the
Price to Public and Commissions (1) Company (2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit ............................. $5.00 $.50 $4.50
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Per Class A Warrant ................... $.25 $.025 $.225
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Total (3) ............................ $6,050,000 $605,000 $5,445,000
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</TABLE>
The securities are offered by the Underwriter subject to prior sale when,
as and if delivered to and accepted by the Underwriter, and subject to the
Underwriter's right to reject orders in whole or in part and to certain other
conditions. It is expected that delivery of certificates representing the Shares
and Class A Warrant will be made on or about __________, 1996.
-----------------------------
BILTMORE SECURITIES, INC.
The date of this Prospectus is __________, 1996
2
<PAGE>
NOTES
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a nonaccountable expense allowance of $181,500 (or
$208,725 if the Underwriter's Over-Allotment Option (as defined below) is
fully exercised); and (ii) an option (exercisable for a period of four
years commencing one year after the Effective Date) entitling the
Underwriter to purchase 110,000 Shares at $6.00 per Share and 220,000 Class
A Warrants at $.30 per Class A Warrant ("Underwriter's Purchase Option").
In addition, the Company and the Underwriter have agreed to the indemnity
and contribution provisions regarding certain civil liabilities, including
liabilities under the Securities Act. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company, estimated
at $550,000, including the Underwriter's nonaccountable expense allowance.
See "Underwriting."
(3) The Company has granted the Underwriter an option to purchase up to 165,000
additional shares and 330,000 Class A Warrants upon the same terms and
conditions as set forth above solely to cover over-allotments, if any
("Underwriter's Over-Allotment Option"). If the Underwriter's
Over-Allotment Option is exercised in full, the total Price to the Public,
Underwriting Discounts and Proceeds to the Company will be $6,957,500,
$695,750 and $6,261,750, respectively. See "Underwriting."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ALTHOUGH OTHER BROKER-DEALERS HAVE EXPRESSED AN INTENTION TO PARTICIPATE IN
THE OFFERING, ALL OR A SIGNIFICANT NUMBER OF THE SECURITIES TO BE SOLD IN THIS
OFFERING MAY BE SOLD, IN THE ORDINARY COURSE OF BUSINESS, TO CUSTOMERS OF THE
UNDERWRITER WHICH MAY AFFECT THE MARKET FOR AND LIQUIDITY OF THE COMPANY'S
SECURITIES IN THE EVENT THAT ADDITIONAL BROKER-DEALERS DO NOT MAKE A MARKET IN
THE COMPANY'S SECURITIES. ALTHOUGH OTHER BROKER-DEALERS HAVE EXPRESSED AN
INTENTION TO MAKE A MARKET IN THE COMPANY'S SECURITIES FOLLOWING THE OFFERING,
THERE CAN BE NO ASSURANCE THAT ANY OF SUCH BROKER-DEALERS WILL ACTUALLY COMMENCE
SUCH MARKET-MAKING ACTIVITIES OR, IF COMMENCED, THAT SUCH ACTIVITIES WILL BE
MAINTAINED. BASED UPON THE UNDERWRITER'S EXPERIENCE IN PAST OFFERINGS, IT IS
EXPECTED THAT SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS FOR THE
SALE OR PURCHASE OF THE SECURITIES COVERED THEREBY THROUGH AND/OR WITH THE
UNDERWRITER. NO AGREEMENTS OR UNDERSTANDINGS, WRITTEN OR ORAL, EXIST WITH
RESPECT TO THE PURCHASE OR RESALE OF THE SECURITIES TO BE SOLD IN THIS OFFERING
THROUGH OR WITH THE UNDERWRITER AND/OR ITS AFFILIATES.
ALTHOUGH IT HAS NO OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM TIME TO
TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
SECURITIES. THE UNDERWRITER, IF IT PARTICIPATES IN THE MARKET, MAY BECOME A
DOMINATING INFLUENCE IN THE MARKET FOR THE SHARES AND CLASS A WARRANTS. HOWEVER,
THERE IS NO ASSURANCE THAT THE UNDERWRITER WILL OR WILL CONTINUE TO BE A
DOMINATING INFLUENCE. THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED
HEREUNDER MAY BE SIGNIFICANTLY AFFECTED BY THE DEGREE OF THE UNDERWRITER'S
PARTICIPATION IN SUCH MARKET. THE UNDERWRITER MAY DISCONTINUE SUCH ACTIVITIES AT
ANY TIME OR FROM TIME TO TIME. SEE "RISK FACTORS-LACK OF PRIOR MARKET FOR
SECURITIES OF THE COMPANY" AND "UNDERWRITER'S INFLUENCE ON THE MARKET MAY HAVE
ADVERSE CONSEQUENCES."
3
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2, pursuant to the Securities Act, with respect to the securities offered by
this Prospectus. This Prospectus does not contain all of the information set
forth in said Registration Statement, and the exhibits thereto. For further
information with respect to the Company and the securities offered hereby,
reference is made to such Registration Statement and exhibits which may be
inspected without charge at the Commission's principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company intends to furnish its shareholders and holders of Class A
Warrants with annual reports containing audited financial statements and such
interim reports as it deems appropriate or as may be required by law. The
Company's fiscal year ends December 31.
The Company will provide without charge to each person who receives this
Prospectus, upon written or oral request of such person, a copy of any of the
information that is incorporated by reference herein (excluding exhibits) by
contacting the Company at Hertz Technology Group, Inc., 325 Fifth Avenue, New
York, New York 10016-5012, telephone (212) 684-4141, attention: Chief Financial
Officer.
4
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including information contained under the caption "Risk Factors,"
and financial statements, including notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information in this Prospectus (i)
assumes no exercise of the Class A Warrants offered hereby, the Over-Allotment
Option, the Underwriter Purchase Option, or any of the options issued to Mr.
Hertz or to employees of the Company and (ii) reflects the effect of the
Recapitalization described under "Certain Transactions" appearing elsewhere in
this Prospectus. As used herein, unless the context otherwise requires, the term
Company includes Hertz Computer Corporation (and its Israeli subsidiary, Hertz
Computer Information System (1985) Ltd.) ("Hertz Computer") and Hergo Ergonomic
Support Systems, Inc. ("Hergo").
The Company
The Company custom designs, assembles and sells microcomputers ("PCs") and
related technology services and support under the "Hertz" name. It also designs,
manufactures and sells ergonomically engineered mounting and support structures
("Modular Racking Systems") and technical furniture for microcomputers under the
"Hergo" name. Ergonomically engineered products are products that are designed
to take into consideration the characteristics of computer users and the manner
in which they and their computers interact with each other.
The Customized Computer and Related Services. The Company provides
customized computers and a broad range of related services, including computer
designs and system architecture, consulting services, installation, personnel
training and customer support. Computers are assembled in a number of different
configurations using standard component parts readily available in the market.
Customization enables the Company to accommodate the customers' needs and
desires with respect to storage capacity, speed, price, ability to work with
multiple applications at the same time, size, configuration and a myriad of
other considerations that can be accommodated in whole or in part by the
selection of appropriate components. The Company's computers are primarily sold
for use in a network configuration. Computers are also sold to OEM customers for
use in MRI machines, to provide voice mail services, for use in military radar
systems and for use in a number of shopping center kiosks with computers
programmed to enable prospective purchasers of music discs and tapes to select
and hear their musical selections prior to purchase.
Hergo Modular Racking Systems. The Company's Hergo Division designs and
manufactures space saving and modular racks to help organize all types of
computer hardware communication and electronic devices, peripherals and 19-inch
rack-mounting equipment for use in any size computer room or technical
environment. The market for these Modular Racking Systems was created in large
part by the replacement of mainframe computers by multiple microcomputers. The
Company provides a cohesive, functional and architecturally attractive racking
systems that would vertically mount and support multiple computers, servers and
related peripherals such as printers, monitors, scanners and modems used in
tandem with each other, or
5
<PAGE>
in juxtaposition with each other and interconnected for networking functions.
The purchasers of the Company's Modular Racking Systems include some of the
largest industrial, commercial and financial companies in the United States,
such as Citibank, N.A., AT&T, Dow Jones, Bell Atlantic, Pfizer, Hewlett Packard,
The New York Times and Time Warner.
The Company's strategic plan for the future consists of strengthening both
lines of its existing business by updating their respective physical facilities
and equipment and then extending their respective services into related business
areas. With respect to the computer business, the Company intends to develop a
pro-active national sales force, focus on developing business with the Federal
Government and expanding its OEM business. For the Hergo line, the Company plans
on bringing to market new and improved products including "Hergolite" and on
strengthening its relationships with its already impressive customer base. The
Company also plans on actively pursuing a cross marketing program between its
Computer Division and its Hergo Division with special emphasis on establishing
the Company as suppliers of computers to the blue chip customers of Hergo.
Finally, the Company plans on establishing a new division to offer a menu of
Internet services to its corporate clients.
The Company was incorporated in the State of Delaware, on June 18, 1996.
Immediately prior to the Effective Date, it will have acquired all the
outstanding stock of Hertz Computer and Hergo, which will become wholly owned
subsidiaries of the Company (the "Recapitalization"). The principal executive
offices of the Company are located at 325 Fifth Avenue, New York, New York
10016-5012 and its telephone number is (212) 684-4141. On or about September 1,
1996, the Company plans to move its New York facilities, including its executive
offices, to 75 Varick Street, New York, New York , 10013.
See "Risk Factors," "Management," "Business" and "Certain Transactions" for
a discussion of certain factors which should be considered in evaluating the
Company and its business.
The Offering
Securities Offered (1)................................... 1,100,000 Shares
2,200,000 Warrants
Securities outstanding prior to Offering ................ 1,900,000 Shares
0 Warrants
Securities outstanding after Offering (2)................ 3,000,000 Shares
2,200,000 Warrants
Comparative Shares Ownership Upon Completion of Offering:
Present Shareholders (1,900,000 Shares)(2)(3)... 63.3%
Public Shareholders (1,100,000 Shares)(3)....... 36.7%
Use of Net Proceeds...................................... Debt Retirement -29.2%
S Corporation distribution - 4.6%
Computer Marketing Program - 12.3%
Hergo Machinery - 10.2%
Hergo New Product Development - 8.2%
Establishment of Internet Services Division - 6.1%
Update Computer system - 5.1%
Hergo Marketing - 4.1%
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6
<PAGE>
- --------------------------------------------------------------------------------
Hertz Upgrade of new facility and production line - 6.0%
Working Capital - 14.2%
(See "Use of Proceeds)
Proposed Nasdaq Symbols
Common Stock............................................. HTGI
Class A Warrants......................................... HTGI(W)
- ---------
(1) The Company is offering 1,100,000 Shares at a price of $5.00 per Share and
Warrants at a price of $.25 per Warrant. The Shares and Warrants may only
be purchased together on the basis of one Share and two Warrants. Each
Warrant entitles the holder to purchase one Share at $5.50 per share during
the four year period commencing one year from the Effective Date. The
Warrants are redeemable upon certain conditions. Should the Warrants be
exercised, of which there is no assurance, the Company will receive the
proceeds therefrom aggregating up to an additional $12,100,000. See
"Description of Securities."
(2) Does not include Shares issuable upon the exercise of (i) the Warrants
offered hereby; (ii) the Underwriter's Over-Allotment Option to purchase up
to 165,000 Shares and 330,000 Warrants; (iii) the Underwriter's Purchase
Option to purchase up to 110,000 Shares and 220,000 Warrants; (iv) option
held by Eli E. Hertz to purchase 900,000 Shares; (vi) options to purchase
750,000 Shares reserved for issuance under the Company's Stock Option
Plan., or (vii) the issuance of 100,000 Shares reserved for issuance under
the Company's Employee Bonus Plan. See "Description of Securities."
(3) See "Dilution."
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Summary Financial Information
The summary financial information set forth below is derived from the more
detailed financial statements appearing elsewhere in this Prospectus. This
information should be read in conjunction with the financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operation appearing elsewhere in this Prospectus. The following
consolidated data, insofar as it relates to the years ended August 31, 1995 and
August 31, 1994, have been derived from audited financial statements and notes
thereto appearing elsewhere herein.
The data for the nine months ended May 31, 1996 and 1995 have been derived
from unaudited financial statements also appearing herein which, in the opinion
of management, include all adjustments, consisting of only normal, recurring
adjustments, necessary for a fair presentation of the results of operations for
the unaudited periods. The results of operations for the nine months ended May
31, 1996 and 1995 are not necessarily indicative of the results to be expected
for the entire year.
Hertz Technology Group, Inc.
<TABLE>
<CAPTION>
Hertz Technology Group, Inc.
-------------------------------------------------------
Nine Months ended Years ended
May 31, August 31
----------------- -----------
Consolidated Statements of
Operations Data: 1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 9,375,857 8,224,492 11,220,183 10,929,308
Cost of goods sold 6,532,666 6,117,860 8,102,977 8,386,365
Gross Profit 2,843,191 2,106,632 3,117,206 2,542,943
Selling, general & administrative expense 2,072,389 1,942,355 2,868,665 2,288,388
Other expense, net 138,790 96,372 116,813 44,946
Income before Provision for income taxes 632,012 67,905 131,728 209,609
Provision for income taxes 244,500 3,900 77,615 63,138
Net income 387,512 64,005 54,113 174,895
Net income per share $0.20 $0.03 $0.03 $0.09
Pro forma net income(1) 265,779 67,905
Pro forma net income per share $.014 $0.04 $0.03 $0.05
Weighted average number of shares outstanding
1,900,000 1,900,000 1,900,000 1,900,000
Supplementary net income per share(2) $0.16 -- $0.06 --
</TABLE>
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8
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Hertz Technology Group, Inc.
-----------------------------------
May 31, 1996
As
Consolidated Balance Sheet Data: Actual Adjusted(3)
------ -----------
Working Capital 546,750 5,441,750
Total Assets 3,388,212 6,615,081
Capital lease obligation 19,309 19,309
Distributions payable to shareholders 224,567 ---
Total Liabilities 2,484,301 816,170
Stockholders' Equity 903,911 5,798,911
- -----------------
(1) Pro forma net income reflects a provision for income taxes as if Hergo had
been a C Corporation through such period.
(2) Supplementary net income per share is calculated for the nine month period
ended May 31, 1996 as if $1,443,564 of interest bearing debt obligations
was repaid from the net proceeds of this Offering as of September 1, 1995
and assuming that (i) 288,713 Shares were issued as of September 1, 1995 to
repay the interest bearing debt obligations; (ii) $82,200 of interest
expense net of income tax expense was eliminated as a result of such
payment for the nine months ended May 31, 1996; and (iii) pro forma income
of $265,779 (as if Hergo was a C corporation for the nine months ended May
31, 1996) is the base utilized in the calculation of net income.
Supplementary net income per share is calculated for the year ended August
31, 1995 as if $1,559,743 of interest bearing debt obligations was repaid
from the net proceeds of this Offering as of September 1, 1994 and assuming
that (i) 311,949 Shares were issued as of September 1, 1994 to repay the
interest bearing debt obligations; and (ii) $74,385 of interest expense,
net of income tax expense, was eliminated as a result of such payment for
the twelve months ended August 31, 1995.
(3) Adjusted to reflect (i) the sale of Securities consisting of 1,100,000
Shares and 2,200,000 Warrants by the Company and the net proceeds therefrom
and the uses thereof (assuming an initial public offering price of $5.00
per Shares and $.25 per Warrant and after deducting the underwriting
discounts and commissions and expenses of this offering estimated at
$1,155,000), and (ii) the repayment of certain indebtedness from the use of
proceeds. Does not include the proceeds from the sale of Shares pursuant to
the exercise of any Warrants or Options including the Underwriter's
Purchase Option. See "Underwriting."
- --------------------------------------------------------------------------------
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RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY THOSE PERSONS ABLE TO LOSE THEIR ENTIRE INVESTMENT SHOULD PURCHASE
THESE SECURITIES. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION,
SHOULD CAREFULLY READ THIS PROSPECTUS AND CONSIDER, ALONG WITH OTHER MATTERS
REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS:
Highly Competitive Microcomputer Market - Pressure on Profit Margins.
The business of manufacturing and selling PCs is intensely competitive and
rapidly changing. The Company believes that the principal competitive factors in
the microcomputer sales and service industry include relative price and
performance, product availability, technical expertise, financial stability,
service, support and reputation. The Company's computers are constructed with
standardized parts which are available to others in the market. The Company's
competitors include established computer product manufacturers, some of which
supply products to the Company, computer resellers, distributors and service
providers. Some of the Company's current and potential competitors have
substantially greater financial, sales, marketing, technical and other
competitive resources than those of the Company. As a result, the Company's
competitors may be able to devote greater resources than the Company to the
sales and service of microcomputer products. As the computer market in which the
Company competes has matured, product price competition has intensified and is
likely to continue to intensify, which may make it too costly for the Company to
continue its "made to order" method of doing business. One of the results of
this competition may be to lower sale prices and decrease profit margins. A
significant portion of the Company's computer business is to governmental
agencies where sales will depend on government budgets and government contracts,
which contracts are subject to renewal on a periodic basis. There can be no
assurance that the Company will win bids in the future just because it won
similar bids in the past. The Company has been increasing its selling efforts in
the private commercial market and particularly in the OEM market where margins
are excepted to be higher. There can be no assurance, however, that the Company
will be successful in refocusing its computer business to the private commercial
market, or that it will be able to keep up with its competition and still
improve profit margins.
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Geographic and Customer Concentration; Risk of Expansion.
The Company's sales are concentrated in the New York metropolitan area.
Approximately 36% of the Company total sales in its 1995 fiscal year were to
federal, state and city agencies or government affiliated organizations,
including hospitals and schools ("Governmental Entities"). The Company is
seeking to expand its market for computer sales to include most of the United
States, and intends to specifically target OEM accounts where the markup is
generally expected to be higher than governmental and commercial accounts. While
the Hertz name is known by many prospective customers within its existing market
area, it has less name recognition outside of the New York metropolitan area.
Consequently, there is no assurance that the Company efforts will be successful.
A larger sales volume may require the Company to maintain larger storage
facilities, which it does not currently maintain, in order to stock completed
units pending shipment. The Company offers as one of its options on-site
servicing, and installation for its computer sales accounts. As it expands its
computer business, it might need to make arrangements either for its own newly
hired personnel, or with a third-party service provider outside of the
metropolitan area to provide on-site servicing. The transition of a company
servicing a regional area into a company servicing a large portion of the United
States will require the Company to make some adjustments in its methods of
operation and in its orientation and focus, which, if not effectively made,
could create serious obstacles to achieving a successful expansion.
Limited Operating History of Hergo's Product Line.
The Company's Hergo Division provides Modular Racking Systems and other
technical furniture to house and organize stand-alone or multiple computers and
electronic devices used in tandem or in juxtaposition with each other. The
market for these support systems was created in large part by the replacing of
main frame computers by microcomputers. Hergo's sales in its 1995 fiscal year
represented a significant increase over the prior year's sales. Moreover,
Hergo's profit margins historically have been higher than those obtained in the
computer business. There is no assurance, however, that growth in the Hergo
business or its gross profit margins will continue at the same pace as before,
if at all. In addition, as the impressive profit margins in this line of
business becomes better appreciated in the trade, there is every reason to
expect a larger number of companies to enter the field as competitors.
The Company intends to use Hergo's customer list, which includes some of
the largest and best known companies in America, to create cross marketing
opportunities to promote the Hertz computer line to these existing Hergo
customers. However, in many of these companies, the personnel charged with the
responsibility for purchasing computers are not the same as the personnel buying
the Hergo Modular Racking System, and many companies prefer to do their computer
business with larger better known companies. and such cross marketing potential
may never be realized. Moreover, there is no assurance that the companies that
have purchased Hergo products will continue to favor the Company with their
structural support units and technical furniture's needs. There are no long term
commitments from buyers in this business, and the
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Company has no significant back-log in this area. If for any of these reasons,
the Company is unable to realize on the potential which management sees in its
Hergo operations to date, the Company's overall profit margins and profits will
suffer and its projected growth may never materialize.
Israeli Laws--Changes in Importation Duty Taxes
A significant portion (17% in fiscal 1995) of the Company's total sales
were accounted for by sales to Israel. Such sales are subject not only to the
laws of the United States, but also to the laws and regulations of Israel.
Changes in existing laws, policies and conditions, or the implementation of new
laws or policies in the State of Israel could materially and adversely affect
the Company's results of operations. In 1995, for instance, the State of Israel
changed the Import Duty Tax Exemption, as a result of which Israeli customers
now find it more convenient to purchase computers locally. (See "1996 Loss in
Israeli Subsidiary.") To accommodate such customers, the Company now ships
computers for Israeli customers to the Israeli subsidiary, which then reships
such computers to the ultimate customers, a routing schedule which increases the
cost to the Company. Another risk involved in Israeli sales is that the proceeds
of sales to Israeli customers are subject to changes in currency exchange
valuations which could adversely affect profits from overseas sales.
Sales to Governmental Entities
A significant portion of the Company's sales is to Governmental Entities.
Because these sales are pursuant to contracts awarded by competitive bidding,
there is no assurance that notwithstanding a favorable past relationship with a
particular Government Entity that the Company will be the successful bidder in
future contracts with such Entity. Moreover, spending by Governmental Entitiesis
subject to budgetary constraints and is vulnerable to political challenges for
over spending and the like. The result is that projections based on continuing
governmental sales are often unreliable and any dependence by the Company on
continuing governmental business may have materially adverse consequences.
Lack of Proprietary Rights ; Trademarks
The Company relies on trade secret protection and confidentiality
agreements with its employees, customers and others to protect its proprietary
rights in both of its business lines. The Company's computers are manufactured
in a number of configurations using standardized component parts and accessories
built by others, and available in the market place for others to purchase and
use in assembling computers. The Hertz computer does not enjoy any patent
protection. Similarly, modular component parts used by the Company in its Hergo
Modular Racking Systems are functional in nature and for the most part not
protectable. This is the opinion of the Company's management even though the
Company is currently a defendant in a lawsuit in which the plaintiff claims that
Hergo's modular designs infringe plaintiff's common law rights thereto. See
"Legal Proceedings." Consequently, competitors of the Company, in one or both of
its product lines, may be able to replicate and improve on the Company's methods
of
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<PAGE>
doing business and those with greater resources than the Company may more
effectively market their products.
The Hertz trademark has not yet been registered on the principal Registrar
of the United States Patent and Trademark Office. Although application for such
mark has been made, the granting of such registration is being held in abeyance
pending resolution of a claim by a company using Hertz's name in a business
unrelated to the Company business. The Company plans to pursue this registration
and take whatever reasonable action may be necessary to insure its rights to the
Hertz name. However, even if the Company is successful in this effort, and there
can be no assurance that it will be, there is no assurance that such mark will
be enforceable against prior users even in areas where the Company now conducts
its business.
1996 Loss in Israel Subsidiary;
For the first nine months of fiscal 1996, the Company's Israeli subsidiary
had an operating loss of approximately $83,000. This loss is due in part to a
change in the Israeli Duty Importation Tax, as a result of which Israeli
customers now find it more convenient to purchase computers in Israel rather
than from the United States. The shipment of computers from New York to the
Israeli subsidiary for reshipment to the ultimate customer and the maintenance
of a computer inventory at the Israeli subsidiary now required by the changed
circumstances involves some increased expense which it may not be able to pass
on to the customer. The nine month loss also reflects severance payments and
other expenses incurred in connection with the buy-out of a minority interest in
replacing the general manager of the subsidiary. On a going forward basis, the
Company has established more effective cost controls and a better defined
organization , which the Company believes will help restore its Israel
operations to profitability. The Company also believes that the change in the
Israel Importation Tax will not materially affect sales. There cannot, however,
be any assurance that either of the above expectations will be confirmed, or
that the subsidiary's losses will not continue.
Immediate and Substantial Dilution
Immediately prior to the offering, the Company had a net tangible book
value of $862,327 or $.45 per share, derived from the Company's May 31, 1996
consolidated balance sheet and based upon 1,900,000 shares being outstanding
immediately prior to the closing of this offering. After projecting the effect
of the sale of the Shares and Warrants offered hereby at an assumed offering
price of $5.00 per Share and $.25 per Warrant after deducting underwriting
discounts and estimated offering expenses, adjusted net tangible book value
would have been $5,757,327 or $1.92 per share. The result will be an immediate
increase in net tangible book value per share of $1.47 to existing shareholders
and an immediate dilution to new investors of $3.08 per share (62%). See
"Dilution."
Litigation Involving Underwriter May Affect Securities
The Company has been advised by the Underwriter that on or about May 22,
1995, the Underwriter and Elliot Loewenstern and Richard Bronson, principals of
the Underwriter, and the
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<PAGE>
Commission agreed to an offer of settlement (the "Offer of Settlement") in
connection with a complaint filed by the Commission in the United States
District Court for the Southern District of Florida alleging violations of the
federal securities laws, Section 17(a) of the Securities Act of 1933, Section
10(b) and 15(c) of the Securities Exchange Act of 1934, and Rules 10b-5, 10b-6
and 15c1-2 promulgated thereunder. The complaint also alleged that in connection
with the sale of securities in three (3) IPO's in 1992 and 1993, the Underwriter
engaged in fraudulent sales practices. The proposed Offer of Settlement was
consented to by the Underwriter and Messrs. Loewenstern and Bronson without
admitting or denying the allegations of the complaint. The Offer of Settlement
was approved by Judge Gonzales on June 6, 1995. Pursuant to the final judgment
(the "Final Judgment"), the Underwriter:
o was required to disgorge $1,000,000 to the Commission, which amount
was paid in four (4) equal installments on or before June 22, 1995;
o agreed to the appointment of an independent consultant ("Consultant").
Such Consultant was obligated, on or before August 15, 1996:
o to review the Underwriter's policies, practices and procedures in six
(6) areas relating to compliance and sales practices;
o to formulate policies, practices and procedures for the Underwriter
that the Consultant deems necessary with respect to the Underwriter's
compliance and sales practices;
o to prepare a report devoted to and which details the aforementioned
policies, practices and procedures (the "Report");
o to deliver the Report to the President of the Underwriter and to the
staff of the Southeast Regional office of the Commission;
o to prepare, if necessary, a supervisory procedures and compliance
manual for the Underwriter, or to amend the Underwriter's existing
manual; and
o to formulate policies, practices and procedures designed to provide
mandatory on-going training to all existing and newly hired employees
of the Underwriter. The Final Judgment further provides that, within
thirty (30) days of the Underwriter's receipt of the Report, unless
such time is extended, the Underwriter shall adopt, implement and
maintain any and all policies, practices and procedures set forth in
the Report.
The Final Judgment also provides that an independent auditor ("Auditor")
shall conduct four (4) special reviews of the Underwriter's policies, practices
and procedures, the first such review to take place six (6) months after the
Report has been delivered to the Underwriter and thereafter at six-month
intervals. The Auditor is also authorized to conduct a review, on a random basis
and without notice to the Underwriter, to certify that any persons associated
with the Underwriter who have been suspended or barred by any Commission order
are complying with the terms of such orders.
On July 10, 1995, the action as against Messrs. Loewenstern and Bronson was
dismissed with prejudice. Mr. Bronson has agreed to a suspension from
associating in any supervisory
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<PAGE>
capacity with any broker, dealer, municipal securities dealer, investment
advisor or investment company for a period of twelve (12) months, dating from
the beginning of such suspension. Mr. Loewenstern has agreed to a suspension
from associating in any supervisory capacity with any broker, dealer, municipal
securities dealer, investment advisor or investment company for a period of
twelve (12) months commencing upon the expiration of Mr. Bronson's suspension.
In the event that the requirements of the foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Shares, and
additional brokers do not make a market in the Company's securities, the market
for, and the liquidity of, the Company's securities may be adversely affected.
In the event that other broker dealers fail to make a market in the Company's
securities, the possibility exists that the market for and the liquidity of the
Company's securities may be adversely affected to such an extent that public
security holders may not have anyone to purchase their securities when offered
for sale at any price. In such event, the market for, liquidity and prices of
the Company's securities may not exist. See "Underwriting." For additional
information regarding the Underwriter, investors may call the National
Association of Securities Dealers, Inc. at (800) 289-9999.
Recent State Action Involving the Underwriter--Possible Loss of Liquidity
The State of Indiana has commenced an action seeking among other things to
revoke the Underwriter's license to do business in such state. Such proceeding
if ultimately successful may adversely affect the market for and liquidity of
the Company's securities if additional broker dealers do not make a market in
the Company's securities. Moreover, should Indiana investors purchase any of the
securities sold in this offering from the Underwriter prior to the possible
revocation of the Underwriter's license in Indiana, such investors will not be
able to resell such securities in such state through the Underwriter but will be
required to retain a new broker dealer firm for such purpose. The Company cannot
ensure that other broker dealers will make a market in the Company's securities.
In the event that other broker dealers fail to make a market in the Company's
securities, the possibility exists that the market for and the liquidity of the
Company's securities may be adversely affected to an extent that public security
holders may not have anyone to purchase their securities when offered for sale
at any price. In such event, the market for, liquidity and prices of the
Company's securities may not exist. It should be noted that although the
Underwriter may not be the sole market maker in the Company's securities, it
will most likely be the dominant market maker in the Company's securities. See
"Underwriting."
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<PAGE>
Substantial Portion of Proceeds to be Used to Repay Indebtedness
Approximately 30% of the net proceeds of this offering, or $1,430,000, is
intended to be used to repay existing indebtedness of the Company. Of this
amount, approximately $326,000 will be used to repay Mr. and Mrs. Hertz for
advances and loans to the Company, and $895,000 will be used to pay down a bank
line from United Mizrachi Bank, which obligations of the Company have been
guaranteed by Eli E. Hertz. See "Use of Proceeds."
Dependence on Management
The Company's business is principally dependent on certain key management
personnel for the operation of its business. In particular, Eli E. Hertz has
played the primary role in the promotion, development and management of both
facets of the Company's business. The Company has entered into a five year
employment agreement with Mr. Hertz. Under this agreement, Mr. Hertz is to be
paid an annual salary of $225,000 per year. The Company is the owner and
beneficiary of a key-man life insurance on Mr. Hertz in the amount of $1
million. There can be no assurance, however, that the death of Mr. Hertz or his
departure from the Company for any reason would not have a materially adverse
effect on the operations of the Company. See "Business" and "Management."
Need to Develop Sales Force and Expand Employee Base
The Company's plan for the future contemplates the training and development
of a national sales organization to sell and service Hertz Computer's products.
Heretofore, most of the Company's computer sales activity have been confined to
process unsolicited orders by telephone. Consequently, the Company does not have
a core of experienced sales persons upon which to build a sales force. It is
committed to allocating a significant amount of money which it expects to obtain
from this Offering, to the hiring of a sales force, including a national sales
director of sufficient experience and stature, for the marketing and selling of
computers nationally. There can be no assurance, however, that any such sales
force developed by the Company will be successful in marketing and selling its
computers to an expanding geographic market.
The Company has approximately 58 employees as of July 1, 1996. This number
is expected to increase significantly in the next year as the Company expands
its manufacturing, sales and service operations. The Company's success depends
upon its ability to attract and retain highly qualified management and technical
personnel in addition to the national sales organization it is committed to
build. Competition for qualified employees is intense. In addition, the process
of locating needed personnel with the combination of skills and attributes
required to implement the Company's expansion plans may take more time than is
currently contemplated.
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Pending Litigation
The Company is a party to two pending suits one as a defendant and the
other as a plaintiff, in which the defendant has asserted a counterclaim seeking
a large amount of damage from the Company. Though the Company believes that the
outcome of these cases, taken together, will not have a materially adverse
effect on the Company, litigation results are often unpredictable and if a large
damage award were rendered against the Company in either case, the result could
adversely affect Company operations. See "Legal Proceedings."
Voting Control; Potential Anti-Takeover Effect
After giving effect to this offering (but without giving effect to the
sales of any securities by the Selling Shareholders), Mr. and Mrs. Hertz will
beneficially own over 50% of the outstanding Shares. Accordingly, they may, by
themselves, have sufficient Shares to be able to approve major corporate
transactions including amending the Certificate of Incorporation of the Company,
the sale of substantially all of the Company's assets, the election all of the
directors of the Company and to control the Company's affairs. This voting
control may have the effect of delaying or preventing a change in control of the
Company and may adversely affect the rights of the shareholders of the Company.
In addition, the Company is subject to a State of Delaware statute regulating
business combinations which may also hinder or delay a change of control.
Benefit of Offering to Principal Shareholders;
Mr. and Mrs. Hertz have loaned the Company approximately $326,000. In
addition, Mr. Hertz has guaranteed the payment of the Company's indebtedness to
the United Mizrachi Bank (the "Bank"), which amount, as of May 31, 1996, was
$895,000. The Company intends to use a portion of the net proceeds of the
offering to pay the Company's borrowings from Mr. and Mrs. Hertz, the Company's
obligation to the Bank guaranteed by Mr. Hertz and also to fund a distribution
to Mr. and Mrs. Hertz (See S Corporation Distribution) estimated at $225,000 as
of May 31, 1996. Consequently, both Mr. and Mrs. Hertz stands to benefit from
this offering and the foregoing transactions including the manner in which the
net proceeds of this offering are to be allocated, represent a potential
conflict of interest for Mr. and Mrs. Hertz.
Absence of Dividends
Except for an S Corporation Distribution, the Company does not expect to
pay cash or stock dividends on its Shares in the foreseeable future, but
instead, intends to retain all earnings, if any, to invest in the Company's
operations. The payment of future dividends is within the discretion of the
Board of Directors and will depend upon the Company's future earnings, if any,
its capital requirements, financial condition and other relevant factors. See
"Dividend Policy."
Limitation on Director Liability
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation limits the liability of directors to the Company or
its shareholders for monetary
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damages for breach of a director's fiduciary duty, except for liability in four
specific instances. These are for (i) any breach of the director's duty of
loyalty to the Company or its shareholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or knowing violations of law,
(iii) unlawful payments of dividends or unlawful stock purchases or redemption's
as provided in Section 174 of the Delaware General Corporation Law, or (iv) any
transaction from which the director derived an improper personal benefit. As a
result of the Company's charter provision and Delaware law, shareholders may
have more limited rights to recover against directors for breach of fiduciary
duty. See "Management--Limitation on Liability of Directors."
Arbitrary offering Price
There has been no prior public market for the Company's Securities. The
price to the public of the Securities offered hereby has been arbitrarily
determined by negotiations between the Company and the Underwriter and bears no
relationship to the Company's earnings, book value or any other recognized
criteria of value. The offering price of $5.00 per Share and $.25 per Warrant is
substantially in excess of the net tangible book value of $.45 per share,
derived from the Company's May 31, 1996, consolidated balance sheet and in
excess of the price received by the Company for shares sold in prior
transactions. See "Prospectus Summary--Selected Financial Data," "Underwriting,"
"Dilution" and "Certain Transactions."
Requirements of Current Prospectus and State Blue Sky Registration in Connection
with the Exercise of the Warrants Which May Not Be Exercisable and May Therefore
Be Valueless
The Company will be able to issue the Shares upon the exercise of the
Warrants and the Underwriter's Purchase Option only if (i) there is a current
prospectus relating to the Securities offered hereby under an effective
registration statement filed with the Commission, and (ii) such Shares are then
qualified for sale or exempt therefrom under applicable state securities laws of
the jurisdictions in which the various holders of Warrants reside. There can be
no assurance, however, that the Company will be successful in maintaining a
current registration statement. After a registration statement becomes
effective, it may require updating by the filing of a post-effective amendment.
A post effective amendment is required under the Securities Act (i) anytime
after nine (9) months subsequent to the Effective Date when any information
contained in the prospectus is over sixteen (16) months old; (ii) when facts or
events have occurred which represent a fundamental change in the information
contained in the registration statement; or (iii) when any material change
occurs in the information relating to the plan or distribution of the securities
registered by such registration statement. The Prospectus forming a part of this
Registration Statement will remain current within the meaning of the Securities
Act for not more than nine (9) months following the date of this Prospectus, or
until __________, 1997, assuming a post-effective amendment is not filed by the
Company. The Company intends to qualify the sale of the Securities in a limited
number of states, although certain exemptions under certain state securities
("Blue Sky") laws may permit the Warrants to be transferred to purchasers in
states other than those in which the Warrants were initially qualified. The
Company will be prevented, however, from issuing Shares upon exercise of
Warrants in those states where
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exemptions are unavailable and the Company has failed to qualify the Shares
issuable upon exercise of the Warrants. The Company may decide not to seek, or
may not be able to obtain qualification of the issuance of such Shares in all of
the states in which the ultimate purchasers of the Warrants reside. In such a
case, the Warrants of those purchasers will expire and have no value if such
warrants cannot be exercised or sold. Accordingly, the market for the Warrants
may be limited because of the Company's obligation to fulfill both of the
foregoing requirements.
Additional Authorized Shares Available for Issuance May Adversely Affect the
Market
The Company is authorized to issue 25,000,000 Shares. If all of the
1,100,000 Shares offered hereby are sold, there will be a total of 3,000,000
Shares issued and outstanding. In addition, the following Shares have been
reserved for issuance: 2,200,000 Shares issuable upon exercise of the Warrants
offered to investors in this offering; 165,000 Shares issuable pursuant to the
Underwriter's Over-Allotment Option; 330,000 shares issuable upon the exercise
of the Warrants included in the Underwriter's Over-Allotment Option; 110,000
Shares issuable pursuant to the Underwriter's Purchase Option; 220,000 shares
issuable upon exercise of the Warrants included in the Underwriter's Purchase
Option; 900,000 Shares issuable upon exercise of a stock option granted to Eli
E. Hertz, up to 750,000 Shares issuable upon exercise of options that may be
granted under the Company's Stock Option Plan for officers and key employees and
up to 100,000 Shares issuable pursuant to a Company Employee Bonus Plan. After
the exercise of all such warrants and options the Company will have 7,775,000
Shares outstanding and 17,225,000 Shares of authorized but unissued capital
stock available for issuance without further shareholder approval. As a result,
any issuance of additional Shares may cause current shareholders of the Company
to suffer significant dilution which may adversely affect the market. Of the
750,000 shares being offered by the Selling Shareholders, 225,000 shares may be
sold during the twelve (12) months from the Effective Date, the timing of such
sale to be at such time within the 12 month period as is acceptable to the
Underwriter, and the balance consisting of 525,000 Shares at any time after 18
months after the Effective Date, subject to earlier release at the sole
discretion of the Underwriter. The other shareholders, including the Selling
Shareholders with respect to their Shareholdings above 750,000 Shares, have
agreed not to sell, transfer or assign any of their securities for a period of
twenty four (24) months without the consent of the Underwriter. In other
offerings where the Underwriter has acted as the managing underwriter, it has
released similar restrictions applicable to selling shareholders prior to the
expiration of the lock-up period and in some cases immediately after the
exercise the Over-Allotment Option or the expiration of the Over-Allotment
Option period. See "Dilution," "Description of Securities" and "Underwriting."
Lack of Prior Market for Securities of the Company
No prior market has existed for the Securities offered hereby and no
assurance can be given that one will develop subsequent to this offering. The
Company has applied for inclusion of the Shares and Warrants on the Nasdaq
SmallCap Market, although there can be no assurance that an active trading
market will develop, even it the Securities are accepted for quotation.
Additionally, if the Company's Securities are accepted for quotation and active
trading develops,
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the Company is required to maintain certain minimum criteria established by
Nasdaq, the continued fulfillment of which by the Company cannot be assured. The
Company has been advised that the Company's Securities offered hereby will be
listed on the __________ Market upon the Effective Date of this offering. The
Underwriter may make a market in the Securities upon the closing of this
offering, but there is no assurance that it will be successful in its efforts.
The loss or failure of market makers for the Securities will have a material
adverse effect on the market for the Securities. See "Description of
Securities."
Warrants Subject to Redemption
The Class A Warrants shall be exercisable for a period of four (4) years
commencing one year after the Effective Date. Each Warrant entitles the holder
to purchase one Share at $5.50 per share during the four year period commencing
one year from the Effective Date hereof. The Warrants are redeemable by the
Company for $.01 per Warrant if the average closing price or bid price of the
Shares, as reported by the principal exchange on which the Shares are quoted,
equals or exceeds $8.75 per share, for any twenty (20) consecutive trading days
ending within five (5) days of the notice of redemption. In the event that the
Warrants are called for redemption, the Warrant holders may not be able to
exercise their Warrants if the Company has not updated this Prospectus in
accordance with the requirements of the Securities Act or these securities have
not been qualified for sale under the laws of the state where the warrant holder
resides. See "Requirements of Current Prospectus and State Blue Sky Registration
in Connection with the Exercise of the Warrants Which May Not Be Exercisable and
May Therefore Be Valueless." In addition, in the event that the Warrants have
been called for redemption, such call for redemption could force the warrant
holder to either (i) assuming the necessary updating to the prospectus and state
blue sky qualifications have been effected, exercise the Warrants and pay the
exercise price at a time when, in the event of a decrease in market price from
the period preceding the issuance of the call for redemption, it may be less
than advantageous economically to do so, or (ii) accept the redemption price,
which, in the event of an increase in the price of the Shares, could be
substantially less than the market value thereof at the time of redemption. See
"Certain Transactions," "Description of Securities," "Selling Shareholders" and
"Underwriting."
20
<PAGE>
Underwriter's Influence on the Market May Have Adverse Consequences
A significant number of Securities may be sold, in the ordinary course of
business, to customers of the Underwriter. Such customers subsequently may
engage in transactions for the sale or purchase of such Securities through or
with the Underwriter. Although it has no legal obligation to do so, the
Underwriter from time to time in the future may make a market in and otherwise
effect transactions in the Company's Securities. To the extent the Underwriter
acts as market maker in the Securities, it may be a dominating influence in that
market. The price and liquidity of such Securities may be affected by the
degree, if any, of the Underwriter's participation in the market, inasmuch as a
significant amount of such securities may be sold to customers of the
Underwriter. Such customers subsequently may engage in transactions for the sale
or purchase of such securities through or with the Underwriter. Such market
making activities, if commenced, may be discontinued at any time or from time to
time by the Underwriter without obligation or prior notice. If a dominating
influence at such time, the Underwriter's discontinuance may adversely affect
the price and liquidity of the securities.
Further, unless granted an exemption by the Commission to its Rule 10b-6,
the Underwriter may be prohibited from engaging in any market making activities
with regard to the Securities for the period from two or nine business days
prior to any solicitation of the exercise of Warrants until the later of the
termination of such solicitation activity or the termination, by waiver or
otherwise, of any right that the Underwriter may have to receive a fee for the
exercise of Warrants following the solicitation. As a result, the Underwriter
may be unable to continue to provide a market for the Securities under certain
periods while the Warrants are exercisable which may adversely affect the price
and liquidity of the securities.
Exercise of Warrants May Have Dilutive Effect on Market
The Class A Warrants to be issued in connection with this offering will
provide, during their term, an opportunity for the holder to profit from a rise
in the market price, of which there is no assurance, with resulting dilution in
the ownership interest in the Company held by the then present shareholders.
Holders of the Warrants most likely would exercise the Warrants and purchase the
underlying Shares at a time when the Company may be able to obtain capital by a
new offering of securities on terms more favorable than those provided by such
Warrants, in which event the terms on which the Company may be able to obtain
additional capital would be affected adversely. See "Underwriting."
"Penny Stock" Regulations May Impose Certain Restrictions on Marketability of
Securities
The Commission has adopted regulations which generally define "penny stock"
to be any equity security that has a market price (as defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share subject to
certain exceptions. In the event of authorization of the Shares offered hereby
for quotation on the Nasdaq SmallCap Market, such securities will initially be
exempt from the definition of "penny stock." If the Securities offered hereby
are removed from listing on Nasdaq at any time following the Effective Date, the
Securities may
21
<PAGE>
become subject to rules that impose additional sales practice requirements on
broker-dealers who sell such Securities to persons other than established
customers and accredited investors (generally, those persons with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of the Securities
and have received the purchaser's written consent to the transaction prior to
the purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a risk
disclosure document mandated by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Securities and may affect the
ability of purchasers in this offering to sell the Securities in the secondary
market.
In the event that the Company were not able to qualify the Securities for
listing on the Nasdaq SmallCap Market, the Company would attempt to have the
Securities traded in the over-the-counter market via the Electronic Bulletin
Board or the "pink sheets." In such event, holders of the Securities may
encounter substantially greater difficulty in disposing of their securities
and/or in obtaining accurate quotations as to the prices of the Securities.
Benefits of Offering to Underwriter
The Underwriter will receive substantial benefits from the Company in
connection with this offering. These benefits include underwriting
discounts/commissions, a non-accountable expense allowance and an Underwriter's
Purchase Option. In addition, the Underwriter has been granted certain rights
under the Unit Purchase Option, which rights include the ability to require the
Company to include the Underwriter's securities in a registration statement
under the Securities Act. The exercise of these rights will result in the
Company incurring substantial expenses and may cause the Company to register an
offering of its securities at a time which is detrimental to the Company's
plans. See Underwriting."
Shares Eligible for Future Sale May Adversely Affect the Market
All of the Company's currently outstanding Shares are "restricted
securities" and, in the future, may be sold upon compliance with Rule 144,
adopted under the Securities Act. Rule 144 provides, in essence, that a person
holding "restricted securities" for a period of two years may sell only an
amount every three months equal to the greater of (a) one percent of the
Company's issued and outstanding shares, or (b) the average weekly volume of
sales during the four calendar weeks preceding the sale. The amount of
"restricted securities" which a person who is not an affiliate of the Company
may sell is not so limited, since non-affiliates may sell without volume
limitation their shares held for three years if there is adequate current public
information available concerning the Company. A proposed rule which may be
adopted by the Commission
22
<PAGE>
would reduce these two and three year periods to one and two years,
respectively. Upon the sale of the Securities offered hereby, and assuming that
there is no exercise of any issued and outstanding warrants, the Company will
have 3,000,000 Shares issued and outstanding, of which 1,150,000 Shares are
"restricted securities", 750,000 Shares are being registered under the
registration statement of which this Prospectus is a part and offered under the
Alternative Prospectus and 1,100,000 are publicly traded shares. Therefore,
during each three month period, beginning ________, 1996, a holder of restricted
securities who has held them for at least the two year period may sell under
Rule 144, a number of shares up to 30,000 Shares. Non-affiliated persons who
hold for the three-year period described above may sell unlimited shares once
their holding period is met. Notwithstanding the above, the current officers,
directors and principal shareholders have agreed, except as noted below, not to
sell, transfer, assign or issue any securities of the Company for a period of
twenty-four (24) months following the Effective Date without the consent of the
Underwriter.
The registration statement of which this Prospectus is a part also covers
the offering of 750,000 Shares being offered by the Selling Shareholders. Of the
750,000 Shares being offered by the Selling Shareholders, 225,000 Shares may be
sold during the twelve (12) months from the Effective Date at such time within
this 12 month period as is acceptable to the Underwriter, and the balance,
consisting of 525,000 Shares after the expiration of 18 months from the
Effective Date, subject to earlier release at the sole discretion of the
Underwriter. In other offerings where the Underwriter has acted as the managing
Underwriter, it has released similar restrictions applicable to selling
shareholders prior to the expiration of the lock-up period and in some cases
immediately after the exercise of the Over-Allotment Option or the expiration of
the Over-Allotment Option period. Certificates evidencing these securities will
bear a legend reflecting such restrictions. The Underwriter may release the
securities held by the Selling Shareholders at any time after all securities
subject to the Over-Allotment Option have been sold or such option has expired.
The resale of the Shares held by the Selling Shareholders is subject to
prospectus delivery and other requirements of the Securities Act, as amended.
Sales of such Shares or the potential of such sales at any time may have an
adverse effect on the market prices of the securities offered hereby. See
"Selling Shareholders."
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Shares in any market
which may develop and therefore, the ability of any investor to market his
Shares may be dependent directly upon the number of shares that are offered and
sold. Affiliates of the Company may sell Shares during a favorable movement in
the market price of the Shares which may have a depressive effect on its price
per share. See "Description of Securities."
S CORPORATION DISTRIBUTION
Hergo has elected to be treated for federal income tax purposes as an S
Corporation. As a result of Hergo's status as an S Corporation, Hergo's current
shareholders, rather than Hergo, have been taxed directly on the Hergo earnings
for federal and certain state income tax purposes, whether or not such earnings
were distributed. Shortly before the closing of this Offering, Hergo
23
<PAGE>
will terminate its status as an S Corporation and will thereafter be subject to
federal and state income taxes at applicable C Corporation rates.
Prior to the termination of its S Corporation status, Hergo intends to
declare a distribution (the "S Corporation Distribution") to Mr. and Mrs. Hertz,
its current shareholders. The distribution (estimated at $ 225,000 as of May 31,
1996), represents substantially all of Hergo's remaining undistributed S
Corporation earnings. The actual amount of the S Corporation Distribution will
be adjusted to include the taxable income of the Company for the period from
June 1, 1996 through the day immediately preceding the date on which S
Corporation status is terminated, less any New York City income tax payable by
the Company with respect to such income and any distributions made to the
current shareholders during that time period. See "Certain Transactions."
USE OF PROCEEDS
After deducting underwriting discounts of $605,000 and other expenses of
the offering estimated to be $550,000 (which includes the Underwriter's
nonaccountable expense allowance), assuming an offering price of $5.00 per Share
and $.25 per Warrant, the Company will receive net proceeds from the offering of
approximately $4,895,000, which does not include the exercise of the
Underwriter's Over-Allotment Option. These proceeds, excluding the exercise of
any of the Warrants, will be utilized by the Company substantially for the
following:
Approximate Amount
of Net Proceeds %
--------------- -----
Debt Retirement (1) ................................... $1,430,000 29.2%
S Corporation distribution(2) ......................... 225,000 4.6%
Hertz Computer Marketing Program(3) ................... 600,000 12.3%
Hergo Machinery(4) .................................... 500,000 10.2%
Hergo New Product Development(5) ...................... 400,000 8.2%
Hertz Computer - Equipment to Provide
Internet Services and other communications (6) .... 300,000 6.1%
Hertz Computer - Update Computer system ............... 250,000 5.1%
Hergo Marketing ....................................... 200,000 4.1%
Hertz up-grade of new facility and production line .... 295,000 6.0%
Working Capital ....................................... 720,000 14.2%
- ----------
(1) Represents payment of $326,000 for advances and loans to the Company by Mr.
and Mrs. Hertz carrying an interest of 1% over prime, and $895,000 for loan
from the United Mizrachi Bank (the "Bank") bearing interest at Libor plus
1.25% and $205,000 for short-term loans from the Bank..
(2) See S Corporation Distribution.
(3) Includes hiring a national sales director, sales persons and sales
representatives and implementation of a national promotional campaign,
including focused marketing directed at sales to the General Service
Administration and to the OEM market.
(4) Modernizing and adding equipment in order to give Hergo greater production
capacity and flexibility.
24
<PAGE>
(5) Estimated cost of developing new products, including Hergolite line for use
by small businesses and home users.
(6) Includes installing of high speed telecommunication lines (T-1's).
Although it is uncertain that the price of Shares will rise to a level at
which the Warrants would be exercised, in the event subscribers in this offering
elect to exercise all of the Warrants included in the Offering, the Company will
realize gross proceeds of approximately $12,100,000. Management anticipates that
the proceeds from the exercise of the Warrants would be contributed to working
capital of the Company. Nonetheless, the Company may at the time of exercise
allocate a portion of the proceeds to any other corporate purpose. Accordingly,
investors who exercise their Warrants will entrust their funds to management,
whose specific intentions regarding the use of such funds are not presently and
specifically known.
The amounts set forth in the use of proceeds merely indicate the proposed
use of proceeds, and actual expenditures may vary substantially from these
estimates depending on market conditions, on the fiscal health of the Company,
the success, if any, for the Company's proposed business expansion, activities
and the availability of other financing arrangements, such as lines of credit
and loans. The Company is unable to predict whether the proceeds of this
Offering will be sufficient to accomplish all of the objectives sought to be
achieved as set forth above. The Company believes, however, that it should have
sufficient capital to pursue its objectives as outlined above for the next
twenty-four (24) months. Accordingly, at some future period, the Company may
need to seek additional funds through loans of other financing arrangements. No
such arrangement exists or are currently contemplated and there can be no
assurance that they may be obtained in the future should the need arise.
25
<PAGE>
DILUTION
As of May 31, 1996, the Company had a net tangible book value of $862,327
or $.45 per share (assuming that the Company had 1,900,000 shares outstanding as
of that date ), derived from the Company's balance sheet as of that date. Net
tangible book value per Share means the tangible assets of the Company less all
liabilities, divided by the number of Shares outstanding. After giving effect to
the sale of the Securities offered hereby at an assumed price of $5.00 per Share
and $.25 per Warrant, after deducting underwriting discounts and estimated
offering expenses, as adjusted net tangible book value would have been
$5,757,327, or $1.92 per share. The result will be an immediate increase in net
tangible book value per share of $1.47 to existing shareholders and an immediate
dilution to new investors of $3.08 (62%) per share. "Dilution" is determined by
subtracting net tangible book value per share after the offering from the
offering price to investors. The following table illustrates this dilution.
Public offering of the Shares offered hereby........................... $5.00
Net tangible book value per share, before the offering............ .45
Increase per share attributable to the sale by the Company of the
Shares offered hereby............................................. 1.47
-----
Pro forma net tangible book value per share, after the offering........ 1.92
-----
Dilution per share to new investors.................................... $3.08
=====
The above table assumes no exercise of the Warrants, the Underwriter's
Over-Allotment or the Underwriter's Purchase Option. If the Underwriter's
Over-Allotment Option is exercised in full, dilution to the public stockholder
will be $2.93 per share. See "Description of Securities" and "Selling
Shareholders."
The following table summarizes the investments of all existing shareholders
and new investors after giving effect to the sales of the Securities offered
hereby assuming no exercise of the Underwriter's Over-Allotment Option:
<TABLE>
<CAPTION>
Percentage Aggregate Percentage of Average
Shares of Total Consideration Total Price Per
Purchased Shares Paid Invested Share
--------- ------ ---- -------- -----
<S> <C> <C> <C> <C> <C>
Existing Shareholders 1,900,000 63.3% $ 903,911 14.1% $.48
Public Shareholders 1,100,000 36.7% 5,500,000 85.9% $5.00
--------- --------- --------- --------- ---------
Total 3,000,000 100% $6,403,911 100%
========= ========= ========= =========
</TABLE>
If the Underwriter's Over-Allotment Option is exercised in full, the new
investors will have paid $6,325,,500 for the purchase of Shares and will hold
1,265,000 Shares, representing 87.5 percent of the total consideration and 40
percent of the total number of outstanding Shares. See "Description of
Securities" and "Underwriting."
26
<PAGE>
Capitalization
The following tables sets forth the capitalization of the Company (i) as of
May 31, 1996, and (ii) as adjusted to reflect the sale of the Securities offered
hereby. The table should be read in conjunction with the Financial Statements,
the notes thereto and the pro forma financial information included elsewhere in
this Prospectus.
May 31, 1996
Actual As
Adjusted(1)(2)
--------- ---------
Short-term debt(3) 1,673,519 5,388
Long-term capital lease obligation 19,309 19,309
--------- ---------
Stockholders' Equity
Common stock, $.001 par
value; 25,000,000
authorized, issued and
outstanding, 1,900,000 shares
outstanding, as adjusted 1,900 3,000
Additional paid in capital 124,100 5,018,000
Retained earnings 777,911 777,911
--------- ---------
Total Stockholders' Equity 903,911 5,798,911
--------- ---------
Total Capitalization 2,596,739 5,823,608
- ----------
(1) Adjusted to reflect (i) the sale of 1,100,000 Shares and 2,200,000 Warrants
by the Company and the net proceeds therefrom and the uses thereof
(assuming an initial public offering price of $5.00 per Share and $.25 per
Warrant and after deducting the underwriting discounts and commissions and
expenses of this offering estimated at $1,155,000 and (ii) the repayment of
certain indebtedness from the use of proceeds. Does not include the
proceeds from the sale of Shares pursuant to the exercise of any Warrants
or the exercise of the Underwriter's Purchase Option. See "Underwriting."
(2) Assumes no exercise of (i) the Warrants; (ii) the Underwriter's
Over-Allotment Option to purchase up to 165,000 Shares and 330,000
Warrants; (iii) the Underwriter's option to purchase up to 110,000 Shares
and 220,000 Warrants. See "Description of Securities" and "Underwriting."
(3) Short term debt consists of:
Current N/P to banks to pay $1,117,093
Current Maturities of long-term capital
lease obligation 5,388
Dividend Payable 224,567
Note payable to shareholder 326,471
------------
Total short term debt $1,673,518
27
<PAGE>
DIVIDEND POLICY
Holders of the Company's Shares are entitled to cash dividends when, as and
if declared by the Board of Directors out of funds legally available therefor.
The Company does not anticipate the declaration or payments of any dividends in
the foreseeable future. The Company intends to retain earnings, if any, to
finance the developments and expansion of its business. Future dividend policy
will be subject to the discretion of the Board of Directors and will be
contingent upon future earnings, if any, the Company's financial condition,
capital requirements, general business conditions and other factors. Therefore,
there can be no assurance that cash dividends of any kind will ever be paid.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
General
The Company custom designs and assembles PC's and related technologies,
services and support under the "Hertz" name through its Hertz Computer
subsidiary. It also designs, manufactures and sells ergonomically engineered
modular mounting support structures and technical furniture for micro computers
and electronic devices under the "Hergo" name through its Hergo subsidiary.
Nine Months Ended May 31, 1996 Compared to Nine Months Ended May 31, 1995
Revenues
Company sales for the nine months ended May 31, 1996, were $9.38 million,
compared to $8.22 million for the period ended May 31, 1995, an increase of 11%.
Hertz Computer sales increased from $6.81 million to $7.55 million, an 11%
increase over the same period. Increased sales of computers to "OEM" (Original
Equipment Manufacturers) and governmental agencies accounted for the majority of
the increase. Hergo sales increased from $1.41 million to $1.83 million, a 30%
increase over the same period. This increase was due primarily to increased
advertising in trade publications, and an increasing rate of repeat orders by
existing clients.
Gross Profit
Gross profit of the Company for the nine months ended May 31, 1996,
represented 30% of sales compared to 26% for the nine months ended May 31, 1995.
The gross profit percentage for Hertz Computer in the period ending on May 31,
1996 reflected a 5% increase over the same period last year, primarily due to a
larger share of sales to the OEM and Government markets. Additionally, gross
profit improved for the period due to cost reductions in memory and other
components, of which some of these benefits were not immediately passed-on to
customers. The Hergo subsidiary, with its 56% gross profit margin accounted for
$1.02 million in gross profit. This compares favorably with the gross profit
amount for the nine months ended May 31, 1995 of $0.81 million. The increase of
$210,000 in gross profit is primarily the result of an increase in the volume of
sales.
Selling, General and Administrative
For the nine months ended May 31, 1996, selling, general and administrative
expenses, of the Company were $2.07 million as compared to $1.94 million for the
nine months ended May 31, 1995 representing a favorable decrease as a percentage
of sales from 24% to 22% of sales.
29
<PAGE>
For the period ending May 31, 1996 Hergo trade show and advertising
expenses decreased by approximately $81,000. A consulting agreement with a
former Hergo minority shareholder expired which resulted in savings of $63,000
for the nine months ending May 31, 1996. In September 1995 the Company purchased
a minority interest held by the former manager of its Hertz Israel subsidiary
and simultaneously entered into a consulting agreement with him. Such services
increased consulting fees by approximately $20,000 in the current period. Other
professional fees increased by $20,000 in the current period, the majority of
which were expensed for additional accounting services for Hergo. During the
nine month period ending May 31,1996 sales salaries and commissions increased by
$91,000 as a result of new sales and marketing initiatives. Salaries of the two
principal officers increased by $48,000 in the current period. In order to
accommodate additional revenue growth, salaries and general expense increased by
about $95,000 in the current period.
Interest Expense
Interest expense net for the nine month period ended May 31, 1996 was
$148,113 as compared to $96,650 for the nine month period ended May 31,1995, an
increase of $51,463, of which about $30,000 was attributable to finance
additional levels of inventories and working capital and about $21,000 was
primarily due to a fluctuations in the exchange rate between the U.S. and
Israeli currencies (shekel) for that period. This fluctuation rate was
negligible in the comparable nine month period ended May 31, 1995 as currency
exchange rates were relatively stable during this period.
Provision for Income Taxes
Through May 31, 1996 Hergo was classified as a subchapter "S" corporation
and incurred no federal corporate taxes. As a result, net income of $387,512
includes a tax provision calculated at a blended tax rate of Hergo and Hertz
Computer of 10% and 46%, respectively. Had Hergo been a "C" corporation during
this period, the tax provision would have been $366,.233 as compared to the
actual tax expense of $244,500 for the nine months ended May 31, 1996.
Net Income
Net Income for the nine months ended May 31, 1996 was $387,512 as compared
to $64,005 for the nine months ended May 31, 1995. This increase was mainly due
to improved cost controls and the overall increase in sales and gross margins.
Fiscal Year Ended August 31, 1995 Compared to Fiscal Year Ended August 31, 1994
Revenues
Sales of the Company for the year ended August 31, 1995, were $11.22
million, compared to $10.93 million for the year ended August 31, 1994, an
increase of 3%. Although Hertz Computer sales to other corporate customers grew
by approximately $1.73 million, the completion in fiscal 1994 of a nationwide
corporate project for a particular customer caused the
30
<PAGE>
overall decrease in revenues in the current period. Revenues, attributable
to this project, were reduced by a net of $2.40 million when comparing fiscal
1995 revenue to fiscal 1994 revenue. Offsetting the current period reduction in
Hertz revenues of approximately $670,000 were increased sales from Hergo of
$960,000 in the current period (from $1.27 million during fiscal 1994 to $2.23
million in fiscal 1995, a 76% increase). The sales increases are mainly
attributable to new marketing and sales programs.
Gross Profit
Gross profit for fiscal 1995 represented 28% of sales as compared to 23% of
sales for fiscal 1994. The primary reason for this is the increased contribution
Hergo has made as a percentage of total sales in fiscal 1995. The higher profit
margin of Hergo sales allowed consolidated Company margins to rise faster than
consolidated Company sales.
Selling, General and Administrative
For the fiscal year ended, August 31, 1995, selling, general and
administrative expenses were $2.87 million (26% of sales ) as compared to $2.29
million (21% of sales) for fiscal year ended August 31, 1994, an increase of
$580,000.
Legal fees increased $123,000, most of which are attributable to a Hergo
litigation ($112,000). See "Legal Proceedings.". Consulting fees increased by
$63,000 in the current period due to a consulting services agreement with a
former Hergo minority shareholder which commenced on August 26, 1994. Other
professional fees increased by $50,000 in the current period primarily as a
result of increased computer programming fees for modifications of existing
computer systems. Hertz Computer and Hergo implemented new sales and marketing
programs which were the main reason for increased trade show expenses of
$58,000, advertising expenses of $36,000, telephone expenses of $45,000, and
sales and marketing salaries and associated expenses of $245,000. The
establishment of a larger administrative department to control the increased
activities resulted in administrative salaries and associated expenses to
increase by $92,000 in the period ended August 31, 1995. Other increases of
$90,000, in the 1995 period , were due to increased travel expenses and repair
and maintenance expenses related mainly to moves to new locations made by Hertz
Israel and Hergo. In response to the necessity of putting all the above programs
in place, the shareholders reduced their compensation in the period ended August
31, 1995 by $222,000.
Interest Expense
Net interest expense for the year ended August 31, 1995 was $131,484 as
compared to $58,340 for the year ended August 31, 1994. Interest to finance the
increases in inventory and accounts receivable levels was the primary reason for
the increase in net interest expense of $73,144.
31
<PAGE>
Provision for Income Taxes
Through August 31, 1995 Hergo has been classified as a subchapter "S"
corporation, and as such, incurred no federal corporate taxes. As a result, net
income of $54,113 includes a tax provision calculated at a blended tax rate of
Hergo and Hertz Computer of 10% and 46%, respectively. Had Hergo been a "C"
corporation during this period, the tax provision would have been $73,602, as
compared to the actual tax expense of $77,615 for the fiscal year ended August
31, 1995 as the Company would have been able to offset the taxable losses
incurred by Hergo during this period.
Net Income
Net Income for the year ended August 31, 1995 was $54,113 as compared to
$174,895 for the year ended August 31, 1994. Improved margins generated through
better customer and product mix sufficiently allowed for expenses necessary for
potential future growth.
Liquidity and Capital Resources
For the Nine Months Ended May 31, 1996 and May 31, 1995
The Company has available a total of $1,000,000 pursuant to a Revolving
Line of Credit secured by substantially all the personal property of the Company
and personally guaranteed by a shareholder. The borrowings bear interest at the
prime rate plus 1% (effective rate at May 31, 1996 was 9.25% as compared to a
rate at May 31, 1995 of 10%). As of May 31, 1996, the outstanding balance under
this agreement was $895,000 which remained unchanged from May 31, 1995.
In February 1996, the Company entered into a line of credit agreement with
a bank through Hertz Israel for $300,000 and an interest rate at the six month
Libor Rate plus 1.25% (6.9% at May 31, 1996). As of May 31, 1996, the
outstanding line of credit balance was $211,375 consists of two short term notes
($205,240 in total) that must be paid in full by August 27, 1996. In addition,
an overdraft of $6,135 is outstanding at May 31, 1996.
For the nine months ended May 31, 1996, the Company generated positive cash
flow from operating activities of $336,419 as compared to a negative cash flow
of $409,185 for the previous nine month period. The primary reason for this
difference is due to the increase in sales and net income for the period ended
as of May 31, 1996 as compared to the period ended as of May 31, 1995, and the
improvement of collections of accounts receivable. The Company generated a
negative cash flow of $91,482 from financing activities for the nine months
ended May 31, 1996 as compared to a positive cash flow from financing activities
of $433,610 for the previous nine month period. The primary reason for the
negative financing activities is due to a repayment of a note payable to a
shareholder for $197,127 as compared to proceeds received from a shareholder of
$200,689 from the previous nine month period. In addition, the increase in net
bank borrowings for the nine months ended May 31, 1996 was $103, 645 as compared
to $224,019 for the previous nine month period.
32
<PAGE>
Net purchases of fixed assets in the nine months ended May 31, 1996 were
$82,623 as compared to $38,396 for the previous nine month period.
The Company currently anticipates that the gross proceeds from the sale of
the Shares and Warrants will generate $6,050,000 (or $6,957,500 if the
Underwriter's Overallotment Option is exercised in full) before commissions and
offering expenses of $1,155,000. The Company expects to utilize these proceeds
to pay the outstanding balance of notes payable to the current shareholders and
the revolving line of credit with the bank. The Company further intends to make
a subchapter S Distribution of $224,567 to the current shareholders of Hergo.
For the Fiscal Years Ended August 31, 1995 and 1994
As of August 31, 1995, the Company has available a total of $1,000,000
($800,000 as of August 31, 1994) pursuant to a Revolving Line of Credit secured
by substantially all the personal property of the Company and is personally
guaranteed by a shareholder. The borrowings bear interest at the prime rate plus
1% (effective rate at August 31, 1995 was 9.75% as compared to a rate at August
31, 1994 of 7.7%). As of August 31, 1995, the outstanding balance under this
agreement was $895,000 as compared to $700,000 at August 31, 1994.
For the fiscal year ended August 31, 1995, the Company generated a negative
cash flow from operating activities of $394,587 as compared to a positive cash
flow of $22,721 for the fiscal year ended August 31, 1994. The negative
operating cash flow was due primarily to an increase in accounts receivable of
approximately $298,000 and ending inventory of $140,000 at year end. Inventory
levels rose as a primary result of two factors: (i) increased inventory levels
for Hergo to meet demands of rising sales; (ii) increased inventory levels for
Hertz-Israel due to the shift by certain customers to purchase goods directly
from Hertz-Israel as opposed to directly purchasing goods from Hertz Computer.
This shift was primarily attributable to import tax laws in Israel effectuated
in the current year. The increase in accounts receivable is mainly a result of
the increased sales of Hertz-Israel, which was due to the enactment of the
import tax laws, as discussed above. As the length of time to process sales
orders to customers increased, since Hertz Computer was no longer drop shipping
goods to the Israeli customers, the Hertz-Israel accounts receivable balances
increased by approximately $263,000.
Net purchases of fixed assets in the fiscal years ended August 31, 1995 and
1994 were $46,888 and $96,591, respectively.
The Company generated a positive cash flow from financing activities of
$489,119 as compared to a positive cash flow of $35,917 for the fiscal years
ended August 31, 1995 and August 31, 1994, respectively. The primary reasons for
this increase was the increased borrowing base generated from the Revolving Line
Of Credit and a stockholder loan of $176,083 entered in the current year with an
interest rate of 10% due September 1, 1997.
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<PAGE>
BUSINESS
The Company custom designs, assembles and sells PCs and related technology
services and support under the "Hertz" name. It also designs, manufactures and
sells ergonomically engineered modular mounting and support structures ("Modular
Racking Systems") and technical furniture for microcomputers under the "Hergo"
name.
Products and Service
The Customized Computer and Related Services. The Company provides
customized computers and a broad range of related services, including computer
designs and system architecture, consulting services, installation, personnel
training and customer support. Computers are assembled in a number of different
configurations using standard component parts readily available in the market.
Customization enables the Company to accommodate the customers' needs and
desires with respect to storage capacity, speed, price, ability to work with
multiple applications at the same time, size, configuration and a myriad of
other considerations that can be accommodated in whole or in part by the
selection of appropriate components. The Company is currently providing
computers to operate MRI machines, to provide voice mail services, for use in
military radar systems and for use in a number of shopping center kiosks with
computers programmed to enable prospective purchasers of music discs and tapes
to select and hear their musical selections prior to purchase.
Most of the computers sold by the Company are for use in a network
configuration. The Company, as an additional service, will configure the network
for the customer for which it will charge an additional hourly fee. The Company
also provides its customers with continuing support and assistance in the
maintenance and operation of Company purchased products.
Hergo Modular Racking Systems. The Company's Hergo division designs and
manufactures space saving and modular racks to help organize all types of
computer hardware, communication and electronic devices, peripherals and 19-inch
rack-mount equipment for use in any size computer room or technical environment.
The market for these Modular Racking Systems was created in large part by the
replacement of mainframe computers by multiple microcomputers. The Company was
one of the first companies to provide a cohesive, functional and architecturally
attractive racking systems that would vertically mount and support multiple
computers, servers and related peripherals such as printers, monitors, scanners
and modems used in tandem with each other, or in juxtaposition with each other
and interconnected for networking functions.
The Company has designed basic modular components in a variety of colors
that in combination can be used to create limitless mounting and support
structures. The components, made of a heavy-duty steel, are interchangeable so
as to permit the user to easily add new equipment or reconfigure existing
setups. The Modular Racking Systems are suitable for a variety of applications
including multiple LAN file servers and communication control centers,
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on trading floors, in testing laboratories, in training rooms, in multimedia,
video and broadcast production centers and in manufacturing areas as well as for
personal workstations.
The basic charge by the Company for its Modular Racking Systems does not
include shipment or installation. The Company will ship the completed unit by
common carrier at the customer's expense, or if the customers wishes the Company
to install the unit, the Company will deliver the unit in a Company owned van
and arrange for its installation at the customer's premises. The charge for
theses additional services are usually determined on a percentage of the
purchase price charged for the basic unit.
New Products and Services.
Hergolite. The Company has recently begun development of a new line of
Modular Racking Systems, specially designed for the smaller business or the home
office user. These systems are lighter and smaller than those prepared for the
larger commercial company market. It is expected that this new line will be
called "Hergolite." Approximately $400,000 of the net proceeds of this Offering
has been allocated for use in the test marketing and promotion of the Hergolite
line and changes in the current line.
Internet Services. A number of the Company's commercial customers have
indicated an interest in establishing a presence on the World Wide Web. The
Company sees in this interest, an opportunity to provide Internet solutions to
these customers in addition to serving their computer hardware and/or computer
racking needs. Beginning sometime toward the end of the year, the Company plans
to establish a new division to begin offering its corporate customers a menu of
Internet services, including Internet Access, Web site design and consulting,
and Web hosting services.
The Company currently has a high speed dedicated connection through a T1 to
the Internet from its corporate offices in New York. By building and installing
additional server equipment at its facilities, the Company believes it can
effectively sublease its Internet connection to its corporate customers in the
New York metropolitan area and corporate clients would be able to access the
Internet by dialing into the Company's facility. Web design involves the
transformation of the traditional paper brochure into a digitized format. The
Company has one Web designer in-house and intends to hire at least one more
designer. The Web designer is a graphic designer with programming skills in Web
protocol (hyper text markup language). The Company will offer assistance to its
customers in their planning and designing of home pages. Finally, the Company
will offer its clients the ability to publish their Web sites within their own
facilities or from the Company's computer facilities. Currently, the Company has
started to market a line of Web servers. For smaller companies, that are not
interested in the higher expense associated with publishing Web sites from their
own facilities, the Company can effectively rent server space from its
facilities to publish its clients Web sites.
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Strategic Growth Plan
The Company's strategic growth plan consists of strengthening both lines of
its existing business by updating their respective physical facilities and
equipment and then extending their respective services into related business
areas. With respect to the computer business, the Company intends to develop a
pro-active national sales force, focus on developing business with the Federal
Government and expanding its OEM business. For the Hergo line, the Company plans
on bringing to market new and improved products including "Hergolite" and on
strengthening its relationships with its already impressive customer base. The
Company also plans on actively pursuing a cross marketing program between its
Computer Division and its Hergo Division with special emphasis on establishing
the Company as suppliers of computers to the blue chip customers of Hergo.
Finally, the Company plans on establishing a new division to offer a menu of
Internet services to its corporate clients.
Manufacture and Assembly
Computers are manufactured at the Company's manufacturing facilities in New
York City, which has a capacity to produce between 30 and 35 computers a day.
The Company expects to move its New York facility to its new location on Varick
Street in September 1996, where the computer capacity per day should increase to
96. The Modular Racking Systems are manufactured at the Company's Woodside,
Queens facility. This facility has the capacity (with its existing space, not
including machinery) to double its current production rate.
The Company gives limited warranty coverage for its computers and Modular
Racking Systems for varying time periods depending on several factors including
the component parts affected, during which period the Company will repair or
replace defective products or parts at no cost to the customer. Where product
failure is the result of a defect in the component part, the Company is often
covered through warranty agreements with its vendors. The net cost to the
Company for its warranty service has not been significant to date.
Suppliers
The Company stocks most of the component parts used both in the manufacture
of its computers and in the manufacture of its Modular Racking Systems. The cost
of some components used in the computers, such as central processing units
("CPU's") and memory, can fluctuate from day to day or from one week to the
next, and for this reason, the Company tries not stock these items for use over
a long period of time. It generally seeks to purchase these price sensitive
items within about two weeks advance of use. To date, the Company has not
experienced any difficulty in receiving the needed items on short notice. Most
of the component parts purchased by the Company in connection with the computers
are obtained from a number of different sources. The Company believes that it is
not dependent on any single source, as alternative sources are available. Most
of the heavy duty steel components used in the Modular Racking Systems are made
by Hergo. The Company acquires its raw materials for these components from a
number of different companies and believes that adequate alternative raw
material sources are available if required.
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<PAGE>
Marketing and Sales
The customized computer and related services. Sales to commercial customers
are generally made by unsolicited telephone calls. Salespersons at the Company
are trained to work with the caller and elicit his company's computer needs and
work out the specifications of a computer which best satisfies its needs. In
cases where a large potential sale is involved or where a sale is regarded as a
significant entree into a new market or in other special situations, senior
management may take an active role in sales negotiations which may also involve
a visit or visits to the customer's premises. Government sales are made through
competitive bidding in response to published specifications, invitations to bid
or requests for proposals. The Company is an approved provider to New York State
OGS ("OGS", Office of General Services) and to the Federal Government ("GSA",
General Services Administration)
For its 1995 fiscal year, approximately 36% of the Company's total sales
were to federal, state and city agencies or government affiliated organizations,
including educational institutions and hospitals ("Governmental Entities"). The
Company has been approved by the Office of General Services as an approved
provider to New York State governmental purchasing units and to the Federal
Government by GSA, which monitors all U.S. government procurement of computers
and equipment. While the Company has concentrated its computer selling on state
and some federal agencies, it has not made any significant sales to the Federal
Government, though it has been accredited by it as an approved provider. The
Company believes this is an area that should be exploited and intends to
allocate a portion of the net proceeds to be received in this offering to
support the dedication of at least one person, whether he be newly hired or a
current employee, to the cultivation and development of the Federal Government
market. While the Company intends to expand its position in the governmental
market, it believes that such markets are generally more sensitive to budgetary
constraints. The Company has been focusing its sales efforts on the commercial
market and particularly on the OEM market where the gross margins are generally
higher.
The OEM (Original Equipment Manufacturer) market, broadly defined, includes
any business where the final product incorporates parts, assemblies or full
products of a third party manufacturer. For example, most of today's elevator
controls, MRI machines and voice mail phone systems all use PCs as integral
components in their final products. Many OEM's depend on microcomputers to
operate their computer driven products. Failure of that microcomputer would
render their own product non-functional. Consequently OEM's place a higher
premium for quality and reliability in their computers and for such computers,
they are generally prepared to pay more.
For the year ended August 31, 1995, no single customer accounted for as
much as 10% of total sales. Sales of computers to Israel for the 1995 fiscal
year were approximately $1,900,000 or 18% of the Company's total sales for such
year. For the nine month period ending on May 31, 1996, sales of computers to
Governmental Entities accounted for 41% of total Company sales for this period
including sales to the New York Department of Social Services which alone
accounted for 18% of total sales.
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The Company has exhibited its computers at trade shows and has, from time
to time, circulated brochures and articles containing excerpts from favorable
trade press reviews of one or more of its computers. Much of its computer
business is repeat business, and the source of new customers has been largely by
word of mouth and responses from favorable media product reviews. The Company's
small sales staff is primarily occupied with taking and filling orders by
telephone. The Company is now committed to developing a pro-active sale force
that will seek out new business and has allocated a portion of the net proceeds
to be received in this Offering for this purpose.
"Hergo" Modular Racking Systems. The Company constructed and sold Hergo
Modular Racking Systems to approximately 450 customers in 1995. These customers
included 15 to 20 of the largest and best known corporations in America.
Companies of the size and stature of Citibank, N.A., AT&T, Dow Jones, Bell
Atlantic, Pfizer, Hewlett Packard, the New York Times and Time Warner, all
purchased Hergo Structural Support Units in 1995. Sales are generated in large
part through advertising. The Company also deals with resellers who act as
intermediaries for the end user.
The Company has an advertising budget for its "Hergo" Modular Racking
Systems. For the 12 month period ended August 31, 1995, the Company spent
approximately $120,000 on advertising the "Hergo" product line, primarily in
trade publications and in the preparation and circulation of brochures. The
Company currently maintains a staff of five Hergo sales people who are paid on a
base salary plus commission.
Competition
There are many companies selling computers that may be regarded as
competitors of the Company. Computers are sold directly to commercial and
government entities by manufacturers such as IBM, Hewlett Packard and Apple, by
large retail outlets such as Comp USA and Staples, by mail order houses,
electronic equipment catalogues and by assemblers and entities like the Company
selling computers under their own names. Many of these companies have
substantially greater financial, sales, marketing, technical and other
competitive resources then those of the Company. As a result, these competitors
may be able to devote greater resources than the Company to the sale and service
of microcomputer products. Some of these companies, by themselves, have the
economic power to control prices and the technical expertise to develop and
bring to market, improved versions of existing products long before they become
available to the Company. Many of the computers manufactured by the Company have
received favorable reviews in the trade press. The Company's senior management
tries to keep abreast of changes in the computer technology market with respect
to the claims and limitations of new component parts and accessories. In many
cases they are able to combine this information with their intimate knowledge of
their customers needs to fine tune their selection of component parts to produce
computers which better suit the specific needs of their customers. The Company
believes that management's knowledge of the market, the Company's 15 years in
business and the favorable name recognition that the Hertz computer enjoys are
factors that set the Company apart from many of its competitors. However,
whatever advantage the Company enjoys from
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these factors can easily be lost if the Company's pricing and technical features
of its products will not be able to compete with the prices and technology of
comparable products from other manufacturers.
The business of providing functional, architecturally attractive Modular
Racking Systems specifically designed to mount, support and allow easy access to
microcomputers and related equipment is a relatively new business. Nevertheless,
there are a number of companies already in the business, some of whom are
considerably larger and better established than the Company. Moreover, because
of the attractive profit margins in the business and the absence of any serious
barriers to entry, it is likely that a plethora of additional companies might
soon enter the field.
The market for Internet access and related services is extremely
competitive. The Company, however, intends to initially enter this market on a
very limited basis. Initially, at least, it intends to offer a narrow range of
Internet services to its existing customers, many of whom are not currently
being serviced by an Internet service provider. The Company believes that there
are some advantages , which it will seek to exploit, of being a single source
provider combining the ability to offer computers and related equipment with
Internet access, training and similar services.
Intellectual Property Rights
The Company seeks to protect its proprietary rights by obtaining non
disclosure and confidentiality agreements from its employees and consultants.
The Company has trademark registrations for "Hergo" and "Hergonized." It has
applied for registration of the Hertz Computer name, but such registration has
not been issued pending resolution of a claim by another party that claims
rights to use the name. Neither of the two principal products of the Company
enjoys patent protection. See "Risk Factors," "Lack of Proprietary Rights;
Trademarks" and "Legal Proceedings."
Employees
The Company employs 56 persons. In addition to three (3) executives at the
corporate level its computer division employs nine (9) persons, two of whom are
skilled in computer technology, in the actual production of computers, five (5)
persons in computer sales, five (5) in administration, and one (1) marketing
manager. For the Hergo operations, the Company employs fifteen (15) production
workers, one (1) plant manager, one (1) installation specialist, two (2) graphic
designers, two (2) in administration and five (5) sales persons. The Israeli
office employs seven (7) people.
Facilities
The Company currently occupies under lease that expires on August 31, 1996
an aggregate of approximately 10,000 square feet in two buildings on lower Fifth
Avenue at 33rd Street in New York City, which it uses for manufacturing
computers and as the principal sales office for both product lines. The Company
has leased new loft space on 75 Varick Street,
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consisting of 13,201 square feet for a six year period beginning on September 1,
1996, at an annual rental of $115,508 a year. The Company expects to move its
entire operations on Fifth Avenue to the Varick Street premises in September.
The Company also leases an aggregate of 16,000 square feet in Woodside, Queens,
New York for its Hergo manufacturing facility. The leases for this space, which
end on February 28. 2000, has an annual rent of approximately $100,000. The
Company also leases space in Ashdod, Israel. The annual rental for such space is
$16,500, under a lease that expires on May 31, 1998 with the right to renew the
lease for three successive one year periods.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as
follows:
Name Age Position
- ---- --- --------
Eli E. Hertz 47 Chairman, President and Chief
Executive Officer; Director
I. Marilyn Hertz 45 Vice Chairperson; Director
Barry J. Goldsammler 43 Executive Vice President, Chief
Financial Officer and Director
Each of the directors of the Company holds office until the next annual
meeting of shareholders, or until his successor is elected and qualified. At
present, the Company's bylaws provide for not less than one director nor more
than five directors. Currently, there are three directors in the Company. The
Board will be expanded to five directors following this Offering. The bylaws
permit the board of directors to fill any vacancy and such director may serve
until the next annual meeting of shareholders or until his successor is elected
and qualified. Officers serve at the discretion of the Board of Directors. I.
Marilyn Hertz is the wife of Eli E. Hertz. See "Certain Transactions."
The principal occupation and business experience for each officer and
director of the Company for at least the last five years are as follows:
Eli E. Hertz was a co-founder of Hertz Computer and has been a principal
officer of Hertz Computer and Hergo since their respective formations in 1982
and 1991. He has a B.S. degree in Management Science and Economics and an MBA in
Accounting and Management from Long Island University.
I. Marilyn Hertz was a co-founder of Hertz Computer and the founder of
Hergo has been a principal officer of Hertz Computer and Hergo since their
respective formations in 1982 and 1991. Before becoming a full time employee of
the Company, Mrs. Hertz was an officer of
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Citibank in its computer systems area. Mrs. Hertz is a graduate of Queens
College, and for over 12 years, has lectured on micro and mainframe computer
programming at Queens College.
Barry J. Goldsammler joined Hertz Computer in 1990 and has served in
various executive positions since then. Before joining Hertz Computer he was
controller and vice president for a venture capital firm and a controller for a
public manufacturing company. Mr. Goldsammler received a B.S. degree in
Accounting from Brooklyn College.
Committees of the Board of Directors
The Board of Directors has an Audit Committee comprised of ____ and ____.
The Audit Committee recommends to the Board of Directors the appointment of
independent auditors, reviews and approves the scope of the annual audit of the
Company's financial statement reviews and approves any non-audit services
performed by the independent auditors and periodically reviews and approves
major accounting policies and significant internal accounting control
procedures.
The Board of Directors also has a Compensation Committee comprised of _____
and _____. The Compensation Committee reviews and recommends compensation
officers and directors, administrator's stock option plans and reviews major
personnel matters.
Remuneration
The following table sets forth the combined remuneration paid by Hertz
Corporation and Hergo during fiscal years ended August 31, 1993, 1994 and 1995,
to the named officers and directors of the Company. For the periods shown, no
other executive officer received remuneration in excess of $100,000 per annum.
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Summary Compensation Table
Annual Compensation
--------------------
Name and Principal
Position Year Salary Bonus
-------- ---- ------ -----
Eli E. Hertz, 1995 $140,769
Chairman, President and 1994 217,873
Chief Executive Officer 1993 262,218
I. Marilyn Hertz, 1995 $180,769
Vice Chairperson 1994 278,702
1993 242,035
Barry J. Goldsammler, 1995 $ 97,401
Executive Vice President 1994 105,395
and Chief Financial Officer 1993 93,233
Employment Agreements
The Company has entered into employment agreements ("Agreements") each
dated as of July 1, 1996 with Eli E. Hertz and with I. Marilyn Hertz. The term
of their employment will commence upon the Effective Date and will expire on the
fifth anniversary thereof. The annual salary under the Agreement with Mr. Hertz
is $225,000 and under the Agreement with Mrs. Hertz is $75,000. The salaries may
be increased to reflect annual cost of living increases and may be supplemented
by discretionary and performance increases as may be determined by the Board of
Directors. Under Mr. Hertz' Agreement, he is granted options to purchase 900,000
Shares at the same exercise price and on the same terms as the Class A Warrants
issuable hereunder.
The Agreements provide, among other things, for participation in an
equitable manner in any profit-sharing or retirement, separation and disability
plans for employees or executives and for participation in other employee
benefits applicable to employees and executives of the Company. The Agreements
further provide for the use of an automobile and other fringe benefits
commensurate with their duties and responsibilities. The Agreement with Mr.
Hertz also provides for benefits in the event of retirement separation and
disability.
Pursuant to the Agreement, employment may be terminated by the Company with
cause or by the executive with good reason. Termination by the Company without
cause, or by the executive for good reason, would subject the Company to
liability for liquidated damages in an amount equal to the terminated
executive's base salary for the remaining term of his employment agreement or 12
months, whichever is higher.
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Stock Options
In July 1996, in order to attract and retain person necessary for the
success of the Company, the Company adopted its 1996 stock Option Plan (the
"Option Plan") covering up to 750,000 of its Shares, pursuant to which officers,
directors and key employees of the Company and consultants' to the Company are
eligible to receive incentive and/or non-incentive stock options. The Option
Plan, which expires in August 6, 2006, will be administered by the Board of
Directors or a committee designated by the Board of Directors. The selection of
participants, allotment of shares, determination of price and other conditions
relating to the purchase of options will be determined by the Board of
Directors, or a committee thereof, in its sole discretion. Incentive stock
options granted under the Option Plan are exercisable for a period of up to 10
years from the date of grant at an exercise price which is not less than the
fair market value of the Shares on the date of the grant, except that the term
of an incentive stock option granted under the Option Plan to a shareholder
owning more than 10% of the outstanding Shares may not exceed five years and its
exercise price may be not less than 110% of the fair market value of the Shares
on the date of the grant. As of August 8, 1996, no options had been granted
under the Option Plan. Options will generally be exerciseable for [one-third] of
the Shares covered thereby as of the date of the grant and for an additional
[one-third] of the Shares covered thereby each year thereafter, except that
options granted to outside directors may be exercisable for ___% of the Shares
covered immediately upon grant and for the remainder of the Shares following one
year's service.
Discretionary Share Bonus Awards
The Company has reserved 100,000 Shares for issuance to employees as a
reward for past performance or as an incentive for future performance. The
determination of the persons to receive Share Bonus Awards, the amount of shares
for each recipient and the time of vesting shall be determined by the Board of
Directors or by a committee to be designated by the Board of Directors. Shares
may be awarded with immediate vesting or with deferred vesting.
Limitations on Liability of Directors
As permitted by Delaware law, the Company's Certificate of Incorporation
includes a provision which provides that a director of the Company shall not be
personally liable to the Company or its shareholders for monetary damages for a
breach of fiduciary duty as a director, except (i) for any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, which prohibits the unlawful payment of dividends or the
unlawful repurchase or redemption of stock, or (iv) for any transaction from
which the director derives an improper personal benefit. This provision is
intended to afford directors protection against, and to limit their potential
liability for monetary damages resulting from, suits alleging a breach of the
duty of care by a director. As a consequence of this provision, shareholders of
the Company will be unable to recover monetary damages against directors for
action taken by them that may constitute negligence or gross negligence in the
performance of their duties unless such conduct
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falls within one of the foregoing exceptions. The provision, however, does not
alter the applicable standard governing a director's fiduciary duty and does not
eliminate or limit the right of the Company or any shareholder to obtain an
injunction or any other type of nonmonetary relief in the event of a breach of
fiduciary duty. Management of the Company believes this provision will assist
the Company in securing and retaining qualified persons to serve as directors.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the Company's
Shares owned on the date of this Prospectus and, as adjusted, to reflect the
sale of Shares offered by this Prospectus, by (i) each person who is known by
the Company to own beneficially more than five percent (5%) of the Company's
Shares; (ii) each of the Company' officers and directors; and (iii) all officers
and directors as a group:
<TABLE>
<CAPTION>
Percentage of Shares
--------------------
Position with
Name and Address (1) Company Number of Shares Before Offering After Offering (2)
---------------- ------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Eli E. Hertz Chairman,
President and Chief
Executive Officer;
Director 920,000 48.4% 30.7%(3)
I. Marilyn Hertz Vice Chairperson;
Director 920,000 48.4% 30.7%(3)
Barry J. Goldsammler Executive Vice
President, Chief -- -- --
Financial Officer and
Director
All Officers and
Directors as a Group
(3 persons) 1,840,000 96.8% 61.3%
</TABLE>
- --------------------
(1) Unless otherwise noted, c/o Hertz Technology Group, Inc. 325 Fifth Avenue,
New York, New York 10016-5012.
(2) Does not include the exercise of up to 2,200,000 Class A Warrants offered
herein, or any other option or warrant issued by the Company. The Company
is offering 1,100,000 Shares at a price of $5.00 per Share and 2,200,000
Warrants at $.25 per Warrant. The Shares and Warrants may only be purchased
together on the basis of one Share and two Warrants. The Class A Warrants
shall be exercisable commencing one year after the Effective Date of this
Prospectus. Each Class A Warrant entitles the holder to purchase one Share
at $5.50 per Share during the four year period commencing one year from the
Effective Date. The Class A Warrants are redeemable upon certain
conditions. Should the Class A Warrants be exercised, of which there is no
assurance, the Company will receive the proceeds therefrom, aggregating up
to an additional $12,100,000, which does not include the Class A Warrants
in the Underwriter's Over-Allotment Option. See "Description of
Securities."
(3) Assumes none of the 750,000 Shares offered under the Alternate Prospectus
are sold.
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CERTAIN TRANSACTIONS
Since 1993, the Company has borrowed moneys from Mr. and Mr. Hertz with
interest at rates ranging from 7% to 10% per annum. The outstanding amount of
such borrowings varied from time to time. The highest amount of such borrowing
in fiscal years ended on August 31, 1995 and August 31, 1994, were $353,000 and
$465,613, respectively. The highest amount of such borrowings since September 1,
1995 was $537,648. This amount was $326,000 as of May 31, 1996. In June of 1995,
the Company entered into a Revolving Line of Credit with the United Mizrachi
Bank under which the Company could borrow up to $1,000,000. The Company's
obligation under this agreement was guaranteed by Mr. Hertz. As of July 1, 1996,
the balance outstanding under this agreement was $895,000.
As of July 31, 1996, the Company agreed to acquire all of Mr. and Mrs.
Hertz's shareholdings in Hertz Corporation and Hergo in exchange for which the
Company would issue to them an aggregate of 1,840,000 Shares. The exchange of
Shares under this Recapitalization will have been effected immediately prior to
the Effective Date. All unregistered securities issued by the Company prior to
this Offering are deemed "restricted securities" within the meaning of that term
as defined in Rule 144 and have been issued pursuant to certain "private
placement' exemptions under Section 4(2) of the Securities Act of 1933, as
amended, and the rules and regulations as promulgated by the Commission. See
"Description of Securities."
The Company intends to indemnify its officers and directors to the full
extent permitted by Delaware law. Under Delaware law, a corporation may
indemnify its agents for expenses and amounts paid in third party actions and,
upon court approval in derivative actions, if the agents acted in good faith and
with reasonable care. A majority vote of the Board of Directors, approval of the
shareholder or court approval is required to effectuate indemnification. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to officers, directors or persons controlling the Company, the Company
has been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in such Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by an officer,
director or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such officer, director or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in such Act and
will be governed by the final adjudication of such issue.
Any future transactions with affiliates will be on terms no less favorable
than could be obtained from unaffiliated parties and will be approved by a
majority of the independent and disinterested directors. Any future loans to
Company officers, directors, affiliates and/or shareholders will be approved by
a majority of the independent and disinterested directors.
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DESCRIPTION OF SECURITIES
Common Stock
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.001 par value per share. There are 1,900,000 issued and
outstanding Shares. Holders of the Shares do not have preemptive rights to
purchase additional Shares or other subscription rights. The Shares carries no
conversion rights and are not subject to redemption or to any sinking fund
provisions. All Shares are entitled to share equally in dividends from sources
legally available therefor when, as and if declared by the Board of Directors
and, upon liquidation or dissolution of the Company, whether voluntary or
involuntary, to share equally in the assets of the Company available for
distribution to shareholders. All outstanding Shares are validly authorized and
issued, fully paid and nonassessable, and all Shares to be sold and issued as
contemplated hereby, will be validly authorized and issued, fully paid and
nonassessable. The Board of Directors is authorized to issue additional Shares
not to exceed the amount authorized by the Company's Certificate of
Incorporation, and to issue options and warrants for the purchase of such
shares, on such terms and conditions and for such consideration as the Board
warrants for the purchase of shares, on such terms and conditions and for such
consideration as the Board may deem appropriate without further shareholders
action. The above description concerning the Shares does not purport to be
complete. Reference is made to the Company's Certificate of Incorporation and
bylaws which are available for inspection upon proper notice at the Company's
offices, as well as to the applicable statutes of the State of Delaware for a
more complete descriptions concerning the rights and liabilities of
shareholders.
Prior to this offering, there has been no market for the Shares of the
Company, and no predictions can be made of the effect, if any, that market sales
of Shares and the availability of Shares for sale will have on the market price
prevailing from time to time . Nevertheless, sales of significant amounts of the
Shares in the public market may adversely effect prevailing market prices, and
may impair the Company's ability to raise capital at that time through the sale
of its Shares.
Each holder of Shares is entitled to one vote per share on all matters on
which such shareholders are entitled to vote. Since the Shares do not have
cumulative voting rights, the holders of more than fifty percent (50%) of the
Shares voting for the election of directors can elect all the directors if they
choose to do so and, in such event, the holders of the remaining shares will not
be able to elect any person on the Board of Directors.
Class A Warrants
The Company is offering 2,200,000 Warrants at a price of $.25 per Warrant,
together with 1,100,000 Shares at a price of $5.00 per Share.
The Class A Warrants shall be exercisable commencing one year after the
date of this Prospectus ("Effective Date"). Each Class A Warrant entitles the
holder to purchase one Share at
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$5.50 per share during the four year period commencing one year from the
Effective Date. The Shares underlying the Warrants will, upon exercise of the
Warrants, be validly issued, fully paid and nonassessable. The Class A Warrants
are redeemable by the Company for $.01 per Warrant if the average closing price
or bid price of the Shares, as reported by the principal exchange on which the
Shares are traded, equals or exceeds $8.75 per share, for any twenty (20)
consecutive trading days ending within five (5) day prior to the date of the
notice of redemption.
The Warrants can only be exercised when there is a current effective
registration statement covering the Shares underlying the Warrants. If the
Company does not or is unable to maintain a current effective registration
statement the Warrant holders will be unable to exercise the Warrants and the
Warrants may become valueless. Moreover, if the Shares underlying the Warrants
are not registered or qualified for sale in the sate in which a Warrant holder
resides, such holder might not be permitted to exercise the Warrants. See "Risk
Factor--Requirements of Current Prospectus and State Blue Sky Registration in
Connection with the Exercise of the Warrants Which May Not Be Exercisable and
May Therefore Be Valueless."
The Company will deliver Warrant certificates to the purchaser of
Securities in this Offering at the rate of two Warrants for each Share
purchased. Thereafter, Warrant certificates may be exchange for new certificates
of different denominations, and may be exercised or transferred by presenting
them at the offices of the Transfer Agent. Holders of the Warrants may sell the
Warrants if a market exists rather than exercise them. However, there can be no
assurance that a market will develop or continue as to such Warrants. If the
Company is unable to qualify its Shares underlying such Warrants for sale in
certain states, holders of the Company's Warrants in those states will have no
choice but to either sell such Warrants or allow them to expire.
Each Warrant may be exercised by surrendering the Warrant certificate, with
the form of election to purchase on the reverse side of the Warrant certificate
properly completed and executed, together with payment of the exercise price to
the Warrant Agent. The Warrants may be exercised in whole or from time to time
in part. If less than all of the Warrants evidenced by a Warrant certificate are
exercised, a new Warrant certificate will be issued for the remaining number of
Warrants.
Holders of the Warrants are protected against dilution of the equity
interest represented by the underlying Shares upon the occurrence of certain
events, including, but not limited to, issuance of stock dividends. If the
Company merges, reorganizes or is acquired in such a way as to terminate the
Warrants, the Warrants may be exercised immediately prior to such action. In the
event of liquidation, dissolution or winding up of the Company, holders of the
Warrants are not entitled to participate in the Company's assets.
For the life of the Warrants, the holders thereof are given the opportunity
to profit from rise in the market price of the Shares. The exercise of the
Warrants will result in the dilution of the then book value of the Shares held
by the public investor and would result in a dilution of their percentage
ownership of the Company. The terms upon which the Company may obtain additional
capital may be adversely affected through the period that the Warrants remain
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exercisable. The holders of these Warrants may be expected to exercise through
the period that the Warrants remain exercisable. The holders of these Warrants
may be expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain equity capital on terms more favorable than those
provided for by the Warrants.
Because the Warrants included in the Securities being offered hereby may be
transferred, it is possible that the Warrants may be acquired by persons
residing in states where the Company has not registered, or is not exempt from
registration such that the Shares underlying the Warrants may not be sold or
transferred upon exercise of the Warrants. Warrant holders residing in those
state would have no choice but to attempt to sell their Warrants or to let them
expire unexercised. Also, it is possible that the Company may be unable, for
unforeseen reasons, to cause a registration statement covering the Shares
underlying the Warrants to be in effect when the Warrants are exercisable. In
that event, the Warrants may expire unless extended by the Company as permitted
by the Warrant because a registration statement must be in effect, including
audited financial statements for companies acquired, in order for Warrant
holders to exercise their Warrants.
In the event that the Warrants are called for redemption, the Warrant
holders may not be able to exercise their Warrants in the event that the Company
has not updated this Prospectus in accordance with the requirements of the
Securities Act or these securities have not been qualified for sale under the
laws of the state where the Warrant holder resides. See "Requirements of Current
Prospectus and State Blue Sky Registration in Connection with the Exercise of
the Warrants Which May Not Be Exercisable and May Therefore Be Valueless." In
addition, in the event that the Warrants have been called for redemption, such
call for redemption could force the Warrant holder to either (i) assuming the
necessary updating to the Prospectus and state blue sky qualifications have been
effected, exercise the Warrants and pay the exercise price at a time when, in
the event of a decrease in market price from the period preceding the issuance
of the call for redemption, it may be less than advantageous economically to do
so, or (ii) accept the redemption price, which, in the event of an increase in
the price of the Shares, could be substantially less than the market value
thereof at the time of redemption.
Restricted Shares Eligible for Future Sale
All of the Company's currently outstanding Shares are "restricted
securities" and, in the future, may be sold upon compliance with Rule 144,
adopted under the Securities Act. Rule 144 provides, in essence, that a person
holding "restricted securities" for a period of two years may sell only an
amount every three months equal to the greater of (a) one percent of the
Company's issued and outstanding shares, or (b) the average weekly volume of
sales during the fourth calendar weeks preceding the sale. The amount of
"restricted securities" which a person who is not an affiliate of the Company
may sell is not so limited, since non-affiliates may sell without volume
limitation their shares held for three years if there is adequate current public
information available concerning the Company. A proposed rule which may be
adopted by the Commission would reduce these two and three year periods to one
and two years, respectively. Upon the sale of the Securities, and assuming that
there is no exercise of any issued and outstanding warrants, the Company will
have 3,000,000 Shares issued and outstanding, of which 1,150,000 Shares are
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"restricted securities", 750,000 share are being registered under the
registration statement of which this Prospectus is part and offered under the
Alternative Prospectus and 1,100,000 are publicly traded shares. Therefore,
during each three month period, beginning _____, 1996, a holder of restricted
securities who has held them for at least the two year period may sell under
Rule 144, a number of shares up to 30,000 Shares. Non-affiliated persons who
hold for the three-year period described above may sell unlimited shares once
their holding period is met. Notwithstanding the above, the current officers,
directors and principal shareholders have agreed, except as noted below, not to
sell, transfer, assign or issue any securities of the Company for a period of
twenty-four (24) months following the Effective Date without the consent of the
Underwriter.
The registration statement of which this Prospectus is a part also covers
the offering of 750,000 Shares being offered by the Selling Shareholders. Of the
750,000 Shares being offered by the Selling Shareholders, 225,000 Shares may be
sold during the twelve (12) months from the Effective Date at such time within
this 12 month period as is acceptable to the Underwriter and the balance
consisting of 525,000 Shares may be sold after eighteen (18) months from the
Effective Date, subject to earlier release at the sole discretion of the
Underwriter. In other offerings where the Underwriter has acted as the managing
Underwriter, it has released similar restrictions applicable to selling
shareholders prior to the expiration of the lock-up period and in some cases
immediately after the exercise of the Over-Allotment Option or the expiration of
the Over-Allotment Option period. Certificates evidencing these securities will
bear a legend reflecting such restrictions. The Underwriter may release the
securities held by the Selling Shareholders at any time after all securities
subject to the Over-Allotment Option have been sold or such option has expired.
The resale of the securities held by the Selling Shareholders is subject to
prospectus delivery and other requirements of the Securities Act. Sales of such
securities or the potential of such sales at any time may have an adverse effect
on the market prices of the Securities offered hereby. See "Selling
Shareholders."
Transfer Agent and Registrar
The transfer agent and registrar for the securities of the Company is the
American Stock Transfer and Trust Company located at 40 Wall Street, New York,
New York 10005.
Reports to Shareholders and Warrantholders
The Company will furnish to holders of the Shares and Warrants annual
reports containing audited financial statements. The Company may issue other
unaudited interim reports to such persons as it deems appropriate.
Contemporaneously, with this Offering, the Company shall register its
Shares with the Commission, under the provisions of Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, the Company will be required to comply with certain
reporting, proxy solicitation and other requirements of the Exchange Act.
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SELLING SHAREHOLDERS
The registration statement of which this Prospectus is a part also covers
the offering of 750,000 Shares being officered by the Selling Shareholders. Of
the 750,000 Shares being offered by the Selling Shareholders, 225,000 Shares may
be sold during the twelve (12) months from the Effective Date at such time
within this 12 month period as is acceptable to the Underwriter and the balance
consisting of 525,000 Shares may be sold after eighteen (18) months after the
Effective Date, subject to earlier release at the sole discretion of the
Underwriter. In other offerings where the Underwriter has acted as the managing
Underwriter, it has released similar restrictions applicable to Selling
Shareholders prior to the expiration of the lock-up period and in some cases
immediately after the exercise of the Over-Allotment Option or the expiration of
the Over-Allotment Option period. Certificates evidencing these securities will
bear a legend reflecting such restrictions. The Underwriter may release the
securities held by the Selling Shareholders at any time after all securities
subject to the Over-Allotment Option have been sold or such option has expired.
The resale of the securities held by the Selling Shareholders is subject to
prospectus delivery and other requirements of the Securities Act, as amended.
Sale of such securities or the potential of such sales at any time may have an
adverse effect on the market prices of the securities offered hereby.
The securities offered hereby may be sold from time to time directly by the
Selling Shareholders. Alternatively, the Selling Shareholders may from time to
time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Shareholders may be effected in one or
more transactions that may take place on the over-the-counter market, including
ordinary broker's transactions, privately-negotiated transaction or through
sales to one or more broker-dealers for resale of such shares as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Shareholders in connection with such sales of securities. The securities offered
by the Selling Shareholders may be sold by one or more of the following methods,
without limitations: (a) a block trade in which a broker or dealer so engaged
will attempt to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Shareholders may
arrange for other brokers or dealers to participate. The Selling Shareholders
and intermediaries through whom such securities are sold may be deemed
"underwriters" within the meaning of the Act with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation.
At the time a particular offer of Securities is made by or on behalf of a
Selling Shareholder, to the extent required, a Prospectus will be distributed
which will set forth the numbers of Shares being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for shares
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purchased from the Selling Shareholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
Under the Exchange Act, and the regulations thereto, any person engaged in
a distribution of the Securities of the Company offered by this Prospectus may
not simultaneously engage in market-making activities with respect to such
Securities of the Company during the applicable "cooling off" period (nine days)
prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Shareholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, Rule 10b-6 and 10b-7, in connection with the
transactions in such securities, which provisions may limit the timing of
purchases and sales of such securities by the Selling Shareholders.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriter has agreed to purchase from the Company
1,100,000 Shares and 2,200,000 Warrants offered hereby from the Company on a
"firm commitment" basis, if any are purchased. The Underwriter has advised the
Company that it proposes to offer to the public the Shares at $5.00 per Share
and the Warrants at $.25 per Warrant as set forth on the cover page of this
Prospectus and that they may allow to certain dealers who are NASD members, and
such dealers may reallow, concessions not to exceed $.____ per Share and $____
per Warrant. After the initial public offering, the public offering prices,
concession and reallowance may be changed by the Underwriter.
The public offering price of the Securities and the exercise price and
other terms of the Warrants were arbitrarily determined by negotiations between
the Company and the Underwriter and do not necessarily relate to the assets,
book value or results of operations of the Company or any other established
criteria of value.
The Company has granted an option to the Underwriter, exercisable during
the 30-day period from the date of this Prospectus, to purchase up to a maximum
of 165,000 additional Shares and 330,000 additional Warrants at the offering
prices, less the underwriting discount, to cover over-allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
Insofar as indemnification for liabilities under the Securities Act may be
provided to officers, directors or persons controlling the Company, the Company
has been informed that in the opinion of the Commission, such indemnification is
against public policy and is therefore unenforceable.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of three percent (3%) of the aggregate offering price of the
Securities offered hereby, including
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any Securities purchased pursuant to the Over-Allotment Option. The
Underwriter's Expenses in excess of the stated expense allowance will be borne
by the Underwriter. To the extent that the expenses of the Underwriter are less
than the stated expense allowance, the difference may be deemed compensation to
the Underwriter in addition to the sales commission payable to the Underwriter.
The Company has agreed to grant to the Underwriter, or its designees an
option ("Underwriter's Purchase Option") to purchase up to an aggregate of
110,000 Shares and 220,000 Warrants. The Underwriter's Purchase Option shall be
exercisable during the four-year period commencing one (1) year after the
Effective Date. The Underwriter's Purchase Option may not be assigned,
transferred, sold or hypothecated by the Underwriter after the Effective Date of
this Prospectus, except to officers or partners of the Underwriter or any of the
Underwriter and selling group members in this offering. Any profits realized by
the Underwriter upon the sale of the Securities issuable upon exercise of the
Underwriter's Securities Purchase Option may be deemed to be additional
underwriting compensation. The exercise price of the Securities issuable upon
exercise of the Underwriter's Purchase Option during the period of
exercisability shall be 120% of the initial public offering prices of such
Securities. The exercise price of the Underwriter's Purchase Option and the
number of Shares covered thereby are subject to adjustment in certain events to
prevent dilution. For the life of the Underwriter's Purchase Option, the holders
thereof are given, at a nominal cost, the opportunity to profit from a rise in
the market price of the Company's Shares and Warrants with a resulting dilution
in the interest of other shareholders. The Company may find it more difficult to
raise capital for its business if the need should arise while the Underwriter's
Purchase Option is outstanding. At any time when the holders of the
Underwriter's Purchase Option might be expected to exercise it, the Company
would probably be able to obtain additional capital on more favorable terms.
If the Company enters into a transaction (including a merger, joint venture
or the acquisition of another entity) introduced to the Company by the
Underwriter, the Company has agreed to pay the Underwriter a fee equal to five
percent of the first $3 million of consideration received by the Company, four
percent of the next $3 million, three percent of the next $2 million, two
percent of the next $2 million and one percent of the excess, if any, over $10
million.
Prior to the date of this Prospectus, except as set forth below, all
holders of the Shares as of the Effective Date have agreed in writing not to
sell, assign or transfer any of the Company's securities without the
Underwriter's prior written consent for a period of twenty-four (24) months from
the Effective Date. 750,000 Shares of Stock are being offered by the Selling
Shareholders under this Offering of which 225,000 shares may be sold during the
twelve (12) months from the Effective Date at such time within such twelve month
period as is acceptable to the Underwriter, and the balance consisting of
525,000 Shares may be sold at any time after the eighteen (18) months from the
Effective Date, subject to earlier release at the sole discretion of the
Underwriter. The Company has also agreed not to issue any additional securities
other than as contemplated by this Prospectus for a period of twenty four (24)
months following the Effective Date without the consent of the Underwriter.
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The Company will also pay a warrant solicitation fee to the Underwriter
equal to four percent (4%) of the exercise price of the Class A Warrants
beginning one year from the date of this Prospectus, if the Underwriter causes
the exercise of such Warrants prior to the expiration thereof as set forth in
the Warrant Agreement, subject to the Underwriter's compliance with the rules
and regulations of the NASD. In accordance with NASD Notice to Members 81-38, no
warrant solicitation fee shall be paid (i) upon exercise where the market price
of the underlying Common Stock is lower than the exercise price, (ii) for the
exercise of warrants held in any discretionary account; (iii) upon the exercise
of warrants where disclosure of compensation arrangements has not been made in
documents provided to customers both as part of the original offering and at the
time of exercise; and (iv) upon the exercise of warrants in unsolicited
transactions. The broker-dealer to receive the warrant solicitation fee must be
designated, in writing, as the soliciting broker. See "Risk Factors-Exercise of
Class A Warrants May Have Dilutive Effect on Market" and "Underwriter's
Influence on the Market May Have Adverse Consequences."
The Underwriter, for three (3) years after the Effective Date, shall have
the option to designate a director to serve on the Company's Board of Directors
or at its option a non director observer to attend meetings of the Company's
Board of Directors.
Following the consummation of this offering, the Underwriter intends to
seek others to make a market in the Company's Securities in addition to the
Underwriter. The foregoing is a summary of certain provisions of the
Underwriting Agreement and Underwriter's Purchase Option which have been filed
as an exhibit hereto.
Litigation Involving Underwriter May Affect Securities
The Company has been advised by the Underwriter that on or about May 22,
1995, the Underwriter and Elliot Loewenstern and Richard Bronson, principals of
the Underwriter, and the Commission agreed to an offer of settlement (the "Offer
of Settlement") in connection with a complaint filed by the Commission in the
United States District Court for the Southern District of Florida alleging
violations of the federal securities laws, Section 17(a) of the Securities Act
of 1933, Section 10(b) and 15(c) of the Securities Exchange Act of 1934, and
Rules 10b-5, 10b-6 and 15c1-2 promulgated thereunder. The complaint also alleged
that in connection with the sale of securities in three (3) IPO's in 1992 and
1993, the Underwriter engaged in fraudulent sales practices. The proposed Offer
of Settlement was consented to by the Underwriter and Messrs. Loewenstern and
Bronson without admitting or denying the allegations of the complaint. The Offer
of Settlement was approved by Judge Gonzales on June 6, 1995. Pursuant to the
final judgment (the "Final Judgment"), the Underwriter:
o was required to disgorge $1,000,000 to the Commission, which amount
was paid in four (4) equal installments on or before June 22, 1995;
o agreed to the appointment of an independent consultant ("Consultant").
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Such Consultant was obligated, on or before August 15, 1996:
o to review the Underwriter's policies, practices and procedures in six
(6) areas relating to compliance and sales practices;
o to formulate policies, practices and procedures for the Underwriter
that the Consultant deems necessary with respect to the Underwriter's
compliance and sales practices;
o to prepare a report devoted to and which details the aforementioned
policies, practices and procedures (the "Report");
o to deliver the Report to the President of the Underwriter and to the
staff of the Southeast Regional office of the Commission;
o to prepare, if necessary, a supervisory procedures and compliance
manual for the Underwriter, or to amend the Underwriter's existing
manual; and
o to formulate policies, practices and procedures designed to provide
mandatory on-going training to all existing and newly hired employees
of the Underwriter. The Final Judgment further provides that, within
thirty (30) days of the Underwriter's receipt of the Report, unless
such time is extended, the Underwriter shall adopt, implement and
maintain an and all policies, practices and procedures set forth in
the Report.
The Final Judgment also provides that an independent auditor ("Auditor")
shall conduct four (4) special reviews of the Underwriter's policies, practices
and procedures, the first such review to take place six (6) months after the
Report has been delivered to the Underwriter and thereafter at six-month
intervals. The Auditor is also authorized to conduct a review, on a random basis
and without notice to the Underwriter, to certify that any persons associated
with the Underwriter who have been suspended or barred by any Commission order
are complying with the terms of such orders.
On July 10, 1995, the action as against Messrs. Loewenstern and Bronson was
dismissed with prejudice. Mr. Bronson has agreed to a suspension from
associating in any supervisory capacity with any broker, dealer, municipal
securities dealer, investment advisor or investment company for a period of
twelve (12) months, dating from the beginning of such suspension. Mr.
Loewenstern has agreed to a suspension from associating in any supervisory
capacity with any broker, dealer, municipal securities dealer, investment
advisor or investment company for a period of twelve (12) months commencing upon
the expiration of Mr. Bronson's suspension.
In the event that the requirements of the foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Shares, and
additional brokers do not make a market in the Company's securities, the market
for, and the liquidity of, the Company's securities may be adversely affected.
In the event that other broker dealers fail to make a market in the Company's
securities, the possibility exists that the market for and the liquidity of the
Company's securities may be adversely affected to such an extent that public
security holders may not have anyone to purchase their securities when offered
for sale at any price. In such event, the market for, liquidity and prices of
the Company's securities may not exist. See
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"Underwriting." For additional information regarding the Underwriter, investors
may call the National Association of Securities Dealers, Inc. at (800) 289-9999.
Recent State Action Involving the Underwriter--Possible Loss of Liquidity
The State of Indiana has commenced an action seeking among other things to
revoke the Underwriter's license to do business in such state. Such proceeding
if ultimately successful may adversely affect the market for and liquidity of
the Company's securities if additional broker dealers do not make a market in
the Company's securities. Moreover, should Indiana investors purchase any of the
securities sold in this offering from the Underwriter prior to the possible
revocation of the Underwriter's license in Indiana, such investors will not be
able to resell such securities in such state through the Underwriter but will be
required to retain a new broker dealer firm for such purpose. The Company cannot
ensure that other broker dealers will make a market in the Company's securities.
In the event that other broker dealers fail to make a market in the Company's
securities, the possibility exists that the market for and the liquidity of the
company's securities may be adversely affected to an extent that public security
holders may not have anyone to purchase their securities when offered for sale
at any price. In such event, the market for, liquidity and prices of the
Company's securities may not exist. It should be noted that although the
Underwriter may not be the sole market maker in the Company's securities, it
will most likely be the dominant market maker in the Company's securities.
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<PAGE>
Determination of Public Offering Price
Prior to this offering, there has been no public market for the Shares or
the Class A Warrants. The initial public offering price for the Securities and
the exercise price of the Class A Warrants have been determined by negotiations
between the Company and the Underwriter. Among the factors considered in the
negotiations were an analysis of the areas of activity in which the Company is
engaged, the present state of the Company's business, the Company's financial
condition, the Company's prospects, an assessment of management, the general
condition of the securities market at the time of this offering and the demand
for similar securities of comparable companies. The public offering price of the
Securities and the exercise prices of the Class A Warrants does not necessarily
bear any relationship to assets, earnings, book value or other criteria of value
applicable to the Company.
LEGAL PROCEEDINGS
Hergo and Hertz Computer have been sued by Ergotron, Inc. in federal court
in the Southern District of New York. The plaintiff, a competitor, claims that
Hergo has been infringing its rights in a computer support system marketed and
sold by plaintiff. The action was commenced on August 23, 1993. On March 26,
1996, the Court granted Hergo summary judgment on plaintiff's "trade dress"
infringement claims, its principal claims in the suit. The Company is presently
discussing settlement of the remaining issues. In light of the court decision,
the Company believes that it has limited risks with respect to the remaining
claims. Plaintiff, however, has indicated that it may wish to appeal the summary
judgment decision of the lower court when such appeal becomes timely. The
Company believes that if such appeal were made, it would be dismissed, but there
can be no assurance of such a result, and if plaintiff were able to prevail on
appeal, and to thereafter succeed in a subsequent trial, Hergo might be liable
for damages for its past sales. In addition, Hergo might be required to redesign
some of its products so as to avoid any of the claimed infringement of
plaintiff's products, which in turn could have an adverse affect on the
Company's plans for expanding this part of the business.
On or about August 9, 1995, Hertz Computer commenced an action against A.C.
Purchasing Securities, Inc. and others in Federal Court in the Southern
District, New York to collect approximately $140,000 for goods sold and
delivered to defendant which was purchasing computers for resale to the
Government of Israel. The defendants have counterclaimed, charging that Hertz
Computer sold computers directly to the Government of Israel, thereby,
tortuously interfering with defendants business arrangement with the Government
of Israel. The Company believes that Hertz Computer has meritorious defenses to
the counterclaim and that notwithstanding defendants large claim for damages,
the maximum amount it could reasonably expect to recover if it were successful
in this suit would be the amount of the profits it was deprived of by reason of
Plaintiff's allegedly tortuous conduct, and this amount should not exceed by
much, if at all, the amount of plaintiffs claim for goods sold and delivered.
57
<PAGE>
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
the Company by Morse, Zelnick, Rose & Lander, LLP, New York, New York
10022-2605. Morse, Zelnick, Rose & Lander, LLP is the owner of 60,000 Shares.
Certain legal matters will be passed upon for the Underwriter by Bernstein &
Wasserman, LLP, 950 Third Avenue, New York, New York 10022.
EXPERTS
The consolidated financial statements and schedules of the Company as of
and for the periods ending August 31, 1995 and August 31, 1994, included in the
Registration Statement and this Prospectus have been audited by Arthur Andersen,
LLP, independent certified public accountants, as indicated in their report with
respect thereto and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
HERTZ TECHNOLOGY GROUP INC. Pages
Report of Independent Public Accountants ............................. F-1
Consolidated Balance Sheet as of August 31, 1995 ..................... F-2
Consolidated Statements of Operations for the Years
Ended August 31, 1995 and 1994 (unaudited) ......................... F-3
Consolidated Statements of Stockholders' Equity for the Years
Ended August 31, 1995 and 1994 ..................................... F-4
Consolidated Statements of Cash Flow for the Years Ended
August 31, 1995 and 1994 ........................................... F-5
Notes to Financial Statements as of
August 31, 1995 and 1994 ........................................... F-6
Report of Independent Public Accountants for Hertz Computer
Informantion System (1985) Ltd. .................................... F-14
Consolidated Balance Sheet as of May 31, 1996 (unaudited) ............ F-16
Consolidated Statements of Operations Nine Months Ended
May 31, 1996 and 1995 (unaudited) .................................. F-17
Consolidated Statements of Cash Flow Nine Months Ended
May 31, 1996 and 1995 (unaudited) .................................. F-18
Notes to Consolidated Financial Statements Nine Months Ended
May 31, 1996 and 1995 (unaudited) .................................. F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the recapitalization discussed in Note 1 to the consolidated financial
statements is effected, the undersigned would be able to render the following
audit report.
Arthur Andersen LLP
New York, New York
November 30, 1995
To the Board of Directors of Hertz Technology Group, Inc.:
We have audited the accompanying consolidated balance sheet of Hertz Technology
Group, Inc. (a New York Corporation) as of August 31, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended August 31, 1995 and 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of Hertz Computers Information System (1985) Ltd.
("Hertz-Israel"), which statements reflect total assets and revenues of 23
percent and 17 percent, respectively in 1995 and total revenues of 9 percent in
1994 of the consolidated totals. Those statements were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates to
the amounts included for this entity, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Hertz Technology Group, Inc. as of August 31, 1995 and
the results of its operations and its cash flows for each of the two years in
the period ended August 31, 1995, in conformity with generally accepted
accounting principles.
As explained in Note 8 to the financial statements, effective September 1, 1993,
the Company changed its method of accounting for income taxes.
F-1
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1995
ASSETS
CURRENT ASSETS:
Cash $ 121,929
Accounts receivable, less allowance for
doubtful accounts of $22,000 1,931,848
Inventories 958,209
Due from related parties 17,276
Prepaid expenses and other current assets 46,641
----------
Total current assets 3,075,903
----------
PROPERTY AND EQUIPMENT, net 214,097
----------
GOODWILL, net of accumulated amortization of $31,684 47,525
----------
OTHER ASSETS 28,678
----------
Total assets $3,366,203
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks and others $1,028,295
Accounts payable and accrued expenses 1,038,500
Income taxes payable 11,377
Note payable to stockholder 205,515
----------
Total current liabilities 2,283,687
----------
NOTES PAYABLE TO BANKS AND OTHERS 9,850
----------
NOTE PAYABLE TO RELATED PARTY AND
STOCKHOLDER (Note 4) 316,083
----------
OTHER LIABILITIES 15,617
----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value: 25,000,000
authorized, issued and outstanding
1,900,000 shares 1,900
Additional paid-in capital 124,100
Retained earnings 614,966
----------
Total stockholders' equity 740,966
----------
Total liabilities and stockholders' equity $3,366,203
==========
The accompanying notes are an integral part of this consolidated balance sheet.
F-2
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------------- -----------------
<S> <C> <C>
NET SALES $ 11,220,183 $ 10,929,308
COST OF GOODS SOLD 8,102,977 8,386,365
--------------- -----------------
Gross Profit 3,117,206 2,542,943
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,868,665 2,288,388
--------------- -----------------
Operating income 248,541 254,555
OTHER INCOME (EXPENSE):
Other income 14,671 13,394
Interest, net of interest income of $6,266 and $22,219 (131,484) (58,340)
--------------- -----------------
Income before provision for income taxes and cumulative
effect of change in accounting principle 131,728 209,609
PROVISION FOR INCOME TAXES 77,615 63,138
--------------- -----------------
Income before cumulative effect of change in accounting
principle 54,113 146,471
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- 28,424
--------------- -----------------
Net Income $ 54,113 $ 174,895
=============== =================
Income before cumulative effect of change in
accounting principle per share $ 0.03 $ 0.08
Cumulative effect of change in accounting principle
per share -- 0.01
--------------- -----------------
Net income per share $ 0.03 $ 0.09
HISTORICAL INCOME BEFORE PROVISION FOR INCOME TAXES $ 131,728 $ 209,609
PRO FORMA PROVISION FOR INCOME TAXES 73,602 107,552
=============== =================
PRO FORMA NET INCOME $ 58,126 $ 102,057
=============== =================
PRO FORMA NET INCOME PER SHARE $ 0.03 $ 0.05
=============== =================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 1,900,000 1,900,000
=============== =================
SUPPLEMENTARY NET INCOME PER SHARE $ 0.06
===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
----- ------- -------- -----
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at August 31, 1993 $ 1,900 $ 124,100 $ 385,958 $ 511,958
- --------------------------------------------------------------------------------------------------------------------------------
Net income for the year ended August 31, 1994 -- -- 174,895 174,895
- --------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1994 1,900 124,100 560,853 686,853
- --------------------------------------------------------------------------------------------------------------------------------
Net income for the year ended August 31, 1995 -- -- 54,113 54,113
- --------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1995 $ 1,900 $ 124,100 $ 614,966 $ 740,966
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 54,113 $ 174,895
Adjustments to reconcile net income to net cash
(used in) provided by operating activities.
Depreciation and amortization 21,200 29,103
Bad debt expense 14,000 --
Changes in operating assets and liabilities
Accounts receivable (298,293) (130,577)
Inventories (140,849) (27,254)
Due from related parties (22,366) (115,125)
Prepaid expenses and other assets 10,131 (46,822)
Accounts payable and accrued expenses (15,616) 214,266
Income taxes payable (31,758) 19,135
Deferred income taxes payable -- (64,400)
Other liabilities 1,621 --
Note payable to stockholder 13,230 (30,500)
-------------- -------------
Net cash (used in) provided by operating activities (394,587) 22,721
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (46,888) (96,591)
Proceeds from repayment of note receivable from related party 8,902 --
-------------- -------------
Net cash used in investing activities (37,986) (96,591)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note receivable from related party -- 103,625
Principal payments under notes payable to banks (715,259) (6,734)
Borrowings under notes payable to banks 1,028,295 20,078
Borrowings (Payments) under note payable to stockholder 176,083 (81,052)
-------------- -------------
Net cash provided by financing activities 489,119 35,917
-------------- -------------
Net increase (decrease) in cash 56,546 (37,953)
CASH, beginning of year 65,383 103,336
-------------- -------------
CASH, end of year $ 121,929 $ 65,383
============== =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 111,927 $ 68,984
-------------- -------------
Income taxes paid $ 82,947 $ 158,709
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995 AND AUGUST 31, 1994
1. COMPANY BACKGROUND AND SUMMARY
AND SIGNIFICANT ACCOUNTING POLICIES
Recapitalization
The Hertz Technology Group, Inc. ("Company") was formed on June 18, 1996. Prior
to the effective date of an initial public offering ("IPO") (see Note 11), Hertz
Computer Corporation ("Hertz Computer") and Hergo Ergonomic Support Systems,
Inc. ("Hergo"), two entities under common control, will be acquired by the
Company (which is owned by the same shareholders) and become wholly owned
subsidiaries. Accordingly, the financial statements are presented as
consolidated. Hertz Computer owns 100% of Hertz Computers Information System
(1985) Ltd. ("Hertz-Israel").
Nature of Business
Hertz Computer and Hergo are both located in New York City and Hertz-Israel is
located in Ashod, Israel. Hertz Computer assembles and sells personal computers
in the United States primarily within the New York Metropolitan area and also
exports to customers in Israel. Hertz-Israel primarily sells and services Hertz
Computer manufactured personal computers in Israel. Hergo manufactures and sells
space saving modular racks and technical furniture to help organize all types of
computer hardware, communication and electronic equipment.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Hertz Computer, Hertz-Israel and Hergo. All
intercompany transactions have been eliminated in consolidation.
Revenue Recognition
Sales are recognized when the products are shipped. Payments received for
products not yet shipped are recorded as a current liability. The provision for
warranties is not material as all components are warrantied to the Company by
the manufacturers.
Inventories
Inventories, which consist primarily of finished goods, raw material,
components, and work in process, are valued at the lower of cost or market on
the first-in, first-out (FIFO) basis.
Inventories as of August 31, 1995 consist of:
1995
----
Components $527,551
Raw materials and work in process 86,316
Finished goods and evaluation units 344,342
--------
$958,209
F-6
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995 AND AUGUST 31, 1994
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed under the
straight-line method over estimated useful lives ranging from 5 to 10 years.
Leasehold improvements are amortized over the shorter of the lease term or the
estimated useful lives of the assets.
Goodwill
Goodwill, which arose in 1991 in connection with the acquisition of
Hertz-Israel, is amortized on a straight-line basis over a period of 10 years.
Amortized expense for the years ended August 31, 1995 and 1994 was $7,921.
Translation of Foreign Currency
The functional currency of Hertz-Israel is the U.S. dollar. The accounts of
Hertz-Israel have been translated in accordance with Statement of Financial
Accounting Standards No. 52. The financial statements of Hertz-Israel have been
remeasured into U.S. dollars as follows: at rates prevailing during the year for
revenue and expense items (except depreciation and amortization); at year-end
rates for assets and liabilities except for equipment and leasehold
improvements, which are translated at the rate in effect at the time of their
acquisition. Depreciation and amortization are remeasured based on the
historical dollar cost of underlying assets. The effect of translation has been
reflected currently in the Consolidated Statement of Operations and it is not
material.
Income Taxes
Hergo, with the consent of its stockholders, elected to be treated as an S
Corporation for federal and state tax purposes, which provides that, in lieu of
Hergo paying income taxes, the stockholders separately account for their pro
rata shares of Hergo's items of income, deductions, losses, and credits. As
such, Hergo does not incur federal income tax expense, although it does incur
state and local tax expense. Hertz Computer is a C corporation which incurs
federal, state and local income tax expense.
Pro Forma Net Income
Pro forma net income is calculated as if Hergo was a C corporation for tax
filing purposes during the years ended August 31, 1995 and August 31, 1994. As
such, an effective tax rate of approximately 46% was used in calculating both
Hergo's and Hertz's pro forma income tax provision.
Net Income Per Share
Net income per share has been computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period.
Supplementary net income per share is calculated for the year ended August 31,
1995. Supplementary net income per share is computed as if $1,559,743 of
interest bearing debt obligations was repaid from the net proceeds of the IPO as
of September 1, 1994 and assuming that (i) 311,949 of common shares were issued
as of September 1, 1994 to repay the interest bearing debt obligations; (ii)
$74,385 of interest expense, net of income tax expense, was eliminated as a
result of such payment for the twelve months ended August 31, 1995.
F-7
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995 AND AUGUST 31, 1994
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Risks
The Company faces a number of risks, including a highly competitive
microcomputer market environment which places pressure on profit margins,
customer and geographic concentrations, the potential continual operating losses
of Hertz-Israel, dependence on key personnel, limited operating history of
Hergo's product line whose current margins may not be indicative of future
margins, no assurance of attainment of proprietary rights and trademarks of the
Hertz and Hergo names and businesses and the ability to manage the growth of the
sales force and employee base of which the Company expects to expand with the
proceeds from the IPO. Such risks could impact the future results of the
Company.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at August 31, 1995:
1995
----
Furniture, fixtures and equipment $219,305
Warehouse equipment 60,187
Leasehold improvements 39,683
319,175
--------
Less: Accumulated depreciation and
amortization 105,078
--------
Property and equipment, net $214,097
========
3. NOTES PAYABLE TO BANKS AND OTHERS
Line of Credit
In June 1995, Hertz Computer entered into a Revolving Line of Credit
("Agreement") with a bank under which the Company could borrow up to $1,000,000
with interest accruing on any outstanding balance at the prime rate of the bank,
plus 1% (effective rate at August 31, 1995 was 9.75%). Repayment of the
borrowings is secured by a general security interest in substantially all
personal property of Hertz Computer and is personally guaranteed by the
stockholders. The Agreement expires May 30, 1996. As of August 31, 1995, the
balance outstanding under this agreement was $895,000.
Hertz-Israel has a bank overdraft of $114,133. The interest rate on the
overdraft is the Israeli prime rate plus 1.2% (15.9% at August 31, 1995).
F-8
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995 AND AUGUST 31, 1994
Long Term
Hertz-Israel has notes payable due with banks, aggregating $29,012 and are
payable as follows:
1995 $19,162
1996 9,850
-------
29,012
-------
Less: current maturities 19,162
-------
$9,850
=======
4. RELATED PARTY TRANSACTIONS
Note Payable to Stockholder - Short-term
Hertz Computer has a note payable to a stockholder due on demand at August 31,
1995, in the amount of $140,000, which is collateralized by the Company's assets
and subordinated to the notes payable to bank described in Note 3. The interest
rate on this note payable is prime plus 1.4 % (10.2 % at August 31, 1995) and
interest expense for the years ended August 31, 1995 and 1994 were $9,643 and
$9,629, respectively.
Hergo has a 10%, due on demand note payable for $145,515 and $132,287 at August
31, 1995 and August 31, 1994, respectively, owed to a stockholder. The note is
collateralized by the Company's assets. The individual has represented that
$80,000 will not be demanded before September 1, 1996. Interest expense incurred
on this note payable for the years ended August 31, 1995 and August 31, 1994 was
$13,229 and $9,260, respectively.
Note Payable to Stockholder - Long-Term
Hertz Computer has a 10%, due on demand note payable to a stockholder in the
amount of $176,083. The note is collateralized by the Company's assets and
subordinated to the notes payable to bank described in Note 3. The individual
has represented that the note will not become due before September 1, 1997.
Interest expense for the year ended August 31, 1995 was $15,985.
Note Payable to Related Party
Hertz Computer has a 9%, due on demand note payable for $60,000 owed to an
individual related to a stockholder. The note is collateralized by the Company's
assets and subordinated to the notes payable to bank described in Note 3. The
individual has represented that the note will not become due before September 1,
1997. Interest expense for the years ended August 31, 1995 and August 31, 1994
was $5,400 and $6,446, respectively.
5. LIFE INSURANCE
Hertz Computer is the beneficiary of a life insurance policy in the amount of
$1,140,897 on the life of an officer of Hertz Computer. The policy's related
cash surrender value is included in other assets in the accompanying
consolidated balance sheet and amounted to $26,191, as of August 31, 1995.
F-9
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995 AND AUGUST 31, 1994
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
Hertz Computer and Hergo occupy their premises under operating leases expiring
in August 1996 and March 2000, respectively.
The future minimum lease payments of all operating leases as of August 31, 1995
for the Company are as follows:
Fiscal Year
-----------
1996 199,587
1997 117,871
1998 107,723
1999 104,788
2000 51,924
------
Total 581,893
Total rent expense related to the Company's premises for the periods ended
August 31, 1995 and August 31, 1994 was $153,404 and $148,276, respectively.
Litigation
The Company is currently involved in litigation regarding, tradedress, and
copyright infringement. Mangement believes it has valid defenses against these
claims; however, there is no certainty as to the possible outcome, nor is there
any reasonable estimation of possible monetary exposure.
Hertz Computer commenced an action against A.C. Purchasing Securities, Inc. and
others in Federal Court in the Southern District, New York to collect
approximately $140,000 for goods sold and delivered to defendant which was
purchasing computers for resale to the Government of Israel. The defendants have
counterclaimed, charging that Hertz Computer sold computers directly to the
Government of Israel, thereby, tortuously interfering with defendants business
arrangement with the Government of Israel. The Company believes that Hertz
Computer has meritorious defenses to the counterclaim and that notwithstanding
defendants large claim for damages, the maximum amount it could reasonably
expect to recover if it were successful in this suit would be the amount of the
profits it was deprived of by reason of Plaintiff's allegedly tortuous conduct,
and this amount should not exceed by much, if at all, the amount of plaintiffs
claim for goods sold and delivered.
While the ultimate results of the matters described above cannot be determined,
management does not expect that they will have a material adverse effect on the
Company's results of operations or financial position.
7. PROFIT SHARING PLAN
Hertz Computer has a profit sharing plan covering all eligible employees. For
the years ended August 31, 1995 and 1994, the Board of Directors approved the
contribution of approximately $60,000 and $83,000 to this plan and these amounts
are reflected as a component of selling, general and administrative expense in
the Company's Consolidated Statements of Operations.
F-10
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995 AND AUGUST 31, 1994
8. INCOME TAXES
Effective September 1, 1993, Hertz Computer changed its method of accounting for
income taxes from the deferred method to the liability method as required by
Statement of Financial Accounting Standards No. 109 - "Accounting for Income
Taxes" ("SFAS No. 109"). As permitted under SFAS No. 109, Hertz Computer adopted
this method of accounting via a cumulative effect of a change in accounting
principle. This adoption resulted in a benefit of $28,424.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The most significant
components relate to the allowances for doubtful accounts and obsolescence,
different methods of depreciation for book and tax, and capitalization of
certain inventory costs for tax purposes. Included in other current assets at
August 31, 1995 is a deferred tax asset of $14,291.
F-11
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995 AND AUGUST 31, 1994
A reconciliation between the federal tax rate (34%) and the effective tax rate
for the years ended 8/31/95 and 8/31/94 is as follows:
1995 1994
---- ----
Federal tax rate 34% 34%
State and local income taxes, net of federal
benefit 12% 12%
Other 13% (16%)
--- ----
Effective tax rate 59% 30%
The effective tax rate per the financial statements exceeds the statutory rate
for the year ended 8/31/95. This difference (reflected in the "Other" category)
arises because the Company files three separate tax returns for Hertz Computer,
Hertz-Israel, and Hergo and, as such, taxable losses can not be netted against
taxable income on a consolidated basis.
The effective tax rate per the financial statements is less than the applicable
statutory rate for the year ended 8/31/94. This difference results because Hertz
Computer is taxed at the federal statutory rate of 34% as it is a C Corporation
and, as a New York S Corporation, Hergo does not remit federal taxes. In fiscal
1994, Hergo generated the majority of the consolidated taxable income which was
not subject to federal income taxes and, as a result the effective tax rate is
lower than the statutory rates.
9. SEGMENT OPERATIONS
The operating results of significant segments of the consolidated company at
8/31/95 are as follows:
<TABLE>
<CAPTION>
Hertz Computer Hertz-Israel Hergo Consolidated
<S> <C> <C> <C> <C>
Sales (Unaffiliated) $7,055,231 $1,936,080 $2,228,872 $11,220,183
Inventory Transfers from/(to) 1,015,634 (1,015,634) -- --
Gross Profit 1,443,088 369,224 1,304,894 3,117,206
Operating Income 195,859 21,926 30,756 248,541
Assets 1,848,574 780,873 736,756 3,366,203
</TABLE>
The operating results of significant segments of the consolidated company at
8/31/94 are as follows:
<TABLE>
<CAPTION>
Hertz Computer Hertz-Israel Hergo Consolidated
<S> <C> <C> <C> <C>
Sales (Unaffiliated) $8,710,218 $949,997 $1,269,093 $10,929,308
Inventory Transfers from/(to) 322,416 (322,416) -- --
Gross Profit 1,511,203 269,216 762,524 2,542,943
Operating Income (Loss) 149,134 (17,675) 123,096 254,555
</TABLE>
F-12
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995 AND AUGUST 31, 1994
10. GEOGRAPHIC AND CUSTOMER CONCENTRATION
The Company has a concentration of its sales in the New York metropolitan area
of approximately 61% and 60% for the years ended August 31, 1995 and 1994,
respectively. Approximately 36% and 33% of its total sales in the years ended
August 31, 1995 and 1994, respectively, were to federal, state and city agencies
or government affiliated organizations, including hospitals and schools. The
Company had significant sales with two operating units of a customer, each which
comprised 14% and 11% of total sales for the year ended August 31, 1994. This
customer was not a significant part of total sales for the year ended August 31,
1995 and there were no significant sales to other customers during the year
ended August 31, 1995.
11. INITIAL PUBLIC OFFERING
In August__ 1996, the Company filed a registration statement with the Securities
and Exchange Commission to register approximately 1,100,000 shares of common
stock, $.001 par value per share at an expected IPO price of $5.00 per share and
2,200,000 Class A warrants at an expected IPO price of $.25 per warrant. The
warrants are exercisable one year from the effective date of the IPO at a price
of $5.50. The Company's management expects to realize proceeds from the sale of
common stock and warrants of $4,895,000 net of commissions and offering expenses
of $1,155,000.
F-13
<PAGE>
[LETTERHEAD OF SHLOMO ZIV & CO.]
Report of Independent Public Accountants
To the shareholders of Hertz Computers Information System (1985) Ltd.
We have audited the balance sheet of Hertz Computers Information System (1985)
Ltd. as at August 31, 1995, the related statements of income and shareholders'
equity and cash flows for each of the two years in the period ended August 31,
1995 and 1994, expressed in U.S. Dollars. These financial statements are the
responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management as
well as evaluating the overall financial statement presentations. We believe
that our audits provide a reasonable basis for our opinion.
F-14
<PAGE>
In our opinion, based on our audit, the above mentioned financial statements
present fairly the financial position of the Company as at August 31, 1995 and
the results of its operations, the changes in the shareholders' equity and cash
flows for each of the two years ended August 31, 1995 and 1994 in conformity
with accounting principles generally accepted in Israel, consistently applied.
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have not significantly affected the
determination of net income (loss) and shareholders' equity.
November 30, 1995 Shlomo Ziv & Co.
/s/Shlomo Ziv & Co.
Certified Public Accountants (Isr.)
F-15
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
CONSOLIDATED BALANCE SHEET
MAY 31, 1996
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 284,243
Accounts receivable, less allowance for
doubtful accounts of $68,246 1,605,538
Inventories 1,005,531
Prepaid expenses and other current assets 116,430
----------
Total current assets 3,011,742
----------
PROPERTY AND EQUIPMENT, net 262,920
----------
GOODWILL, net of accumulated amortization of $37,625
41,584
----------
OTHER ASSETS 71,966
----------
Total assets $3,388,212
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks and others $1,117,093
Accounts payable and accrued expenses 595,568
Current maturities of capital lease obligation 5,388
Income taxes payable 195,905
Distribution payable to stockholders 224,567
Notes payable to stockholder 326,471
----------
Total current liabilities 2,464,992
----------
CAPITAL LEASE OBLIGATION 19,309
----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $.001 par value: 25,000,000
authorized, issued and outstanding
1,900,000 shares 1,900
Additional paid-in capital 124,100
Retained earnings 777,911
----------
Total stockholders; equity 903,911
----------
Total liabilites and stockholders' equity $3,388,212
==========
The accompanying notes are an integral part of this
consolidated balance sheet.
F-16
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
-------
1996 1995
-------- --------
<S> <C> <C>
NET SALES $ 9,375,857 $ 8,224,492
COST OF GOODS SOLD 6,532,666 6,117,860
------------------ ------------------
Gross Profit 2,843,191 2,106,632
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,072,389 1,942,355
------------------ ------------------
Operating income 770,802 164,277
OTHER INCOME (EXPENSE):
Other income 9,323 278
Interest, net of interest income of $4,114 and $1,970 (148,113) (96,650)
------------------ ------------------
Income before provision for income taxes 632,012 67,905
PROVISION FOR INCOME TAXES 244,500 3,900
------------------ ------------------
Net income $ 387,512 $ 64,005
================== ==================
Net income per share $ 0.20 $ 0.03
================== ==================
--
HISTORICAL INCOME BEFORE PROVISION FOR INCOME TAXES $ 632,012 $ 67,905
PROFORMA PROVISION FOR INCOME TAXES 366,233 --
------------------ ------------------
PRO FORMA NET INCOME $ 265,779 $ 67,905
================== ==================
PRO FORMA NET INCOME PER SHARE $ 0.14 $ 0.04
================== ==================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 1,900,000 1,900,000
================== ==================
SUPPLEMENTARY NET INCOME PER SHARE 0.16
==================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-17
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
-------
1996 1995
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 387,512 $ 64,005
Adjustments to reconcile net income to net cash provided by (used in)
operating activities -
Depreciation and amortization 39,741 28,998
Bad debt expense (recovery) 46,246 (60,246)
Changes in operating assets and liabilities-
Accounts receivable 280,064 (154,077)
Inventories (47,322) (119,294)
Due from related parties 17,276 (6,842)
Prepaid expenses and other current assets (69,789) (52,499)
Other assets (43,288) (17,622)
Accounts payable and accrued expenses (442,932) (55,516)
Income taxes payable 184,528 (56,822)
Other liabilities (15,617) 20,730
--------------- ---------------
Net cash provided by (used in) operating activities 336,419 (409,185)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (82,623) (38,396)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under notes payable to banks 103,645 224,019
Net (repayments) borrowings under notes payable to stockholder (195,127) 200,689
Repayment of note receivable from related party -- 8,902
--------------- ---------------
Net cash (used in) provided by financing activities (91,482) 433,610
--------------- ---------------
Net increase (decrease) in cash 162,314 (13,971)
CASH, beginning of period 121,929 65,384
--------------- ---------------
CASH, end of period $ 284,243 $ 51,413
=============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 117,275 $ 58,767
Income taxes paid 79,972 98,331
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-18
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MAY 31, 1996 AND MAY 31,1995
(UNAUDITED)
Note 1. Significant Accounting Policies
A. Unaudited Period
The unaudited financial statements have been prepared in accordance with
accounting principles generally accepted in the United States relating to the
provision of interim financial information. Accordingly, they do not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine month
period ending May 31, 1996 are not necessarily indicative of the results that
may be expected for the year ending August 31, 1996.
B. Accounting for Impairments in Long-lived Assets
The Financial Accounting Standards Board has issued SFAS No. 121, "Accounting
for Impairments in Long-lived Assets and Long-lived Assets Being Disposed Of,"
which the Company adopted on September 1, 1995. This statement requires that
long-lived assets and identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate the carrying amounts of the
assets not to be recoverable. In evaluating recoverability, Hertz Technology
Group's (the "Company") management estimates the future cash flows expected to
result from the assets and its eventual disposition. If the sum of future
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. No such loss was recognized in the May 31, 1996
consolidated financial statements.
C. Accounting for Stock-based Compensation
The Financial Accounting Standards Board has issued Statement of Accounting
Standards No. 123, "Accounting for Stock-based Compensation ("SFAS 123")." This
statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. The requirements of SFAS 123 are
effective for transactions entered into in fiscal years that begin after
December 15, 1995, though they may be adopted upon issuance. The disclosure
requirements of SFAS 123 are effective for financial statements for fiscal years
beginning after December 15, 1995. The adoption of this statement has no effect
on the May 31, 1996 consolidated financial statements.
D. Pro Forma Net Income
Pro forma net income is calculated as if Hergo Ergonomic Systems, Inc. ("Hergo")
was a C corporation for tax filing purposes during the nine months ended May 31,
1996 and May 31, 1995. As such, an effective tax rate of approximately 46% was
used in calculating both Hergo's and Hertz Computer Corporation's ("Hertz
Computer") pro forma net income.
F-19
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MAY 31, 1996 AND MAY 31,1995
(UNAUDITED)
E. Supplementary Net Income Per Share
Supplementary net income per share is calculated for the nine month period ended
May 31, 1996. Supplementary net income per share is computed as if $1,443,564 of
interest bearing debt obligations was repaid from the net proceeds of the IPO as
of September 1, 1995 and assuming that (i) 288,713 of common shares were issued
as of September 1, 1995 to repay the interest bearing debt obligations; (ii)
$82,200 of interest expense, net of income tax expense, was eliminated as a
result of such payment for the nine months ended May 31, 1996; (iii) pro forma
income of $265,779 (as if Hergo was a C corporation for the nine months ended
May 31, 1996) is the base utilized in the calculation of net income.
Note 2. Notes Payable
In June 1995, Hertz Comuter entered into a Revolving Line of Credit
("Agreement") with a bank ("Bank") under which the Company could borrow up to
$1,000,000 with interest accruing on any outstanding balance at the base rate of
the Bank, plus 1% (effective rate at May 31, 1996 was 9.25%). Repayment of the
borrowings is secured by a general security interest in substantially all
personal property of the Company and is personally guaranteed by a stockholder.
The Agreement was renewed on May 31, 1996 with substantially similar terms and
is effective through May 31, 1997. As of May 31, 1996, the balance outstanding
under this Agreement was $895,000.
In February 1996, Hertz Computers Information System (1985) Ltd. (Hertz-Israel)
entered into a line of credit agreement with a bank for $300,000 and an interest
rate of the six month Libor rate plus 1.25% (6.91% at May 31, 1996) which is
effective through March 1, 1997. Presently, two short term loans totaling
$205,240 at May 31, 1996 are outstanding against this line of credit. The loans
must be paid in full on August 27, 1996 and interest on the loan balance is at
the six month Libor rate plus 1.25%. An additional $6,135 is outstanding at May
31, 1996 against this line of credit.
The Company is expected to utilize the proceeds from the IPO to pay the entire
balance of notes payable to the current stockholders and the current revolving
credit line with the Bank. In addition, the Company will utilize the proceeds
from the IPO to pay the distribution payable of $224,567 to the current
stockholders. This distribution payable represents the May 31, 1996 retained
earnings balance of Hergo and has been reflected as a current liability in the
May 31, 1996 consolidated balance sheet.
F-20
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MAY 31, 1996 AND MAY 31,1995
(UNAUDITED)
Note 3. Stock Option Plan
In July __ 1996, in order to attract and retain persons necessary for the
success of the Company, the Company adopted its 1996 Stock Option Plan ("Option
Plan") covering up to 750,000 of its shares of its common stock ("Shares"),
pursuant to which officers, directors and key employees of the Company and
consultants to the Company are eligible to receive incentive and/or
non-incentive stock options. The Option Plan, which expires on __________, 2006,
will be administered by the Company's Board of Directors or a committee
designated by such group. The selection of participants, allotment of shares,
determination of price and other conditions relating to the purchase of options
will be determined by the Board of Directors, or a committee thereof, in its
sole discretion. Incentive stock options granted under the Option Plan are
exercisable for a period of up to 10 years from the date of grant at an exercise
price which is not less than the fair market value of the Shares on the date of
the grant, except that the term of an incentive stock option granted under the
Option Plan to a shareholder owning more than 10% of the outstanding Shares may
not exceed five years and its exercise price may not be less than 110% of the
Fair market value of the Shares on the date of the grant. As of July ___, 1996,
no options have been granted under the Option Plan. Options will generally be
exercisable for [one-third] of the Shares covered thereby as of the date of the
grant and for an additional [one-third] of the Shares covered thereby each year
thereafter, except that options granted to outside directors may be exercisable
for ___% of the Shares covered immediately upon grant and for the remainder of
the Shares following one year's service.
Note 4. Geographic and Customer Concentration
The Company has a concentration of its sales in the New York metropolitan area
of approximately 66% and 60% for the periods ended May 31, 1996 and 1995,
respectively. Approximately 41% and 36% of its total computer's sales in the
nine month periods ended May 31, 1996 and 1995 were to federal, state and city
agencies or government affiliated organizations, including hospitals and
schools. The Company has significant sales with one customer, which comprises
18% of total sales for the May 31, 1996 nine month period. No customers exceeded
10% of sales in the nine month period ended May 31, 1995.
Note 5. Commitments and Contingencies
Hertz Computer entered into an operating lease agreement effective September 1,
1996 for a rental property located in New York City as it is vacating the
premises it occupies currently on August 31, 1996. The minimum lease commitments
for the new premises are as follows:
Fiscal Year
Ending May 31,
--------------
1997 $66,703
1998 115,508
1999 115,508
2000 115,508
2001 115,508
Thereafter 192,513
-------
Total $721,248
F-21
<PAGE>
================================================================================
No Underwriter, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made hereby. If given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer of any securities other
than the securities to which it relates or an offer to any person in any
jurisdiction in which such an offer would be unlawful. Any material modiciation
of the offering will be accomplished by means of an amendment to the
registration statement. In addition, the right is reserved by the Company to
cancel any confirmation of sale prior to the release of fund, if, in the opinion
of the Company, completion of such sale would violate federal or state
securities laws or a rule or policy of the National Association of Securities
Dealers, Inc., Washington, D.C. 20006.
TABLE OF CONTENTS
Page
----
Available Information.........................................
Prospectus Summary............................................
S Corporation Distribution....................................
Risk Factors..................................................
Use of Proceeds...............................................
Dilution ...................................................
Capitalization................................................
Dividend Policy...............................................
Management's Discussion and Analysis of
Financial Condition
and Plan of Operations.....................................
Business......................................................
Management ...................................................
Principal Shareholders........................................
Certain Transactions..........................................
Description of Securities.....................................
Selling Shareholders..........................................
Underwriting..................................................
Legal Matters.................................................
Experts.......................................................
Additional Information........................................
Index to Financial Statements.................................
Until September __________, 1996 (25 days after the date of this Prospectus),
all broker-dealers effecting transactions in the registered securities, whether
or not participating in this distribution, may be required to deliver a
Prospectus. This delivery is in addition to the obligations of dealers to
deliver a Prospectus with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
1,100,000 Shares of Common Stock
2,200,000 Class A Warrants
HERTZ TECHNOLOGY GROUP, INC.
PROSPECTUS
BILTMORE SECURITIES, INC.
August ____, 1996
================================================================================
<PAGE>
[ALTERNATIVE PAGE FOR SELLING SHAREHOLDERS' PROSPECTUS]
SUBJECT TO COMPLETION, DATED AUGUST ___, 1996
PROSPECTUS
HERTZ TECHNOLOGY GROUP, INC.
750,000 SHARES OF COMMON STOCK
This Prospectus relates to 750,000 shares (the "Shares") of common stock,
$0.001 par value per share (the "Shares") of Hertz Technology Group, Inc., a
Delaware corporation (the "Company"), which are held by certain shareholders
(the "Selling Shareholders") of the Company.
The Shares offered by this prospectus may be sold from time to time by the
Selling Shareholders, provided a current registration statement with respect to
such securities is then in effect. Of the 750,000 Shares being offered by the
Selling Shareholders, 225,000 Shares may be sold during the twelve (12) months
after the Effective Date at such time within such 12 month period as is
acceptable to Biltmore Securities, Inc. (the "Underwriter") and the balance
consisting of 525,000 Shares may be sold at any time after the expiration of
eighteen (18) months from the Effective Date subject to earlier release at the
sole discretion of the Underwriter. See "Description of Securities"-
Registration "Rights" and "Plan of Distribution."
The distribution of the Shares offered hereby by the Selling Shareholders
may be effected on one or more transactions that may take place on the
over-the-counter market, including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more dealers for
resale of such securities as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Shareholders.
The Selling Shareholders and intermediaries through whom such securities
are sold may be deemed "underwriters" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act") with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation.
The Company will not receive any of the proceeds from the sale of the
securities by the Selling Shareholders. Expenses of this offering, other than
fees and expenses of counsel to the Selling Shareholders and selling
commissions, will be paid by the Company. See "Plan of Distribution."
Application has been made to have the Common Stock and Warrants approved
for quotation on the Nasdaq SmallCap Market under the symbols HTGI and HTGI(W),
respectively.
On the date of this Prospectus, a registration statement, filed under the
Securities Act with respect to an underwritten public offering by the Company of
1,100,000 Shares and 2,200,000 redeemable Class A Warrants ("Warrants") and up
to 165,000 additional Shares and 330,000 Warrants to cover over-allotments, if
any, was declared effective by the Securities and Exchange Commission (the
"Commission"). The Company will receive net proceeds of approximately $5,445,000
from the sale of the Shares and Warrants included in the underwritten public
offering, and will receive approximately $907,500 in additional net proceeds if
the over-allotment option is exercised in full after payment of underwriting
discounts and commissions and estimated expenses of the underwritten public
offering. Sales of securities by the Selling Shareholders or even the potential
of such sales, would likely have an adverse affect on the market price of the
Shares and Warrants.
THE SECURITIES OFFERED HEREBY INVOLVE HIGH DEGREE AND RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE _____.
---------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATES SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE
<PAGE>
[ALTERNATE PAGE FOR SELLING SHAREHOLDERS PROSPECTUS]
THE OFFERING
Securities offered hereby(1).......................750,000 Shares.
Securities outstanding after this offering:
Common Stock (2) (3) .........................3,000,000 shares
Warrants......................................2,200,000 warrants
Proposed Nasdaq Symbols
Common Stock..................................HTGI
Warrants......................................HTGI(W)
Use of Proceeds....................................None of the proceeds from
this offering will go to
the Company.
Risk Factors.......................................The securities offered
hereby involve a high
degree of risk.
- ------------------
(1) An additional 1,100,000 Shares and 2,200,000 Warrants and up to 165,000
additional Shares and 330,000 additional Warrants to over over-allotments,
if any, are being offered by the Company in the concurrent underwritten
public offering. See "Concurrent Offering."
(2) Assumes that the Shares registered under the Concurrent Offering have been
sold by the Company.
(3) Does not include Shares issuable upon exercise of (i) Warrants offered
under the Concurrent Offering, (ii) the Underwriter's over-allotment option
to purchase up to 165,000 Shares and 330,000 Warrants, (iii) the
Underwriter's purchase options to purchase up to 100,000 Shares and 220,000
Warrants, (iv) options held by Eli E. Hertz to purchase 900,000 Shares, (v)
options to purchase 750,000 Shares reserved for issuance under the
Company's Stock Option Plan or (vi) the issuance of 100,000 Shares reserved
for issuance under the Company's Employee Bonus Plan. See "Description of
Securities."
[ALTERNATE PAGE FOR SELLING SHAREHOLDERS PROSPECTUS]
CONCURRENT OFFERING
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company of
1,100,000 Shares and 2,200,000 Warrants and up to an additional 165,000 Shares
and 330,000 additional Warrants to cover over-allotments, if any, was declared
effective by the Commission. Sales of securities by the Company and the Selling
Shareholders, or even the potential of such sales, would likely have an
2
<PAGE>
adverse affect on the market price of the Shares and the Warrants. See "Risk
Factors - Shares Eligible for Future Sale."
3
<PAGE>
[ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS]
PLAN OF DISTRIBUTION
The Shares of Common Stock being offered hereby by the Selling
Shareholders, subject to the agreement with the Underwriter of the concurrent
public offering that the Shares being offered hereby, consisting of 375,000
Shares being offered by Eli E. Hertz, Chairman, President and Chief Executive
Officer of the Company and 375,000 Shares being offered by his wife, I. Marilyn
Hertz, Vice Chairperson and Director of the Company may be sold as follows:
225,000 Shares in the aggregate may be sold during the twelve (12) months from
the Effective Date at such time within such 12 month period as is acceptable to
Biltmore Securities, Inc. (the "Underwriter"), and the balance, consisting of
525,000 Shares may be sold at any time after the expiration of eighteen (18)
months from the Effective Date, subject to earlier release at the sole
discretion of the Underwriter. Such Shares will be freely tradable provided that
when the Shares are released by the Underwriter, a current registration
statement with respect to such Shares then in effect. The following table sets
forth certain information regarding each of the Selling Shareholders.
Shares Beneficially Number of Shares Shares Beneficially
Owned Prior to this Being Offered Owned After
Name(1) Offering For Sale(2) this Offering(2)
------- -------- ----------- ----------------
Eli E. Hertz ......... 920,000 375,000 545,000
I. Marilyn Hertz ..... 920,000 375,000 545,000
Total ................ 1,840,000 750,000 1,090,000
- ---------------------
(1) The address for each of these Selling Stockholders is:
c/o Hertz Technology Group, Inc.
325 Fifth Avenue
New York, New York 10016-5012
(2) Assumes all of the shares being registered will be sold.
The securities offered hereby may be sold from time to time directly by the
Selling Shareholders. Alternatively, the Selling Shareholders may from time to
time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Shareholders may be effected in one or
more transactions that may take place on the over-the-counter market, including
ordinary broker's transactions, privately-negotiated transaction or through
sales to one or more broker-dealers for resale of such shares as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Shareholders in connection with such sales of securities. The securities offered
by the Selling Shareholders may be sold by one or more of the following methods,
without limitations: (a) a block trade in which a broker or dealer so engaged
will attempt to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers
4
<PAGE>
engaged by the Selling Shareholders may arrange for other brokers or dealers to
participate. The Selling Shareholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the Act
with respect to the securities offered, and any profits realized or commissions
received may be deemed underwriting compensation.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with by the Company and
the Selling Shareholders.
The Selling Shareholders and any broker-dealers, agents or underwriters
that participate with the Selling Shareholders in the distribution of the shares
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act of 1933, as amended (the "Act") and any securities purchased by
them may be deemed to be underwriting commissions or discounts under the Act.
5
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS PROSPECTUS]
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the securities may not simultaneously engage in
market-making- activities with respect to the securities for a period of two
business days prior to the commencement of such distribution. In additional and
without limiting the foregoing, each Selling Securityholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation, Rules 10b-6, 10b-6A and 10b-7, which
provisions may limit the timing of the purchases and sales of securities by the
Selling Shareholders.
The Company has agreed to pay all fees and expenses incident to the
registration of the Shares, except selling commissions and fees and expenses of
counsel or any other professionals or other advisors, if any, to the Selling
Shareholders.
6
<PAGE>
[ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS]
================================================================================
No Underwriter, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made hereby. If given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer of any securities other
than the securities to which it relates or an offer to any person in any
jurisdiction in which such an offer would be unlawful. Any material modiciation
of the offering will be accomplished by means of an amendment to the
registration statement. In addition, the right is reserved by the Company to
cancel any confirmation of sale prior to the release of fund, if, in the opinion
of the Company, completion of such sale would violate federal or state
securities laws or a rule or policy of the National Association of Securities
Dealers, Inc., Washington, D.C. 20006.
TABLE OF CONTENTS
Page
----
Available Information.........................................
Prospectus Summary............................................
S Corporation Distribution....................................
Risk Factors..................................................
Use of Proceeds...............................................
Dilution ...................................................
Capitalization................................................
Dividend Policy...............................................
Concurrent Offering...........................................
Plan of Distribution..........................................
Management's Discussion and Analysis of
Financial Condition
and Plan of Operations.....................................
Business......................................................
Management ...................................................
Principal Shareholders........................................
Certain Transactions..........................................
Description of Securities.....................................
Selling Shareholders..........................................
Underwriting..................................................
Legal Matters.................................................
Experts.......................................................
Additional Information........................................
Index to Financial Statements.................................
================================================================================
================================================================================
750,000 Shares of Common Stock
HERTZ TECHNOLOGY GROUP, INC.
PROSPECTUS
August ____, 1996
================================================================================
7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Sections 145 of the Delaware General Corporation Law grants to the Company
the power to indemnify the officers and directors of the Company, under certain
circumstances and subject to certain conditions and limitations as stated
therein, against all expenses and liabilities incurred by or imposed upon them
as a result of suits brought against them as such officers and directors if they
act in good faith and in a manner they reasonably believe to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, have no reasonable cause to believe their conduct was
unlawful.
The Company's certificate of incorporation provides as follows:
"NINTH: A director of the corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the derived an improper personal
benefit.
TENTH: (a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights that
said law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrator; provided, however, that except as provided in
paragraph (b) hereof, the Corporation shall indemnify and such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Section shall be a contract right and
II-1
<PAGE>
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the General Corporation Law requires, the payment of such
expenses incurred by a director or officer (in his or her capacity as a director
or officer and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Nether the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusively of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholder or disinterested directors or otherwise.
(d) Insurance.The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the General Corporation Law."
Reference is made to the form of the Underwriting Agreement, filed as
Exhibit 1.1 hereto, which contains provisions for indemnification of the
Company, its directors, officers, and
II-2
<PAGE>
any controlling persons, by the Underwriter against certain liabilities for
information furnished by the Underwriter.
Item 25. Other Expenses of Issuance and Distribution.
Expenses in connection with the issuance and distribution of the shares of
Common Stock being registered hereunder other than underwriting commissions and
expenses, are estimated below.
Registration fee $ 9,158.10
NASD fee 3,155.86
NASDAQ Listing fee 10,000.00
Printing expenses 50,000.00
Accounting fees and expenses 125,000.00
Legal fees and expenses 150,000.00
State securities law fees and expenses 35,000.00
Transfer agent and registrar fees and expenses 2,500.00
Miscellaneous expenses $ 10,000.00
-----------
Total $394,813.96
===========
The Selling Shareholders will not pay any of the foregoing expenses in
connection with the alternative Offering.
Item 26. Recent Sales of Unregistered Securities
During the past three years the Registrant has issued the following
unregistered securities:
(a) On July _____, 1996, the Company granted Eli E. Hertz options to
purchase 900,000 Shares at a price of $5.50 per Share.
(b) Immediately prior to the Effective Date, the Company issued 920,000
Shares each to Eli E. Hertz and to I. Marilyn Hertz. The consideration for such
shares was the transfer by Mr. and Mrs. Hertz of all their shares in Hertz
Computer and Hergo to the Corporation.
(d) The Company has agreed to issue to Morse, Zelnick, Rose & Lander, LLP
60,000 Shares for services rendered and to be rendered for the Company.
The transactions described above did not involve public offerings of the
Registrant's securities and were exempt from the registrations requirement of
the Securities Act pursuant to Section 4(2) thereunder.
II-3
<PAGE>
Item 27. Exhibits
(a) Exhibits:
Exhibit
No. Description Page
--- ----------- ----
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealer Agreement
2.1 Form of Exchange Agreement
3.1 Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Specimen Stock Certificate*
4.2 Form of Redeemable Warrant*
4.3 Form of Underwriter's Purchase Option
4.4 Form of Warrant Agreement
5.1 Form of Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 1996 Stock Option Plan
10.2 Form of Employment Agreement between the Company and Eli E. Hertz
10.3 Form of Employment Agreement between the Company and I. Marilyn Hertz
10.4 Agreement of Lease between B.W.H. N.V. Associates and Hertz Computer
Corporation for 321 Fifth Avenue (5th Floor).*
10.5 Agreement of Lease between B.W.H. N.V. Associates and Hertz Computer
Corporation for 321 Fifth Avenue (4th Floor).*
10.6 Agreement of Lease between B.W.H. N.V. Associates and Hertz Computer
Corporation for 325 Fifth Avenue (2nd Floor & Basement).*
II-4
<PAGE>
10.7 Agreement of Lease between Simon Trakinski and William Trakinski and
Hergo Ergonomic Support Systems, Inc. for 26-58 Borough Place,
Woodside, NY 11377.*
10.8 Agreement of Lease between Simon Trakinski and William Trakinski and
Hergo Ergonomic Support Systems, Inc. for 60-01 27th Avenue,
Woodside, NY.*
10.9 Agreement of Lease between The Rector, Church-Wardens and Vestrymen
of Trinity Church in the City of New York and Hertz Computer
Corporation for 75 Varick Street.*
10.10 Lease for premises in Ashdod, Israel.*
10.11 Lease for premises in Haifa, Israel.*
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen, LLP
23.2 Consent of Shlomo Ziv & Co., Certified Public Accountants
23.3 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
24. Power of Attorney (included in signature page)
- ------------------
* To be filed by amendment.
II-5
<PAGE>
Item 28. Certain Undertakings
A. The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(5) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
(6) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating t the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions,
II-6
<PAGE>
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
of expenses incurred or paid by a director, officer of controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York on August 5, 1996.
HERTZ TECHNOLOGY GROUP, INC.
By: /s/Eli E. Hertz
----------------------------------
Eli E. Hertz
Chairman, President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed on August 5, 1996 by the
following persons in the capacities indicated and each of the undersigned
persons, in any capacity, hereby severally constitutes Barry J. Goldsammler and
Howard L. Weinreich, and each of them singularly, his true and lawful attorney
with full power to them and each of them to sign for him and in his name and in
the capacity indicated below, this Registration Statement and any and all
amendments thereto.
Signature Title
--------- -----
/s/Eli E. Hertz Chairman, President and Chief Executive
- -------------------------- Officer and Director
Eli E. Hertz
/s/Marilyn Hertz Vice Chairperson and Director
- --------------------------
I. Marilyn Hertz
/s/Barry J. Goldsammler Executive Vice President, Chief Financial
- -------------------------- Officer and Director
Barry J. Goldsammler
II-8
1,100,000 Shares of Common Stock, par value $.001 per share
and
2,200,000 Warrants for Common Stock
Hertz Technology Group, Inc.
UNDERWRITING AGREEMENT
New York, New York
________ __, 1996
Biltmore Securities, Inc.
6700 North Andrews Avenue
Suite 500
Fort Lauderdale, FL 33309
Hertz Technology Group, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Underwriter"), an aggregate of 1,100,000
shares of Common Stock, par value $.001 per share ("Common Stock"), and
2,200,000 Class A Redeemable Purchase Warrants for Common Stock (""Warrants").
The Common Stock and Warrants may be collectively referred to hereinafter as the
"Securities". Each Warrant entitles the registered holder thereof to purchase
one (1) share of Common Stock at an exercise price of $5.50 per share for a
period of four (4) years, commencing ________ __, 1997 (one (1) year from the
Effective Date) through ________ __, 2001. The Warrants are subject to
redemption by the Company at any time after ________ __, 1997 (twelve (12)
months from the Effective Date) at $.01 per warrant, if the closing bid price
per share of Common Stock has equaled or exceeded $8.75 per share for any 20
consecutive trading days ending within 5 days of the written notice of
redemption. In addition, the Company proposes to grant to the Underwriter the
option referred to in Section 2(b) to purchase all or any part of an aggregate
of 165,000 additional shares of Common Stock and 330,000 additional Warrants.
You have advised the Company that you desire to purchase the
Securities. The Company confirms the agreements made by it with respect to the
purchase of the Securities by the Underwriter as follows:
<PAGE>
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 333-_____) on Form SB-2
relating to the public offering of the Securities, including a form of
prospectus subject to completion, copies of which have heretofore been delivered
to you, has been prepared in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission under the Act and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in an amendment to such registration statement (or,
if no such amendment shall have been filed in such registration statement), with
such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and approved
by you prior to the execution of this Agreement, or (ii) if such registration
statement, as it may have been amended, has not been declared by the Commission
to be effective under the Act, an amendment to such registration statement,
including a form of prospectus, a copy of which amendment has been furnished to
and approved by you prior to the execution of this Agreement. As used in this
Agreement, the term "Company" means Hertz Technology Group, Inc. and/or each of
its subsidiaries ("Subsidiaries"); the term "Registration Statement" means such
registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); and the term
"Prospectus" means the prospectus first filed with the Commission pursuant to
Rule 424(b) under the Act, or, if no prospectus is required to be filed pursuant
to said Rule 424(b), such term means the prospectus included in the Registration
Statement; except that if such registration statement or prospectus is amended
or such prospectus is supplemented, after the effective date of such
registration statement and prior to the Option Closing Date (as hereinafter
defined), the terms "Registration Statement" and "Prospectus" shall include such
registration statement and prospectus as so amended, and the term "Prospectus"
shall include the prospectus as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on the
First Closing Date (as hereinafter defined) or the Option Closing Date, as the
case may be, (i) the Registration Statement and Prospectus will in all
2
<PAGE>
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, under the
heading "Underwriting", the Risk Factor entitled "Litigation Involving
Underwriter May Affect Securities" and the identity of counsel to the
Underwriter under the heading "Legal Matters" constitute for purposes of this
Section and Section 6(b) the only information furnished in writing by or on
behalf of the Underwriter for inclusion in the Registration Statement and
Prospectus, as the case may be.
(c) The Company and its Subsidiaries have been duly incorporated
and are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation with full corporate power and
authority to own their properties and conduct their business as described in the
Prospectus and are duly qualified or licensed to do business as foreign
corporations and are in good standing in each other jurisdiction in which the
nature of their business or the character or location of their properties
require such qualification, except where the failure to so qualify will not
materially adversely affect the Company's or Subsidiaries' business, properties
or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company and its Subsidiaries, including the predecessors of the Company, is as
set forth the Company's financial statements contained in the Registration
Statement; the shares of issued and outstanding capital stock of the Company and
its Subsidiaries set forth therein have been duly authorized, validly issued and
are fully paid and nonassessable; except as set forth in the Prospectus, no
options, warrants, or other rights to purchase, agreements or other obligations
to issue, or agreements or other rights to convert any obligation into, any
shares of capital stock of the Company or its Subsidiaries have been granted or
entered into by the Company or its Subsidiaries; and the capital stock conforms
to all statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The shares of Common Stock, when paid for, issued and
delivered pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency or other laws affecting the right of
creditors generally or by general equitable principles, and entitled to the
rights and preferences provided by the Certificate of Incorporation, which will
be in the form filed as an exhibit to the
3
<PAGE>
Registration Statement. The terms of the Common Stock conform to the description
thereof in the Registration Statement and Prospectus.
The Warrants, when paid for, issued and delivered pursuant to this
Agreement, will have been duly authorized, issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and entitled to the benefits provided by the
warrant agreement pursuant to which such Warrants are to be issued (the "Warrant
Agreement"), which will be substantially in the form filed as an exhibit to the
Registration Statement. The shares of Common Stock issuable upon exercise of the
Warrants have been reserved for issuance upon the exercise of the Warrants and
when issued in accordance with the terms of the Warrants and Warrant Agreement,
will be duly and validly authorized validly issued, fully paid and
non-assessable and free of preemptive rights. The Warrant Agreement has been
duly authorized and, when executed and delivered pursuant to this Agreement,
assuming due authorization, execution and delivery by the transfer agent, will
have been duly executed and delivered and will constitute the valid and legally
binding obligation of the Company enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Warrants and Warrant Agreement conform to the respective descriptions
thereof in the Registration Statement and Prospectus.
The Purchase Option (as defined in the Registration Statement), when
paid for, issued and delivered pursuant to this Agreement will constitute valid
and legally binding obligations of the Company enforceable in accordance with
their terms and entitled to the benefits provided by the Purchase Option, except
as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Securities issuable upon exercise of the Purchase Option (and the shares of
Common Stock issuable upon exercise of the Warrants) when issued and paid for in
accordance with this Agreement, the Purchase Option and the Warrant Agreement,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights.
(f) This Agreement has been duly and validly authorized, executed
and delivered by the Company. The Company has full power and authority to
authorize, issue and sell the Securities to be sold by it hereunder on the terms
and conditions set forth herein, and no consent, approval, authorization or
other order of any governmental authority is required in connection with such
authorization, execution and delivery or in connection with the authorization,
issuance and sale of the Securities or the Purchase Option, except such as may
be required under the Act or state securities laws.
4
<PAGE>
(g) Except as described in the Prospectus, or which would not
have a material adverse effect on the condition (financial or otherwise),
business prospects, net worth or properties of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"), the Company and its Subsidiaries
are not in violation, breach or default of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a breach or violation of, any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of the Company or its Subsidiaries pursuant to the terms of
any material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or its Subsidiaries is a party or
by which the Company or its Subsidiaries may be bound or to which any of the
property or assets of the Company or its Subsidiaries is subject, nor will such
action result in any violation of the provisions of the certificate of
incorporation or the by-laws of the Company or its Subsidiaries, as amended, or
any statute or any order, rule or regulation applicable to the Company or its
Subsidiaries of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company or its Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus, the
Company and its Subsidiaries have good and marketable title to all properties
and assets described in the Prospectus as owned by them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to their business; all of the material
leases and subleases under which the Company or its Subsidiaries is the lessor
or sublessor of properties or assets or under which the Company and its
Subsidiaries holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company and its Subsidiaries are not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and, to the best knowledge of the Company, no claim has been asserted
by anyone adverse to rights of the Company or its Subsidiaries as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company or its Subsidiaries
to continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company and its Subsidiaries own or lease all such properties described in
the Prospectus as are necessary to their operations as now conducted and, except
as otherwise stated in the Prospectus, as proposed to be conducted as set forth
in the Prospectus.
(i) Arthur Anderson, LLP, which has given its report on certain
financial statements filed with the Commission as a part of the Registration
Statement, is with respect to the Company, independent public accountants as
required by the Act and the Rules and Regulations.
5
<PAGE>
(j) The financial statements, and schedules together with related
notes, set forth in the Prospectus or the Registration Statement present fairly
the financial position and results of operations and changes in cash flow
position of the Company and its Subsidiaries on the basis stated in the
Registration Statement, at the respective dates and for the respective periods
to which they apply. Said statements and schedules and related notes have been
prepared in accordance with generally accepted accounting principles applied on
a basis which is consistent during the periods involved except as disclosed in
the Prospectus and Registration Statement.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company and its Subsidiaries have not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the ordinary
course of business, which would have a Material Adverse Effect, and there has
not been any change in the capital stock of, or any incurrence of short-term or
long-term debt by, the Company or its Subsidiaries or any issuance of options,
warrants or other rights to purchase the capital stock of the Company or its
Subsidiaries or any material adverse change or any development involving, so far
as the Company or its Subsidiaries can now reasonably foresee a prospective
adverse change in the condition (financial or otherwise), net worth, results of
operations, business, key personnel or properties of it which would have a
Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or its Subsidiaries is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the financial condition, business prospects, net worth, or properties
of the Company or its Subsidiaries, nor are there any actions, suits or
proceedings related to environmental matters or related to discrimination on the
basis of age, sex, religion or race; and no labor disputes involving the
employees of the Company or its Subsidiaries exist or to the knowledge of the
Company, are threatened which might be expected to have a Material Adverse
Effect.
(m) Except as disclosed in the Prospectus, the Company and its
Subsidiaries have filed all necessary federal, state and foreign income and
franchise tax returns required to be filed as of the date hereof and have paid
all taxes shown as due thereon; and there is no tax deficiency which has been,
or to the knowledge of the party, may be asserted against the Company or its
Subsidiaries.
(n) Except as disclosed in the Registration Statement or
Prospectus, the Company and its Subsidiaries have sufficient licenses, permits
and other governmental authorizations currently necessary for the conduct of
their business or the ownership of their
6
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properties as described in the Prospectus and is in all material respects
complying therewith and owns or possesses adequate rights to use all material
patents, patent applications, trademarks, service marks, trade-names, trademark
registrations, service mark registrations, copyrights and licenses necessary for
the conduct of such businesses and have not received any notice of conflict with
the asserted rights of others in respect thereof. To the best knowledge of the
Company, none of the activities or business of the Company and its Subsidiaries
are in violation of, or cause the Company or its Subsidiaries to violate, any
law, rule, regulation or order of the United States, any state, county or
locality, or of any agency or body of the United States or of any state, county
or locality, the violation of which would have a Material Adverse Effect.
(o) The Company and its Subsidiaries have not, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's and Subsidiaries' internal accounting controls and procedures
are sufficient to cause the Company and its Subsidiaries to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or
other taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Securities to the Underwriter
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been complied with in all material respects.
(q) All contracts and other documents of the Company which are,
under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the
Company has no Subsidiaries.
(s) Except as disclosed in the Registration Statement, the
Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
(t) Except as previously disclosed in writing by the Company to
the Underwriter or as disclosed in the Registration Statement, no officer,
director or stockholder of the Company has any National Association of
Securities Dealers, Inc. (the "NASD") affiliation.
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<PAGE>
(u) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties, and agreements herein
contained, the Company agrees to issue and sell to the Underwriter and the
Underwriter agrees to buy from the Company at $4.50 per share of Common Stock
and $.225 per Warrant, at the place and time hereinafter specified, 1,100,000
shares of Common Stock and 2,200,000 Warrants (the "First Securities").
Delivery of the First Securities against payment therefor shall
take place at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New
York, New York (or at such other place as may be designated by agreement between
the Underwriter and the Company) at 10:00 a.m., New York time, on _____ __,
1996, or at such later time and date as the Underwriter may designate in writing
to the Company at least two business days prior to such purchase, but not later
than _____ __, 1996 such time and date of payment and delivery for the First
Securities being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter (the
"Over-Allotment Option") to purchase all or any part of an aggregate of an
additional 165,000 shares of Common Stock and 330,000 Warrants to cover over
allotments at the same price per share of Common Stock and per Warrant as the
Underwriter shall pay for the First Securities being sold pursuant to the
provisions of subsection (a) of this Section 2 (such additional Securities being
referred to herein as the "Option Securities"). This option may be exercised
within 30 days after the effective date of the Registration Statement upon
written notice by the Underwriter to the Company advising as to the amount of
Option Securities as to which the option is being exercised, the names and
denominations in which the certificates for such Option Securities are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Underwriter but shall not be
earlier than four nor later than ten full business days after the exercise of
said option (but in no event more than 40 days after the First Closing Date),
nor in any event prior to the First Closing Date, and such time and date is
referred to herein as the "Option Closing Date." Delivery of the Option
Securities against payment therefor shall take place at the offices of Bernstein
& Wasserman, LLP, 950 Third Avenue, New York, NY 10022 (or at such other place
as may be designated by agreement between the Underwriter and the Company). The
option granted hereunder may be exercised only to cover over-allotments in the
sale by the Underwriter of First Securities referred to in subsection (a) above.
No Option Securities shall be delivered unless all First Securities shall have
been delivered to the Underwriter as provided herein.
8
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(c) The Company will make the certificates for the Securities to
be purchased by the Underwriter hereunder available to you for checking at least
two full business days prior to the First Closing Date or the Option Closing
Date (which are collectively referred to herein as the "Closing Dates"). The
certificates shall be in such names and denominations as you may request, at
least three full business days prior to the Closing Dates. Delivery of the
certificates at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Securities to
be purchased by the Underwriter hereunder will be delivered by the Company to
you for the account of the Underwriter against payment of the respective
purchase prices by the Underwriter, by wire transfer or certified or bank
cashier's checks in New York Clearing House funds, payable to the order of the
Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Securities shall be
made to or upon the order of the Company by wire transfer or certified or bank
cashier's checks payable in New York Clearing House funds at the offices of
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, N.Y., at the time and
date of delivery of such Securities as required by the provisions of subsection
(b) above, against receipt of the certificates for such Securities by you for
your account registered in such names and in such denominations as you may
reasonably request.
It is understood that the Underwriter proposes to offer the
Securities to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement
becomes effective.
3. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time, whether
before or after the effective date, file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously have
been advised and furnished with a copy or to which you or your counsel shall
have reasonably objected in writing or which is not in compliance with the Act
and the Rules and Regulations. At any time prior to the later of (A) the
completion by the Underwriter of the distribution of the Securities contemplated
hereby (but in
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<PAGE>
no event more than nine months after the date on which the Registration
Statement shall have become or been declared effective) and (B) 25 days after
the date on which the Registration Statement shall have become or been declared
effective, the Company will prepare and file with the Commission, promptly upon
your request, any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel to the Company and the Underwriter,
may be reasonably necessary or advisable in connection with the distribution of
the Securities.
As soon as the Company is advised thereof, the Company will
advise you, and provide you copies of any written advice, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective amendment
to the Registration Statement, of the filing of any supplement to the Prospectus
or any amended Prospectus, of any request made by the Commission for an
amendment of the Registration Statement or for supplementing of the Prospectus
or for additional information with respect thereto, of the issuance by the
Commission or any state or regulatory body of any stop order or other order or
threat thereof suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company authorizes
the Underwriter and dealers to use the Prospectus in connection with the sale of
the Securities for such period as in the opinion of counsel to the Underwriter
and the Company the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a Prospectus is required under the Act to be
delivered in connection with sales by the Underwriter or dealer of any event of
which the Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel for the Company
and counsel for the Underwriter should be set forth in an amendment of the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Securities or in case it shall be necessary to amend or supplement the
Prospectus to comply with law or with the Rules and Regulations, the Company
will notify you promptly and forthwith prepare and furnish to you copies of such
amended Prospectus or of such supplement to be attached to the Prospectus, in
such quantities as you may reasonably request, in order that the Prospectus, as
so amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to
10
<PAGE>
the Registration Statement or amended Prospectus or supplement to be attached to
the Prospectus shall be without expense to the Underwriter, except that in case
the Representative is required, in connection with the sale of the Securities to
deliver a Prospectus nine months or more after the effective date of the
Registration Statement, the Company will upon request of and at the expense of
the Underwriter, amend or supplement the Registration Statement and Prospectus
and furnish the Underwriter with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will furnish such information as may be required
and to otherwise cooperate and use its best efforts to qualify or register the
Securities for sale under the securities or "blue sky" laws of such
jurisdictions as you may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of service
of process in any jurisdiction in any action other than one arising out of the
offering or sale of the Securities. The Company will, from time to time, prepare
and file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the counsel to the Company and
the Underwriter deem reasonably necessary.
(c) If the sale of the Securities provided for herein is not
consummated as a result of the Company not performing its obligations hereunder
in all material respects, the Company shall pay all costs and expenses incurred
by it which are incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in Section
8, including the accountable expenses of the Underwriter, up to $100,000
(including the reasonable fees and expenses of counsel to the Underwriter).
(d) The Company will use its best efforts to (i) cause a
registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering and will notify you in writing
immediately upon the effectiveness of such registration statement, and (ii) to
obtain and keep current a listing in the Standard & Poors or Moody's OTC
Industrial Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five (5) years
11
<PAGE>
from the date hereof, (i) as soon as practicable after the end of each fiscal
year, but no earlier than the filing of such information with the Commission a
balance sheet of the Company and any of its Subsidiaries as at the end of such
fiscal year, together with statements of income, surplus and cash flow of the
Company and any Subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, but no earlier than the filing of
such information with the Commission, consolidated summary financial information
of the Company for such quarter in reasonable detail; (iii) as soon as they are
publicly available, a copy of all reports (financial or other) mailed to
security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission or any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
Subsidiaries, such financial statements referred to in subsection (e) above will
be on a consolidated basis to the extent the accounts of the Company and its
subsidiary or Subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon your order, from time to time until
the effective date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the effective date of
the Registration Statement as you may reasonably request. The Company will
deliver to the Underwriter on the effective date of the Registration Statement
and thereafter for so long as a Prospectus is required to be delivered under the
Act, from time to time, as many copies of the Prospectus, in final form, or as
thereafter amended or supplemented, as the Underwriter may from time to time
reasonably request.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to you as soon
as it is practicable to do so but in no event later than 90 days after the end
of twelve months after its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least twelve consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
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(i) The Company will apply the net proceeds from the sale of the
Securities substantially for the purposes set forth under "Use of Proceeds" in
the Prospectus.
(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
opinion of counsel to the Underwriter and counsel to the Company, may be
reasonably necessary or advisable in connection with the distribution of the
Securities, and will use its best efforts to cause the same to become effective
as promptly as possible.
(k) The Company will reserve and keep available the maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Purchase Option outstanding from time to time.
(l) (1) For a period of twenty four (24) months from the First
Closing Date, no officer, director or shareholder of any securities prior to the
offering will, directly or indirectly, offer, sell (including any short sale),
grant any option for the sale of, acquire any option to dispose of, or otherwise
dispose of any shares of Common Stock without the prior written consent of the
Underwriter, other than as set forth in the Registration Statement. In order to
enforce this covenant, the Company shall impose stop-transfer instructions with
respect to the securities owned by every shareholder prior to the offering until
the end of such period (subject to any exceptions to such limitation on
transferability set forth in the Registration Statement). If necessary to comply
with any applicable Blue-sky Law, the shares held by such shareholders will be
escrowed with counsel for the Company or otherwise as required.
(2) Except for the issuance of shares of capital stock by the
Company in connection with a dividend, recapitalization, reorganization or
similar transactions or as result of the exercise of warrants or options
disclosed in or issued or granted pursuant to plans disclosed in the
Registration Statement, the Company shall not, for a period of twenty four (24)
months following the First Closing Date, directly or indirectly, offer, sell,
issue or transfer any shares of its capital stock, or any security exchangeable
or exercisable for, or convertible into, shares of the capital stock or register
any of its capital stock (under any form of registration statement including
Form S-8), without the prior written consent of the Underwriter. Options granted
pursuant to plans must be exercisable at the fair market value on the date of
grant.
(m) Upon completion of this offering, the Company will make all
filings required, including registration under the Exchange Act, to obtain the
listing of the Common Stock and the Warrants in the NASDAQ SmallCap Market
system, and will use its best efforts to effect and maintain such listing for at
least five years from the date of this Agreement.
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(n) Except for the transactions contemplated by this Agreement
and as disclosed in the Prospectus, the Company represents that it has not taken
and agrees that it will not take, directly or indirectly, any action designed to
or which has constituted or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of any of the
Securities.
(o) On the First Closing Date and simultaneously with the
delivery of the Securities, the Company shall execute and deliver to you the
Purchase Option. The Purchase Option will be substantially in the form filed as
an Exhibit to the Registration Statement.
(p) On the First Closing Date, the Company will have in force key
person life insurance on the life of Mr. Eli Hertz in an amount of not less than
$1,000,000, payable to the Company, and will use its best efforts to maintain
such insurance during the three year period commencing with the First Closing
Date.
(q) So long as any Warrants are outstanding and the exercise
price of the Warrants is less than the market price of the Common Stock, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter as many
copies of each such Prospectus as such Underwriter or dealer may reasonably
request. The Company shall not call for redemption of any of the Warrants unless
a registration statement covering the securities underlying the Warrants has
been declared effective by the Commission and remains current at least until the
date fixed for redemption.
(r) For a period of five (5) years following the Effective Date,
the Company will maintain registration with the Commission pursuant to Section
12(g) of the Exchange Act and will provide to the Underwriter copies of all
filings made with the Commission pursuant to the Exchange Act. In the event that
the Company fails to maintain registration with the Commission pursuant to
Section 12(g) during such five year period, the Company will provide reasonable
access to an independent accountant designated by the Underwriter, to all books,
records and other documents or statements that reflect the Company's financial
status at least once each quarter, at the Company's expense.
(s) The Company agrees to pay the Underwriter a warrant
solicitation fee of 4.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date (not including warrants
exercised by the Underwriter) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price of
the Warrant, (b) the exercise of the Warrant was solicited by the Underwriter
and the holder
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<PAGE>
of the warrant designates the Underwriter in writing as having solicited such
Warrant, (c) the Warrant is not held in a discretionary account, (d) disclosure
of the compensation arrangement is made upon the sale and exercise of the
Warrants, (e) soliciting the exercise is not in violation of Rule 10b-6 under
the Securities Exchange Act of 1934, and (f) solicitation of the exercise is in
compliance with the NASD Notice to Members 81-38 (September 22, 1981).
(t) For a period of three years from the Effective Date, at the
request of the Underwriter, the Company shall provide promptly, at the expense
of the Company, copies of the Company's daily transfer sheets furnished to it by
its transfer agent and copies of the securities position listings provided to it
by the Depository Trust Company.
(u) The Company hereby agrees that:
(i) The Company will pay a finder's fee to the Underwriter, equal
to five percent (5%) of the first $3,000,000 of the consideration involved
in any transaction, 4% of the next $3,000,000 of consideration involved in
the transaction, 3% of the next $2,000,000, 2% of the next $2,000,000 and
1% of the excess, if any, for future consummated transactions, if any,
introduced by the Underwriter (including mergers, acquisitions, joint
ventures, and any other business for the Company introduced by the
Underwriter) consummated by the Company (an "Introduced Consummated
Transaction"), in which the Underwriter introduced the other party to the
Company during a period ending five years following the First Closing Date;
and
(ii) That any such finder's fee due hereunder will be paid in
cash or other consideration that is acceptable to the Underwriter, at the
closing of the particular Introduced Consummated Transaction for which the
finder's fee is due.
(v) Intentionally omitted.
(w) For a period of five (5) years following the Effective Date
the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
stockholders, provided that the Company shall not be required to file a report
of such accountants relating to such review with the Commission. The Company
will retain its present legal counsel and independent certified public
accountants for at least one year from the Closing Date.
(x) For the three (3) year period commencing on the First Closing
Date, the Underwriter shall have the right to nominate a member of the Company's
Board of Directors.
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<PAGE>
If the Underwriter does not exercise this right, it may appoint an advisor who
will be able to attend all meetings of the Board of Directors. However, if the
Board of Directors determines that confidential information is to be discussed
during any part of any meeting attended by such advisor, it shall have the right
to exclude the advisor from the meeting during such discussion. The Underwriter
shall also have the right to obtain copies of the minutes, if requested, from
all Board of Directors meetings for three (3) years following the Effective Date
of the Registration Statement, whether or not a nominee of the Underwriter
attends or participates in any such Board meeting. The Company agrees to
reimburse the Underwriter immediately upon the Underwriter's request therefor of
any reasonable travel and lodging expenses directly incurred by the Underwriter
in connection with its representative attending Company Board meetings on the
same basis for other Board members.
4. Conditions of Underwriter's Obligation. The obligations of the
Underwriter to purchase and pay for the Securities which it has agreed to
purchase hereunder, are subject to the accuracy (as of the date hereof, and as
of the Closing Dates) of and compliance with the representations and warranties
of the Company herein, to the performance by the Company of its obligations
hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 A.M., New York time,
on the day following the date of this Agreement, or at such later time or on
such later date as to which you may agree in writing; on or prior to the Closing
Dates no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that or a similar purpose shall
have been instituted or shall be pending or, to your knowledge or to the
knowledge of the Company, shall be contemplated by the Commission; any request
on the part of the Commission for additional information shall have been
complied with to the satisfaction of the Commission; and no stop order shall be
in effect denying or suspending effectiveness of such qualification nor shall
any stop order proceedings with respect thereto be instituted or pending or
threatened. If required, the Prospectus shall have been filed with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act.
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Morse, Zelnick, Rose & Lander,
LLP, counsel for the Company, in form and substance satisfactory to counsel for
the Underwriter, to the effect that:
(i) the Company and its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of organization, with all requisite
corporate power and authority to own their properties and conduct their business
as described in the Registration Statement and Prospectus and are duly qualified
or licensed to do business as foreign corporations and are in good standing
16
<PAGE>
in each other jurisdiction in which the ownership or leasing of their properties
or conduct of their business requires such qualification except where the
failure to qualify or be licensed will not have a Material Adverse Effect;
(ii) the authorized capitalization of the Company as of
________ __, 1996 is as set forth in the Registration Statement; the Securities
as set forth in the Registration Statement have been duly authorized and upon
payment of consideration therefor, will be validly issued, fully paid and
non-assessable and conform in all material respects to the description thereof
contained in the Prospectus; to such counsel's knowledge the outstanding shares
of capital stock of the Company and its Subsidiaries have not been issued in
violation of the preemptive rights of any shareholder and to such counsel's
knowledge the shareholders of the Company do not have any preemptive rights or
other rights to subscribe for or to purchase, nor are there any restrictions
upon the voting or transfer of any of the capital stock except as provided in
the Prospectus or as required by law. The Securities, the Purchase Option and
the Warrant Agreement conform in all material respects to the respective
descriptions thereof contained in the Prospectus; the shares of Common Stock,
and the shares of Common Stock issuable upon exercise of Warrants, the Purchase
Option, and the Warrant Agreement will have been duly authorized and, when
issued and delivered in accordance with their respective terms, will be duly and
validly issued, fully paid, non-assessable, free of preemptive rights to the
best of their knowledge; to the best of their knowledge, all prior sales by the
Company of the Company's securities, have been made in compliance with or under
an exemption from registration under the Act and applicable state securities
laws; a sufficient number of shares of Common Stock has been reserved for
issuance upon exercise of the Warrants and Common Stock has been reserved for
issuance upon exercise of the Warrants contained in the Purchase Option and to
the best of such counsel's knowledge, neither the filing of the Registration
Statement nor the offering or sale of the Securities as contemplated by this
Agreement gives rise to any registration rights other than those which have been
waived or satisfied for or relating to the registration of any shares of Common
Stock;
(iii) this Agreement, the Purchase Option, and the Warrant
Agreement have been duly and validly authorized, executed and delivered by the
Company;
(iv) the certificates evidencing the Securities as described
in the Registration Statement comply in all material respects with the
descriptions set forth therein, and comply with the Delaware General Corporation
Law, as in effect on the date hereof; each Warrant will be exercisable for one
share of the Common Stock of the Company, respectively, and at the prices
provided for in the Warrant Agreement;
(v) except as otherwise disclosed in the Registration
Statement, such counsel knows of no pending or threatened legal or governmental
proceedings to which the
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Company or its Subsidiaries are a party which would materially adversely affect
the business, property, financial condition or operations of the Company or its
Subsidiaries; or which question the validity of the Securities, this Agreement,
the Warrant Agreement or the Purchase Option, or of any action taken or to be
taken by the Company pursuant to this Agreement, the Warrant Agreement or the
Purchase Option; to such counsel's knowledge there are no governmental
proceedings or regulations required to be described or referred to in the
Registration Statement which are not so described or referred to;
(vi) the execution and delivery of this Agreement, the
Purchase Option or the Warrant Agreement and the incurrence of the obligations
herein and therein set forth and the consummation of the transactions herein or
therein contemplated, will not result in a breach or violation of, or constitute
a default under the certificate of incorporation or by-laws of the Company or
its Subsidiaries, or to the best knowledge of counsel after due inquiry, in the
performance or observance of any material obligations, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any material contract, indenture, mortgage, loan agreement,
lease, joint venture or other agreement or instrument to which the Company or
its Subsidiaries is a party or by which they or any of their properties is bound
or in violation of any order, rule, regulation, writ, injunction, or decree of
any government, governmental instrumentality or court, domestic or foreign the
result of which would have a Material Adverse Effect;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for that purpose have been instituted or are pending before, or threatened by,
the Commission; the Registration Statement and the Prospectus (except for the
financial statements and other financial data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) as of the Effective
Date comply as to form in all material respects with the applicable requirements
of the Act and the Rules and Regulations;
(viii) in the course of preparation of the Registration
Statement and the Prospectus such counsel has participated in conferences with
the President of the Company with respect to the Registration Statement and
Prospectus and such discussions did not disclose to such counsel any information
which gives such counsel reason to believe that the Registration Statement or
any amendment thereto at the time it became effective contained any untrue
statement of a material fact required to be stated therein or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus or any supplement
thereto contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make statements therein, in light of the
circumstances under which they were made, not misleading (except, in the case of
both the Registration Statement and any amendment
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thereto and the Prospectus and any supplement thereto, for the financial
statements, notes thereto and other financial information (including without
limitation, the pro forma financial information) and schedules contained
therein, as to which such counsel need express no opinion);
(ix) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
agreements to which the Company or its Subsidiaries is a party are accurate and
fairly present in all material respects the information required to be shown,
and such counsel is familiar with all contracts and other agreements referred to
in the Registration Statement and the Prospectus and any such amendment or
supplement or filed as exhibits to the Registration Statement, and such counsel
does not know of any contracts or agreements to which the Company or its
Subsidiaries is a party of a character required to be summarized or described
therein or to be filed as exhibits thereto which are not so summarized,
described or filed;
(x) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Securities by the
Company, in connection with the execution, delivery and performance of this
Agreement by the Company or in connection with the taking of any action
contemplated herein, or the issuance of the Purchase Option or the Securities
underlying the Purchase Option, other than registrations or qualifications of
the Securities under applicable state or foreign securities or Blue Sky laws and
registration under the Act; and
(xi) the shares of Common Stock and the Warrants have been
duly authorized for quotation on the NASDAQ SmallCap Market System ("NASDAQ").
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the law of
the United States or of the State of New York or Delaware upon opinions of
counsel satisfactory to you, in which case the opinion shall state that they
have no reason to believe that you and they are not entitled to so rely.
(c) Intentionally Omitted.
(d) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Bernstein & Wasserman, LLP,
counsel to the Underwriter.
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(e) You shall have received a letter prior to the Effective Date
and again on and as of the First Closing Date from Arthur Anderson, LLP,
independent public accountants for the Company, substantially in the form
reasonably acceptable to you, providing you with such "cold comfort" as you may
reasonably require.
(f) At the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of the Closing Dates
taking into account for the Option Closing Dates the effect of the transactions
contemplated hereby and the Company or its Subsidiaries shall have performed all
of its obligations hereunder and satisfied all the conditions on its part to be
satisfied at or prior to such Closing Date; (ii) the Registration Statement and
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations, and shall in all material respects conform to the
requirements thereof, and neither the Registration Statement nor the Prospectus
nor any amendment or supplement thereto shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; (iii) there shall
have been, since the respective dates as of which information is given, no
material adverse change, or to the Company or its Subsidiaries's knowledge, any
development involving a prospective material adverse change, in the business,
properties, condition (financial or otherwise), results of operations, capital
stock, long-term or short-term debt or general affairs of the Company or its
Subsidiaries from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and Prospectus
indicate might occur after the effective date of the Registration Statement, and
the Company or its Subsidiaries shall not have incurred any material liabilities
or entered into any material agreement not in the ordinary course of business
other than as referred to in the Registration Statement and Prospectus; (iv)
except as set forth in the Prospectus, no action, suit or proceeding at law or
in equity shall be pending or threatened against the Company or its Subsidiaries
which would be required to be set forth in the Registration Statement, and no
proceedings shall be pending or threatened against the Company or its
Subsidiaries before or by any commission, board or administrative agency in the
United States or elsewhere, wherein an unfavorable decision, ruling or finding
would materially and adversely affect the business, property, condition
(financial or otherwise), results of operations or general affairs of the
Company or its Subsidiaries, and (v) you shall have received, at the First
Closing Date, a certificate signed by each of the President and the principal
operating officer of the Company or its Subsidiaries, dated as of the First
Closing Date, evidencing compliance with the provisions of this subsection (f).
(g) Upon exercise of the Over-Allotment Option provided for in
Section 2(b) hereof, the obligations of the Underwriter to purchase and pay for
the Option Securities referred
20
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to therein will be subject (as of the date hereof and as of the Option Closing
Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of the
Company, shall be contemplated by the Commission, and any reasonable request on
the part of the Commission for additional information shall have been complied
with to the satisfaction of the Commission.
(ii) At the Option Closing Date there shall have been
delivered to you the signed opinion of Morse, Zelnick, Rose & Lander, LLP,
counsel to the Company, dated as of the Option Closing Date, in form and
substance reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Underwriter, which opinion shall be substantially the same in scope and
substance as the opinion furnished to you at the First Closing Date pursuant to
Sections 4(b) hereof, except that such opinion, where appropriate, shall cover
the Option Securities.
(iii) At the Option Closing Date there shall have be
delivered to you a certificate of the President and the principal operating
officer of the Company, dated the Option Closing Date, in form and substance
reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Underwriter, substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date there shall have been
delivered to you a letter in form and substance satisfactory to you from Arthur
Anderson, LLP, dated the Option Closing Date and addressed to the Underwriter
confirming the information in their letter referred to in Section 4(e) hereof
and stating that nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date not more than
five business days prior to the Option Closing Date, which would require any
change in said letter if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities shall be
reasonably satisfactory in form and substance to you, and you and Bernstein &
Wasserman, LLP, counsel to the Underwriter, shall have been furnished with all
such documents, certificates, and opinions as you may reasonably request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
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(h) No action shall have been taken by the Commission or the NASD
the effect of which would make it improper, at any time prior to the Closing
Date, for members of the NASD to execute transactions (as principal or agent) in
the Securities and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the Underwriter or the
Company, shall be contemplated by the Commission or the NASD. The Company and
the Underwriter represent that at the date hereof each has no knowledge that any
such action is in fact contemplated against it by the Commission or the NASD.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled in all material respects as of the date indicated,
this Agreement and all obligations of the Underwriter under this Agreement may
be canceled at, or at any time prior to, each Closing Date by the Underwriter
notifying the Company of such cancellation in writing or by telegram at or prior
to the applicable Closing Date. Any such cancellation shall be without liability
of the Underwriter to the Company.
5. Conditions of the Obligations of the Company, The obligation of the
Company to sell and deliver the Securities is subject to the following
conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 A.M. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Underwriter may agree in
writing.
(b) At the Closing Dates, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for
in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Securities on
exercise of the Over-Allotment Option provided for in Section 2(b) hereof shall
be affected.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages or liabilities, joint
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or several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees), to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, and (ii) to reimburse, as incurred,
the Underwriter and such controlling persons for any legal or other expenses
reasonably incurred in connection with investigating, defending against or
appearing as a third party witness in connection with any losses, claims,
damages or liabilities; insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) relating to (i) and (ii) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in (A) the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, (B) any blue sky application
or other document executed by the Company specifically for that purpose
containing written information specifically furnished by the Company and filed
in any state or other jurisdiction in order to qualify any or all of the
Securities under the securities laws thereof (any such application, document or
information being hereinafter called a "Blue Sky Application"), or arise out of
or are based upon the omission or alleged omission to state in the Registration
Statement, any Preliminary Prospectus, Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, a material fact required to
be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be required to indemnify the
Underwriter and any controlling person or be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto, provided, further that the indemnity with respect to any
Preliminary Prospectus shall not be applicable on account of any losses, claims,
damages, liabilities or litigation arising from the sale of Securities to any
person if a copy of the Prospectus was not delivered to such person at or prior
to the written confirmation of the sale to such person. This indemnity will be
in addition to any liability which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and reasonable attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise
23
<PAGE>
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or any Blue Sky Application
in reliance upon and in conformity with written information furnished to the
Company by the Underwriter specifically for use in the preparation thereof and
for any violation by the Underwriter in the sale of such Securities of any
applicable state or federal law or any rule, regulation or instruction
thereunder relating to violations based on unauthorized statements by
Underwriter or its representative; provided that such violation is not based
upon any violation of such law, rule or regulation or instruction by the party
claiming indemnification or inaccurate or misleading information furnished by
the Company or its representatives, including information furnished to the
Underwriter as contemplated herein. This indemnity agreement will be in addition
to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the reasonable fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party and in
the reasonable judgment of the counsel to the indemnified party, it is advisable
for the indemnified party to be represented by separate counsel (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such
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action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for the indemnified party, which firm shall be designated in writing
by the indemnified party). No settlement of any action against an indemnified
party shall be made without the consent of the indemnified party, which shall
not be unreasonably withheld in light of all factors of importance to such
indemnified party. If it is ultimately determined that indemnification is not
permitted, then an indemnified party will return all monies advanced to the
indemnifying party.
7. Contribution.
In order to provide for just and equitable contribution under the
Act in any case in which the indemnification provided in Section 6 hereof is
requested but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case, notwithstanding the fact that the express provisions of
Section 6 provide for indemnification in such case, then the Company and each
person who controls the Company, in the aggregate, and the Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees) (after contribution from others) in such proportions
that the Underwriter is responsible in the aggregate for that portion of such
losses, claims, damages or liabilities represented by the percentage that the
underwriting discount for each of the Securities appearing on the cover page of
the Prospectus bears to the public offering price appearing thereon and the
Company shall be responsible for the remaining portion; provided, however, that
if such allocation is not permitted by applicable law then allocated in such
proportion as is appropriate to reflect relative benefits but also the relative
fault of the Company and the Underwriter and controlling persons, in the
aggregate, in connection with the statements or omissions which resulted in such
damages and other relevant equitable considerations shall also be considered.
The relative fault shall be determined by reference to, among other things,
whether in the case of an untrue statement of a material fact or the omission to
state a material fact, such statement or omission relates to information
supplied by the Company or the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Underwriter agree that it
would not be just and equitable if the respective obligations of the Company and
the Underwriter to contribute pursuant to this Section 7 were to be determined
by pro rata or per capita allocation of the aggregate damages or by any other
method of allocation that does not take account of the equitable considerations
referred to in this Section 7. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the word
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"Company" includes any officer, director, or person who controls the Company
within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company, its officers, directors and controlling persons,
and the Company, its officers, directors and controlling persons shall be
entitled to contribution from the Underwriter to the full extent permitted by
law. The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriter. No contribution shall be
requested with regard to the settlement of any matter from any party who did not
consent to the settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale
of the Securities to the Underwriter is consummated, the Company will pay all
costs and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Securities contemplated hereby; all
expenses, including reasonable fees and disbursements of counsel to the
Underwriter, in connection with the qualification of the Securities under the
state securities or blue sky laws which the Underwriter shall designate; the
cost of printing and furnishing to the Underwriter copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, and the
Blue Sky Memorandum, any fees relating to the listing of the Common Stock and
Warrants on NASDAQ or any other securities exchange, the cost of printing the
certificates representing the Securities; fees for bound volumes and prospectus
memorabilia and the fees of the transfer agent and warrant agent. The Company
shall pay any and all taxes (including any transfer, franchise, capital stock or
other tax imposed by any jurisdiction) on sales to the Underwriter hereunder.
The Company will also pay all costs and expenses incident to the furnishing of
any amended Prospectus or of any supplement to be attached to the Prospectus as
called for in Section 3(a) of this Agreement except as otherwise set forth in
said Section.
(b) In addition to the foregoing expenses, the Company shall at
the First Closing Date pay to the Underwriter a non-accountable expense
allowance of $181,500. In the event the overallotment option is exercised, the
Company shall pay to the Underwriter at the Option Closing Date an additional
amount in the aggregate equal to 3% of the gross proceeds
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<PAGE>
received upon exercise of the overallotment option. In the event the
transactions contemplated hereby are not consummated by reason of any action by
the Underwriter (except if such prevention is based upon a breach by the Company
of any covenant, representation or warranty contained herein or because any
other condition to the Underwriter's obligations hereunder required to be
fulfilled by the Company is not fulfilled) the Company shall not be liable for
any expenses of the Underwriter, including the Underwriter's legal fees. In the
event the transactions contemplated hereby are not consummated by reason of the
Company being unable to perform its obligations hereunder in all material
respects, the Company shall be liable for the actual accountable out-of-pocket
expenses of the Underwriter, including reasonable legal fees, not to exceed in
the aggregate $100,000.
(c) Except as disclosed in the Registration Statement, no person
is entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company agrees to indemnify and hold
harmless the Underwriter, against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all reasonable
attorneys' fees), to which the Underwriter or person may become subject insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an employee
of the party claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the proposed offering by reason of such person's
or entity's influence or prior contact with the indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution except
that you may, at your option, delay its effectiveness until 11:00 A.M., New York
time on the first full business day following the effective date of the
Registration Statement, or at such earlier time on such business day after the
effective date of the Registration Statement as you in your discretion shall
first commence the public offering of the Securities. The time of the initial
public offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Securities, or the time when the Securities
are first generally offered by you to dealers by letter or telegram, whichever
shall first occur. This Agreement may be terminated by you at any time before it
becomes effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13,
14 and 15 shall remain in effect notwithstanding such termination.
10. Termination.
(a) After this Agreement becomes effective, this Agreement,
except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 hereof, may be terminated
at any time prior to the First Closing
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Date, by you if in your judgment (i) the Company has sustained a material loss,
whether or not insured, by reason of fire, earthquake, flood, accident or other
calamity, or from any labor dispute or court or government action, order or
decree, (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited, (iii) material
governmental restrictions have been imposed on trading in securities generally
(not in force and effect on the date hereof), (iv) a banking moratorium has been
declared by federal or New York state authorities, (v) an outbreak of major
international hostilities involving the United States or other substantial
national or international calamity has occurred, (vi) a pending or threatened
legal or governmental proceeding or action relating generally to the Company's
business, or a notification has been received by the Company of the threat of
any such proceeding or action, which would materially adversely affect the
Company; (vii) except as contemplated by the Prospectus, the Company is merged
or consolidated into or acquired by another company or group or there exists a
binding legal commitment for the foregoing or any other material change of
ownership or control occurs; (viii) the passage by the Congress of the United
States or by any state legislative body of similar impact, of any act or
measure, or the adoption of any orders, rules or regulations by any governmental
body or any authoritative accounting institute or board, or any governmental
executive, which is reasonably believed likely by the Underwriter to have a
material adverse impact on the business, financial condition or financial
statements of the Company; (ix) any material adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement, or (x) any material adverse change having occurred,
since the respective dates of which information is given in the Registration
Statement and Prospectus, in the earnings, business prospects or general
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. Purchase Option.
At or before the First Closing Date, the Company will sell the
Underwriter or its designees for a consideration of $110, and upon the terms and
conditions set forth in the form of Purchase Option annexed as an exhibit to the
Registration Statement, a Purchase Option to purchase an aggregate of 110,000
shares of Common Stock and 220,000 Warrants. In the event of conflict in the
terms of this Agreement and the Purchase Option with respect to language
relating to the Purchase Option, the language of the Purchase Option shall
control.
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12. Representations and Warranties of the Underwriter.
The Underwriter represents and warrants to the Company that it is
registered as a broker-dealer in all jurisdictions in which it is offering the
Securities and that it will comply with all applicable state or federal laws
relating to the sale of the Securities, including but not limited to, violations
based on unauthorized statements by the Underwriter or its representatives.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company and the Underwriter and the
undertakings set forth in or made pursuant to this Agreement will remain in full
force and effect until three years from the date of this Agreement, regardless
of any investigation made by or on behalf of the Underwriter, the Company or any
of its officers or directors or any controlling person and will survive delivery
of and payment of the Securities and the termination of this Agreement.
14. Notice.
Any communications specifically required hereunder to be in
writing, if sent to the Representative, will be mailed, delivered or telecopied
and confirmed to them at Biltmore Securities, Inc., 6700 North Andrews Avenue,
Suite 500, Fort Lauderdale, FL 33309, with a copy sent to Bernstein & Wasserman,
LLP, 950 Third Avenue, New York, New York 10022, Attention: Steven F. Wasserman,
or if sent to the Company, will be mailed, delivered or telecopied and confirmed
to it at 325 Fifth Avenue, New York, NY 10016-5012, with a copy sent to Morse,
Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, NY 10022. Notice shall
be deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication.
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of
the Underwriter, the Company, any person controlling the Company or the
Underwriter, and directors of the Company, nominees for directors (if any) named
in the Prospectus, its officers who have signed the Registration Statement, and
their respective executors, administrators, successors, assigns and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include any purchaser, as such
purchaser, from the Underwriter of the Securities.
29
<PAGE>
16. Applicable Law.
This Agreement will be governed by, and construed in accordance
with, of the laws of the State of New York applicable to agreements made and to
be entirely performed within New York.
17. Counterparts.
This agreement may be executed in one or more counterparts each
of which shall be deemed to constitute an original and shall become effective
when one or more counterparts have been signed by each of the parties hereto and
delivered to the other parties (including by fax, followed by original copies by
overnight mail).
18. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement of the parties
hereto and supersedes all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in writing, signed by the Underwriter and the Company.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
HERTZ TECHNOLOGY GROUP, INC.
By:_________________________
Name: Eli E. Hertz
Title: President
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
BILTMORE SECURITIES, INC.
By:_________________________
Name:
Title:
30
<PAGE>
The undersigned agree to be bound by the provisions of Section 3 (1)
hereof:
________________________________
Eli E. Hertz
________________________________
I. Marilyn Hertz
Morse, Zelnick, Rose & Lander, LLP
By:_____________________________
Name:
Title:
31
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE.
HERTZ TECHNOLOGY GROUP, INC.
1,100,000 SHARES OF COMMON STOCK, $.001 PAR VALUE
AND
2,200,000 CLASS A REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
_______ __, 1996
Dear Sirs:
1. Biltmore Securities, Inc. (the "Underwriter"), has agreed to offer on a
firm commitment basis, subject to the terms and conditions and execution of the
Underwriting Agreement, 1,100,000 shares of Common Stock, $.001 par value per
share ("Common Stock") of Hertz Technology Group, Inc. (the "Company") and
2,200,000 Class A Redeemable Common Stock Purchase Warrants ("Warrants"),
(hereinafter, collectively referred to as the "Securities"; including any shares
of Common Stock and Warrants offered pursuant to an over-allotment option, the
"Firm Securities"). Each Warrant is exercisable to purchase one (1) share of
Common Stock. The Firm Securities are more particularly described in the
enclosed Preliminary Prospectus, additional copies of which, as well as the
Prospectus (after effective date), will be supplied in reasonable quantities
upon request.
2. The Underwriter is soliciting offers to buy Securities, upon the terms
and conditions hereof, from Selected Dealers, who are to act as principals,
including you, who are (i) registered with the Securities and Exchange
Commission ("the Commission") as broker-dealers under the Securities Exchange
Act of 1934, as amended ("the 1934 Act"), and members in good standing with the
National Association of Securities Dealers, Inc. ("the NASD"), or (ii) dealers
of institutions with their principal place of business located outside the
United States, its territories and possessions and not registered under the 1934
Act who agree to make no sales within the
<PAGE>
United States, its territories and possessions or to persons who are nationals
thereof or residents therein and, in making sales, to comply with the NASD's
interpretation with respect to free-riding and withholding. The Securities are
to be offered to the public at a price of $5.00 per share of Common Stock and
$.25 per Warrant. Selected Dealers will be allowed a concession of not less than
__% of the aggregate offering price. You will be notified of the precise amount
of such concession prior to the effective date of the Registration Statement.
The offer is solicited subject to the issuance and delivery of the Securities
and their acceptance by the Underwriter, to the approval of legal matters by
counsel and to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Securities has become effective with the Commission.
Subject to the foregoing, upon execution by you of the Offer to Purchase below
and the return of same to us, you shall be deemed to have offered to purchase
the number of Securities set forth in your offer on the basis set forth in
paragraph 2 above. Any oral notice by us of acceptance of your offer shall be
immediately followed by written or telegraphic confirmation preceded or
accompanied by a copy of the Prospectus. If a contractual commitment arises
hereunder, all the terms of this Selected Dealers Agreement shall be applicable.
We may also make available to you an allotment to purchase Securities, but such
allotment shall be subject to modification or termination upon notice from us
any time prior to an exchange of confirmations reflecting completed
transactions. All references hereafter in this Agreement to the purchase and
sale of the Securities assume and are applicable only if contractual commitments
to purchase are completed in accordance with the foregoing.
4. You agree that in re-offering the Securities, if your offer is accepted
after the Effective Date, you will make a bona fide public distribution of same.
You will advise us upon request of the Securities purchased by you remaining
unsold, and we shall have the right to repurchase such Securities upon demand at
the public offering price less the concession as set forth in paragraph 2 above.
Any of the Securities purchased by you pursuant to this Agreement are to be
re-offered by you to the public at the public offering price, subject to the
terms hereof and shall not be offered or sold by you below the public offering
price before the termination of this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by you
on such date as we may determine by certified or bank cashier's check payable in
New York Clearinghouse funds to Biltmore Securities, Inc. Certificates for the
Securities shall be delivered as soon as practicable at the offices of Biltmore
Securities, Inc., 6700 North Andrews Avenue, Suite 500, Fort Lauderdale, FL
33309. Unless specifically authorized by us, payment by you may not be deferred
until delivery of certificates to you.
6. A registration statement covering the offering has been filed with the
Commission in respect to the Securities. You will be promptly advised when the
registration statement becomes effective. Each Selected Dealer in selling the
Securities pursuant hereto agrees (which
2
<PAGE>
agreement shall also be for the benefit of the Company) that it will comply with
the applicable requirements of the Securities Act of 1933 and of the 1934 Act
and any applicable rules and regulations issued under said Acts. No person is
authorized by the Company or by the Underwriter to give any information or to
make any representations other than those contained in the Prospectus in
connection with the sale of the Securities. Nothing contained herein shall
render the Selected Dealers a member of the underwriting group or partners with
the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Securities have been qualified for sale or are exempt
under the respective securities or blue sky laws of such states, but we have not
assumed and will not assume any obligation or responsibility as to the right of
any Selected Dealer to sell Securities in any state.
8. The Underwriter shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the offering or arising
thereunder. The Underwriter shall not be under any liability to you, except such
as may be incurred under the Securities Act of 1933 and the rules and
regulations thereunder, except for lack of good faith and except for obligations
assumed by us in this Agreement, and no obligation on our part shall be implied
or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment on
our part to sell you any Securities; such contractual commitment can only be
made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("Association") and registered as a
broker-dealer or are not eligible for membership under Section I of the By-Laws
of the Association who agree to make no sales within the United States, its
territories or possessions or to persons who are nationals thereof or residents
therein and, in making sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. Your attention is called to the
following: (a) Article III, Sections 1, 8, 24, 25, 26 and 36 of the Rules of
Fair Practice of the Association and the interpretations of said Section
promulgated by the Board of Governors of such Association including the
interpretation with respect to "Free-Riding and Withholding"; (b) Section 10(b)
of the 1934 Act and Rules 10b-6 and 10b-10 of the general rules and regulations
promulgated under said Act; (c) Securities Act Release #3907; (d) Securities Act
Release #4150; and (e) Securities Act Release #4968 requiring the distribution
of a Preliminary Prospectus to all persons reasonably expected to be purchasers
of Securities from you at least 48 hours prior to the time you expect to mail
confirmations. You, if a member of the Association, by signing this Agreement,
acknowledge that you are familiar with the cited law, rules and releases, and
agree that you will not directly and/or indirectly violate any provisions of
applicable law in connection with your participation in the distribution of the
Securities.
3
<PAGE>
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase Securities or its component
securities in the open market of or otherwise make a market in such securities
or otherwise attempt to induce others to purchase such securities in the open
market. Nothing contained in this paragraph 11 shall, however, preclude y9u from
acting as agent in the execution of unsolicited orders of customers in
transactions effectuated for them through a market maker.
12. You understand that the Underwriter may in connection with the offering
engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased, and you agree to pay such amount to us on
demand.
13. By submitting an Offer to Purchase you confirm that your net capital is
such that you may, in accordance with Rule 15c3-1 adopted under the 1934 Act,
agree to purchase the number of Securities you may become obligated to purchase
under the provisions of this Agreement.
14. You agree that (i) you shall not recommend to a customer the purchase
of Firm Securities unless you shall have reasonable grounds to believe that the
recommendation is suitable for such customer on the basis of information
furnished by such customer concerning the customer's investment objectives,
financial situation and needs, and any other information known to you, (ii) in
connection with all such determinations, you shall maintain in your files the
basis for such determination, and (iii) you shall not execute any transaction in
Firm Securities in a discretionary account without the prior specific written
approval of the customer.
4
<PAGE>
15. You represent that neither you nor any of your affiliates or associates
owns any Common Stock of the Company.
16. All communications from you should be directed to us at the office of
Biltmore Securities, Inc., 6700 North Andrews Avenue, Suite 500, Fort
Lauderdale, FL 33309. All communications from us to you shall be directed to the
address to which this letter is mailed.
Very truly yours,
BILTMORE SECURITIES, INC.
By:_______________________
Name:
Title:
ACCEPTED AND AGREED TO AS OF THE ______
DAY OF ____________, 1996
[Name of Dealer]
By: ____________________________
Its
5
<PAGE>
TO: Biltmore Securities, Inc.
6700 North Andrews Avenue
Suite 500
Fort Lauderdale, FL 33309
We hereby subscribe for ______ Shares of Common Stock, $.001 par value per
share, of Hertz Technology Group, Inc. and ______ Class A Redeemable Common
Stock Purchase Warrants in accordance with the terms and conditions stated in
the foregoing letter. We hereby acknowledge receipt of the Prospectus referred
to in the first paragraph thereof relating to said Securities. We further state
that in purchasing said Securities we have relied upon said Prospectus and upon
no other statement whatsoever, whether written or oral. We confirm that we are a
dealer actually engaged in the investment banking or securities business and
that we are either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place
of business located outside the United States, its territories and its
possessions and not registered as a broker or dealer under the Securities
Exchange Act of 1934, as amended, who hereby agrees not to make any sales within
the United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. We hereby agree to comply with the
provisions of Section 24 of Article III of the Rules of Fair Practice of the
NASD, and if we are a foreign dealer and not a member of the NASD, we also agree
to comply with the NASD's interpretation with respect to free-riding and
withholding, to comply, as though we were a member of the NASD, with the
provisions of Sections 8 and 36 of Article III thereof as that Section applies
to non-member foreign dealers.
Name of
Dealer:___________________________
By:__________________________
Address:___________________________
___________________________
Dated: _____________, 1996
6
EXCHANGE AGREEMENT
Agreement dated as of August ___, 1996 by and among Hertz Technology Group,
Inc., a Delaware Corporation ("Hertz Technology") and Eli E. Hertz ("Eli") and
I. Marilyn Hertz ("Marilyn") (collectively the "Shareholders").
WHEREAS, Eli and Marilyn are the record and beneficial owners of 90 shares
and 110 shares respectively of Hertz Computer Corporation ("Hertz Computer"),
representing all the issued and outstanding stock of Hertz Computer and _____
shares and ____ shares respectively of Hergo Ergonomics Support Systems, Inc.
("Hergo"), representing all the issued and outstanding stock of Hergo; and
WHEREAS, Hertz Technology has filed a registration statement on Form SB-2
with the Securities and Exchange Commission (the "SEC") for the purpose of
offering and selling to the public (the "Offering") 1,100,000 shares of the
Common Stock, .001 per value per share (the "Shares"), and 2,200,000 Redeemable
Class A Purchase Warrants (the "Warrants") and the Offering contemplates that
immediately prior to the date the Offering is declared effective by the SEC (the
"Effective Date"), the Shareholders will have transferred all their shares of
stock in Hertz Computer and Hergo in exchange for an aggregate of 1,840,000
Shares.
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the parties hereto hereby agree as follows:
1. Immediately prior to the Effective Date (i) Eli and Marilyn shall
transfer all of their respective Shares in Hertz Computer to Hertz Technology in
exchange for which Hertz Technology shall issue 460,000 of its Shares to each of
them and (ii) Eli and Marilyn shall transfer all of their respective Shares in
Hergo to Hertz Technology in exchange for which Hertz Technology shall issue
460,000 of its Shares to each of them.
<PAGE>
2. Eli and Marilyn, each for himself or herself, represents and warrants:
each such person is the legal and equitable owner of the Shares in Hertz
Computer and Hergo as set forth in the "Whereas" clause, with full power to
execute this Agreement and transfer such Shares to Hertz Technology, and that
upon such transfer, Hertz Technology will own such Shares free and clear of all
liens and encumbrances of any kind.
3. Eli and Marilyn jointly and severally represent and warrant that the
Shares of stock owned by them in Hertz Computer and Hergo as recited in the
"Whereas" clause, represents all the issued and outstanding Shares of each such
corporation.
4. Hertz Technology represents and warrants that it is a corporation duly
organized and subsisting in the State of Delaware that it has the power and
authority to enter into this agreement and that upon issuance of an aggregate of
1,840,000 Shares to the Shareholders as provided herein, such Shareholders will
own such Shares free and clear of all liens and encumbrances of any kind and
that such Shares shall be fully paid for and non assessable.
5. The Shareholders jointly and severally covenant that they will cause
Hergo and Hertz Computer not to issue any shares of their respective companies
prior to the Effective Date, and Hertz Technology covenants that prior to the
Effective Date it will not issue any of its Shares except as contemplated
hereunder.
6. The contract shall be construed in accordance with the laws of New York.
Hertz Technology Group, Inc.
By: ______________________________
______________________________
Eli E. Hertz
______________________________
I. Marilyn Hertz
Certificate of Incorporation
of
Hertz Technology Group, Inc.
The undersigned, being a natural person for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is Hertz Technology Group, Inc.
SECOND: The address, including street, number, city and county of the
registered office of the corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle; and the name of the registered
agent of the corporation in the State of Delaware at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and the purposes to be conducted and
promoted by the corporation are to conduct any lawful business, to promote any
lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is 1,000,000. The par value of each of such shares
is $.001. All such shares are of one class and are shares of Common Stock.
No holder of any of the shares of the stock of the corporation,
whether now or hereafter authorized and issued, shall be entitled as of right to
purchase or subscribe for (1) any unissued stock of any class, or (2) any
additional shares of any class to be issued by reason of any increase of the
authorized capital stock of the corporation of any class, or (3) bonds,
certificates of indebtedness, debentures or other securities convertible into
stock of the corporation, or carrying any right to purchase stock of any class,
but any such unissued stock or such additional authorized issue of any stock or
of other securities convertible into stock, or carrying any right to purchase
stock, may be issued and disposed of pursuant to resolution of the Board of
Directors to such persons, firms, corporations or associations and upon such
terms as may be deemed advisable by the Board of Directors in the exercise of
its discretion.
FIFTH: The name and the mailing address of the incorporator are as
follows:
Name Mailing Address
---- ---------------
Howard L. Weinreich Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
SIXTH: The corporation is to have perpetual existence.
<PAGE>
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholder or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed by,
or in the manner provided in, the By-Laws. The phrase "whole Board" and the
phrase "total number of directors" shall be deemed to have the same meaning, to
wit, the total number of directors which the corporation would have if there
were no vacancies. No election of directors need be by written ballot.
2. After the original or other By-Laws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and after the corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the By-Laws of the corporation may
be exercised by the Board of Directors of the corporation; provided, however,
that any provision for the classification of directors of the corporation for
staggered terms pursuant to the provisions of subsection (d) of Section 141 of
the General Corporation Law of the State of Delaware shall be set forth in an
initial By-Law or in a By-Law adopted by the stockholders entitled to vote of
the corporation unless provisions for such classification shall be set forth in
this certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only one
class of stock each outstanding share shall entitle the holder thereof to notice
of, and the right to vote at, any meeting of stockholders. Whenever the
corporation shall be authorized to issue more than one class of stock no
outstanding share of any class of stock which is denied voting power under the
provisions of the certificate of incorporation shall entitle the holder thereof
to the right to vote at any meeting of stockholders except as the provisions of
paragraph (c)(2) of Section 242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of any such class
which is otherwise denied voting power shall entitle the holder thereof to vote
upon the increase or decrease in the number of authorized shares of said class.
NINTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware
2
<PAGE>
General Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
TENTH: (a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators: provided, however, that, except
as provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition: provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer (in his or her capacity as a
director or officer and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
3
<PAGE>
(c) Non-Exclusivity of Rights. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
ELEVENTH: From time to time any of the provisions of this certificate
or incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Dated: June 18, 1996
/s/ Howard L. Weinreich
----------------------------------
Howard L. Weinreich, Incorporator
BY-LAWS OF
HERTZ TECHNOLOGY GROUP, INC.
(A Delaware Corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK.
Every holder of stock in the corporation shall be entitled to have a
certificate signed by, or in the name of, the corporation by the Chairman or
Vice-Chairman of the Board of Directors, if any, or by the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the corporation certifying the number of shares
owned by him in the corporation. Any and all signatures on any such certificate
may be facsimiles. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one class
of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require the owner of any lost, stolen
or destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of any such new certificate.
2. FRACTIONAL SHARE INTEREST.
The corporation may, but shall not be required to, issue fractions of a
share. If the corporation does not issue fractions of a share, it shall (i)
arrange for the disposition of fractional interests by those entitled thereto,
(ii) pay in cash the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined, or (iii) issue scrip or
warrants in registered or bearer form which shall entitle the holder to receive
a certificate for a full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a fractional share shall, but scrip
or warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing full
shares before a specified date, or subject to the conditions that the shares for
which scrip or warrants are
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exchangeable may be sold by the corporation and the proceeds thereof distributed
to the holders of scrip or warrants, or subject to any other conditions which
the Board of Directors may impose.
3. STOCK TRANSFERS.
Upon compliance with provisions restricting the transfer or registration of
transfer of shares of stock, if any, transfers or registration of transfers of
shares of stock of the corporation shall be made only on the stock ledger of the
corporation by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation or with a transfer agent or a registrar, if any, and on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS.
For the purpose of determining the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or the allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the directors may fix,
in advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is expressed and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at any meeting of stockholders shall apply to any adjournment of the
meeting, provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
5. MEANING OF CERTAIN TERMS.
As used herein in respect of the right to notice of a meeting of
stockholders or a waiver thereof or to participate or vote thereat or to consent
or dissent in writing in lieu of a meeting, as the case may be, the term "share"
or "shares" or "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding share or shares of stock and to a holder
or holders of record of outstanding shares of stock when the corporation is
authorized to issue only one class of shares of stock, and said reference is
also intended to include any outstanding share or shares of stock and any holder
or holders of record of outstanding shares of stock of any class upon which or
upon whom the certificate of incorporation confers such rights where there are
two or more classes or series of shares of stock or upon which or upon whom the
General Corporation Law confers such rights notwithstanding that the certificate
of incorporation may provide for more than one class or series of shares of
stock, one or more of which are limited or denied such rights thereunder,
provided, however, that no such right shall vest in the event of an increase or
a decrease in the authorized number of shares of stock of any class or series
which is otherwise denied voting rights under the provisions of the certificate
of incorporation, except as any provision of law may otherwise require.
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6. STOCKHOLDER MEETINGS.
-TIME-. The annual meeting shall be held on the date and at the time fixed,
from time to time by the directors provided that the first annual meeting shall
be held on a date within 13 months after the organization of the corporation and
each successive annual meeting shall be held on a date within 13 months after
the date of the preceding annual meeting. A special meeting shall be held on the
date and at the time fixed by the directors.
-PLACE. Annual meetings and special meetings shall be held at such place,
within or without the State of Delaware as the directors may from time to time,
fix. Whenever the directors shall fail to fix such place, the meeting shall be
held at the registered office of the corporation in the State of Delaware.
-CALL. Annual meetings and special[ meetings may be called by the directors
or by any officer instructed by the directors to call the meeting.
-NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be given
stating the place, date and hour of the meeting and stating the place within the
city or other municipality or community at which the list of stockholders of the
corporation may be examined. The notice of an annual meeting shall state that
the meeting is called for the election of directors and for the transaction of
other business which may properly come before the meeting and shall (if any
other action which could be taken at a special meeting is to be taken at such
annual meeting) state the purpose or purposes. The notice of a special meeting
shall in all instances state the purpose or purposes for which the meeting is
called. The notice of any meeting shall also include or be accompanied by any
additional statement information or documents prescribed by the General
Corporation Law. Except as otherwise provided by the General Corporation Law, a
copy of the notice of any meeting shall be given personally or by mail, not less
than 10 days nor more than 60 days before the date of the meeting unless the
lapse of the prescribed period of time shall have been waived, and directed to
each stockholder at his record address or at such other address which he may
have furnished by request in writing to the Secretary of the Corporation. Notice
by mail shall be deemed to be given when deposited, with postage thereon prepaid
in the United States mail. If a meeting is adjourned to another time, not more
than 30 days hence, and/or to another place and if an announcement of the
adjourned time and/or place is made at the meeting it shall not be necessary to
give notice of the adjourned meeting unless the directors after adjournment fix
a new record date for the adjourned meeting. Notice need not be given to any
stockholder who submits a written waiver of notice signed by him before or after
the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting except when the
stockholder attends the meeting for the express purpose of objecting at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at nor
the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
-STOCKHOLDER LIST. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholder arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting either at a place
within the city or other municipality or community where the meeting is to be
held, which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by this section or the books of the
corporation, or to vote at any meeting of stockholders.
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-CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by
one of the following officers in the order of seniority and if present and
acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice-President, or, if none of the foregoing is in office
and present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the Chairman of the meeting shall appoint a secretary of
the meeting.
-PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duty executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
-INSPECTORS. The directors, in advance of any meeting, may, but need not,
appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
-QUORUM. The holders of a majority of the outstanding shares of stock shall
constitute a quorum at a meeting of stockholders for the transaction of any
business. The stockholders present may adjourn the meeting despite the absence
of a quorum.
-VOTING. Each share of stock shall entitle the holder thereof to one vote.
In the election of directors, a plurality of the votes cast shall elect. Any
other action shall be authorized by a majority of the votes cast except where
the General Corporation Law prescribes a different percentage of votes and/or a
different exercise of voting power, and except as may be otherwise prescribed by
the provisions of the certificate of incorporation and these By-Laws. In the
election of directors, and for any other action, voting need not be by ballot.
7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
miminum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt
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notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
In order to determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. Such notice shall specify the action sought to
be consented to by stockholders. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days after the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposal to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or any officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Any such delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
applicable law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the date on which the Board of Directors adopts the resolution
taking such prior action.
In the event of the delivery of a written consent or consents purporting to
authorize or take corporate action and/or related revocations (each such written
consent and related revocation is referred to in this Section 7 as a "Consent"),
the Secretary shall provide for the safekeeping of such Consent and shall
immediately appoint duly qualified and objective inspectors to conduct, as
promptly as practical, such reasonable ministerial review as they deem necessary
or appropriate for the purpose of ascertaining the sufficiency and validity of
such Consent and all matters incident thereto, including, without limitation,
whether holders of shares having the requisite voting power to authorize or take
the action specified in the Consent have given consent. If after such
investigation the Secretary shall determine that the Consent is valid, that fact
shall be certified on the records of the corporation kept for the purpose of
recording the proceedings of meetings of stockholders, and the Consent shall be
filed in such records, at which time the Consent shall become effective as
stockholder action.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors of the
corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of three persons fixed from time to
time by action of the stockholders or of the directors. The number of directors
may be increased or decreased by action of the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the
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incorporator or incorporators and shall hold office until the first annual
meeting of stockholders and until their successors are elected and qualified or
until their earlier resignation or removal. Any director may resign at any time
upon written notice to the corporation. Thereafter, directors who are elected at
an annual meeting of stockholders, and directors who are elected in the interim
to fill vacancies and newly created directorships, shall hold office until the
next annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. In the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
dictatorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause may
be filled by the vote of a majority of the remaining directors then in office,
although less than a quorum, or by the sole remaining director.
4. MEETINGS.
-TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
-PLACE. Meetings shall be held at such place within or without the State of
Delaware as shall be fixed by the Board.
-CALL. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the direction
of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of
the President, or of a majority of the directors in office.
-NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for
regular meetings for which the time and place have been fixed. Written, oral, or
any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
-QUORUM AND ACTION. A majority of the whole Board shall constitute a quorum
except when a vacancy or vacancies prevents such majority, whereupon a majority
of the directors in office shall constitute a quorum, provided, that such
majority shall constitute at least one-third of the whole Board. A majority of
the directors present, whether or not a quorum is present, may adjourn a meeting
to another time and place. Except as herein otherwise provided, and except as
otherwise provided by the General Corporation Law, the vote of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board. The quorum and voting provisions herein stated shall not be
construed as conflicting with any provisions of the General Corporation Law and
these By-Laws which govern a meeting of directors held to fill vacancies and
newly created directorships in the Board or action of disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
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-CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present
and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the
Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designated one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of one or more Presidents,
one or more Secretaries, one or more Treasurers, and, if deemed necessary,
expedient, or desirable by the Board of Directors, one or more Chief Executive
Officers, one or more Chairmen of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing an officer, no officers other than the Chairman or Chairmen
of the Board, as the case may be, or Vice-Chairman of the Board, if any, need be
a director. Any number of offices may be held by the same person, as the
directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform such
duties in the management and operation of the corporation as shall be prescribed
in the resolutions of the Board of Directors designating and choosing such
officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or
Assistant
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Secretary of the corporation shall record all of the proceedings of all meetings
and actions in writing of stockholders, directors, and committees of directors,
and shall exercise such additional authority and perform such additional duties
as the Board shall assign to him. Any officer may be removed, with or without
cause, by the Board of Directors. Any vacancy in any office may be filled by the
Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BY- LAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter or repeal
these By-Laws and to adopt new By-Laws may be exercised by the Board of
Directors or by the stockholders.
Dated: ______________________
Option to Purchase
110,000 Shares of Common Stock
and
220,000 Warrants
HERTZ TECHNOLOGY GROUP, INC.
PURCHASE OPTION
Dated: ___________ __, 1996
THIS CERTIFIES that Biltmore Securities, Inc., 6700 North Andrews Avenue,
Suite 500, Fort Lauderdale, FL 33309 (hereinafter sometimes referred to as the
"Holder"), is entitled to purchase from HERTZ TECHNOLOGY GROUP, INC.
(hereinafter referred to as the "Company"), at the prices and during the periods
as hereinafter specified, up to 110,000 shares of Common Stock, par value $.001
per share ("Common Stock"), and 220,000 Class A Redeemable Common Stock Purchase
Warrants ("Warrants"). Each Warrant entitles the registered holder thereof to
purchase one (1) share of Common Stock at an exercise price of $5.50 per share.
The Warrants (hereinafter, the "Warrants") are exercisable for a four year
period, commencing ________ __, 1997 (one (1) year from the Effective Date).
Hereinafter, the shares of Common Stock and Warrants shall be referred to as an
"Option Securities" or "Securities."
The Securities have been registered under a Registration Statement on Form
SB-2 (File No. 333-_____) declared effective by the Securities and Exchange
Commission on ________ __, 1996 (the "Registration Statement"). This Option (the
"Option") to purchase 110,000 shares of Common Stock and 220,000 Warrants was
originally issued pursuant to an underwriting agreement between the Company and
Biltmore Securities, Inc. as underwriter (the "Underwriter"), in connection with
a public offering of 1,100,000 shares of Common Stock and 2,200,000 Warrants
(collectively, the "Public Securities") through the Underwriter, in
consideration of $110.00 received for the Option.
<PAGE>
Except as specifically otherwise provided herein, the Common Stock and the
Warrants issued pursuant to this Option shall bear the same terms and conditions
as described under the caption "Description of Securities" in the Registration
Statement, and the Warrants shall be governed by the terms of the Warrant
Agreement dated as of ________ __, 1996, executed in connection with such public
offering (the "Warrant Agreement"), except that the holder shall have
registration rights under the Securities Act of 1933, as amended (the "Act"),
for the Option, the Common Stock and the Warrants included in the Option, and
the shares of Common Stock underlying the Warrants, as more fully described in
paragraph 6 of this Option. In the event of any reduction of the exercise price
of the Warrants included in the Public Securities, the same changes to the
Warrants included in the Option and the components thereof shall be
simultaneously effected.
1. The rights represented by this Option shall be exercised at the prices,
subject to adjustment in accordance with paragraph 8 of this Option, and during
the periods as follows:
(a) Between ________ __, 1997 (one (1) year from the Effective Date)
and ________ __, 2001, inclusive, the Holder shall have the option to purchase
Common Stock and Warrants hereunder at prices of $6.00 and $.30, respectively
(subject to adjustment pursuant to paragraph 8 hereof) (the "Exercise Price").
(b) After ________ __, 2001, the Holder shall have no right to
purchase any Option Securities hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the Exercise Price then in effect for the number of Option Securities
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any; and (iii) delivery to the Company of a duly executed
agreement signed by the person(s) designated in the purchase form to the effect
that such person(s) agree(s) to be bound by the provisions of paragraph 6 and
subparagraphs (b), (c) and (d) of paragraph 7 hereof. This Option
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<PAGE>
shall be deemed to have been exercised, in whole or in part to the extent
specified, immediately prior to the close of business on the date this Option is
surrendered and payment is made in accordance with the foregoing provisions of
this paragraph 2, and the person or persons in whose name or names the
certificates for shares of Common Stock and Warrants shall be issuable upon such
exercise shall become the holder or holders of record of such Common Stock and
Warrants at that time and date. The Common Stock and Warrants and the
certificates for the Common Stock and Warrants so purchased shall be delivered
to the Holder within a reasonable time, not exceeding ten (10) days, after the
rights represented by this Option shall have been so exercised.
3. This Option shall not be transferred, sold, assigned, or hypothecated
for a period of one (1) year from the Effective Date, except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Holder or selling group member of the
offering during such period. Any transfer after one (1) year must be accompanied
with an immediate exercise of the Option. Any such assignment shall be effected
by the Holder (i) executing the form of assignment at the end hereof and (ii)
surrendering this Option for cancellation at the office or agency of the Company
referred to in paragraph 2 hereof, accompanied by a certificate (signed by an
officer of the Holder if the Holder is a corporation), stating that each
transferee is a permitted transferee under this paragraph 3 hereof; whereupon
the Company shall issue, in the name or names specified by the Holder (including
the Holder) a new Option or Options of like tenor and representing in the
aggregate rights to purchase the same number of Option Securities as are
purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock which
may be issued as part of the Option Securities purchased hereunder and the
Common Stock which may be issued upon exercise of the Warrants will, upon
issuance, be duly and validly issued, fully paid and nonassessable. The Company
further covenants and agrees that during the periods within which this Option
may be exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
this Option and that it will have authorized and reserved a sufficient number of
shares of Common Stock for issuance upon exercise of the Warrants included in
the Option Securities.
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5. This Option shall not entitle the Holder to any voting, dividend, or
other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a) hereof, the Company
shall advise the Holder or its transferee, whether the Holder holds the Option
or has exercised the Option and holds Option Securities or any of the securities
underlying the Option Securities, by written notice at least 30 days prior to
the filing of any post-effective amendment to the Registration Statement or of
any new registration statement or post-effective amendment thereto under the Act
covering any securities of the Company, for its own account or for the account
of others (other than a registration statement on Form S-4 or S-8 or any
successor forms thereto), and will for a period of five years from the effective
date of the Registration Statement, upon the request of the Holder, include in
any such post-effective amendment or registration statement, such information as
may be required to permit a public offering of the Option, all or any of the
Common Stock, or Warrants included in the Securities or the Common Stock
issuable upon the exercise of the Warrants (the "Registrable Securities"). The
Company shall supply prospectuses and such other documents as the Holder may
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such Holder designates
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action and do any and all other acts and
things which may be reasonably necessary or desirable to enable such Holders to
consummate the public sale or other disposition of the Registrable Securities,
and furnish indemnification in the manner provided in paragraph 7 hereof. The
Holder shall furnish information and indemnification as set forth in paragraph 7
except that the maximum amount which may be recovered from the Holder shall be
limited to the amount of proceeds received by the Holder from the sale of the
Registrable Securities. The Company shall use its best efforts to cause the
managing underwriter or underwriters of a proposed underwritten offering to
permit the holders of Registrable Securities requested to be included in the
registration to include such securities in such underwritten offering on the
same terms and conditions as any similar securities of the Company included
therein. Notwithstanding the foregoing, if the managing underwriter or
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<PAGE>
underwriters of such offering advises the holders of Registrable Securities that
the total amount of securities which they intend to include in such offering is
such as to materially and adversely affect the success of such offering, then
the amount of securities to be offered for the accounts of holders of
Registrable Securities shall be eliminated, reduced, or limited to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount, if any, recommended by such managing underwriter or
underwriters (any such reduction or limitation in the total amount of
Registrable Securities to be included in such offering to be borne by the
holders of Registrable Securities proposed to be included therein pro rata). The
Holder will pay its own legal fees and expenses and any underwriting discounts
and commissions on the securities sold by such Holder and shall not be
responsible for any other expenses of such registration.
(b) If any 50% holder (as defined below) shall give notice to the
Company at any time during the period set forth in paragraph l(a) hereof to the
effect that such holder desires to register under the Act this Option or any of
the underlying securities contained in the Option Securities underlying the
Option under such circumstances that a public distribution (within the meaning
of the Act) of any such securities will be involved then the Company will
promptly, but no later than 60 days after receipt of such notice, file a
post-effective amendment to the current Registration Statement or a new
registration statement pursuant to the Act, to the end that the Option and/or
any of the Securities underlying the Option Securities may be publicly sold
under the Act as promptly as practicable thereafter and the Company will use its
best efforts to cause such registration to become and remain effective for a
period of 120 days (including the taking of such steps as are reasonably
necessary to obtain the removal of any stop order); provided that such holder
shall furnish the Company with appropriate information in connection therewith
as the Company may reasonably request in writing. The 50% holder (which for
purposes hereof shall mean any direct or indirect transferee of such holder)
may, at its option, request the filing of a post-effective amendment to the
current Registration Statement or a new registration statement under the Act
with respect to the Registrable Securities on only two occasions during the term
of this Option. The Holder may at its option request the registration of the
Option and/or any of the securities underlying the Option in a registration
statement made by the Company as contemplated by
5
<PAGE>
Section 6(a) or in connection with a request made pursuant to this Section 6(b)
prior to acquisition of the Securities issuable upon exercise of the Option and
even though the Holder has not given notice of exercise of the Option. The 50%
holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the Option or
separately as to the Common Stock and/or Warrants included in the Option and/or
the Common Stock issuable upon the exercise of the Warrants, and such
registration rights may be exercised by the 50% holder prior to or subsequent to
the exercise of the Option. Within ten business days after receiving any such
notice pursuant to this subsection (b) of paragraph 6, the Company shall give
notice to the other holders of the Options, advising that the Company is
proceeding with such post-effective amendment or registration statement and
offering to include therein the securities underlying the Options of the other
holders. Each holder electing to include its Registrable Securities in any such
offering shall provide written notice to the Company within twenty (20) days
after receipt of notice from the Company. The failure to provide such notice to
the Company shall be deemed conclusive evidence of such holder's election not to
include its Registrable Securities in such offering. Each holder electing to
include its Registrable Securities shall furnish the Company with such
appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of only one such post-effective amendment or new registration
statement shall be borne by the Company, except that the holders shall bear the
fees of their own counsel and any underwriting discounts or commissions
applicable to any of the securities sold by them.
The Company shall be entitled to postpone the filing of any
registration statement pursuant to this Section 6(b) otherwise required to be
prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Rule 10b-6 under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a registration
statement would have a material adverse effect on the consummation of such
offering or (iv) the Company is subject to an underwriter's lock-up as a result
of an underwritten
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<PAGE>
public offering and such underwriter has refused in writing, the Company's
request to waive such lock-up. In the event of such postponement, the Company
shall be required to file the registration statement pursuant to this Section
6(b), within 60 days of the consummation of the event requiring such
postponement.
The Company will use its best efforts to maintain such
registration statement or post-effective amendment current under the Act for a
period of at least six months (and for up to an additional three months if
requested by the Holder) from the effective date thereof. The Company shall
supply prospectuses, and such other documents as the Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such holder designates,
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action and furnish indemnification in the
manner provided in paragraph 7 hereof.
(c) The term "50% holder" as used in this paragraph 6 shall mean the
holder of at least 50% of the Common Stock and the Warrants underlying the
Option (considered in the aggregate) and shall include any owner or combination
of owners of such securities, which ownership shall be calculated by determining
the number of shares of Common Stock held by such owner or owners as well as the
number of shares then issuable upon exercise of the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement relating
to the Option or any shares or warrants issued or issuable upon the exercise of
any Options, is filed under the Act, amended or supplemented, the Company will
indemnify and hold harmless each holder of the securities covered by such
registration statement, amendment, or supplement (such holder being hereinafter
called the "Distributing Holder"), and each person, if any, who controls (within
the meaning of the Act) the Distributing Holder, and each underwriter (within
the meaning of the Act) of such securities and each person, if any, who controls
(within the meaning of the Act) any such underwriter, against any losses,
claims, damages, or liabilities, joint or several, to which the Distributing
Holder, any such controlling person or any such
7
<PAGE>
underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the Distributing Holder
and each such controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage, or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder, for use in the
preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages, or liabilities, joint and several, to which the Company
or any such director, officer, or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in said registration statement, said preliminary
prospectus, said final prospectus, or said amendment or supplement, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in said registration statement, said preliminary prospectus,
said final prospectus, or said amendment or supplement in reliance upon and in
conformity with written information furnished by such
8
<PAGE>
Distributing Holder for use in the preparation thereof; and will reimburse the
Company or any such director, officer, or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the
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<PAGE>
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Notwithstanding anything to the contrary contained in the Warrant Agreement, in
the event an adjustment to the Exercise Price is effected pursuant to this
Subsection (a) (and a corresponding adjustment to the number of Option
Securities is made pursuant to Subsection (d) below), the exercise price of the
Warrants shall be adjusted so that it shall equal the price determined by
multiplying the exercise price of the Warrants by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after giving effect to such action and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
In such event, there shall be no adjustment to the number of shares of Common
Stock or other securities issuable upon exercise of the Warrants. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (e) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of shares then comprising an Option
Securities by the product of the Exercise Price in effect immediately prior to
the date of such issuance multiplied by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding on the record
date mentioned below and the number of additional shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective
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<PAGE>
immediately after the record date for the determination of shareholders entitled
to receive such rights or warrants; and to the extent that shares of Common
Stock are not delivered (or securities convertible into Common Stock are not
delivered) after the expiration of such rights or warrants the Exercise Price
shall be readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and-dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising an Option Securities by the product of the Exercise Price in
effect immediately prior thereto multiplied by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding multiplied
by the current market price per share of Common Stock (as defined in Subsection
(e) below), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.
(d) Whenever the Exercise Price payable upon exercise of this Option
is adjusted pursuant to Subsections (a), (b) or (c) above, the number of Option
Securities purchasable upon exercise of this Option shall simultaneously be
adjusted by multiplying the number of Option Securities initially issuable upon
exercise of this Option by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
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<PAGE>
(e) For the purpose of any computation under Subsections (b) or (c)
above, the current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices for 20 consecutive business
days before such date. The closing price for each day shall be the last sale
price regular way or, in case no such reported sale takes place on such day, the
average of the last reported bid and asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is admitted
to trading or listed, or if not listed or admitted to trading on such exchange,
the average of the highest reported bid and lowest reported asked prices as
reported by NASDAQ, or other similar organization if NASDAQ is no longer
reporting such information, or if not so available, the fair market price as
determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least fifteen cents
($0.15) in such price; provided, however, that any adjustments which by reason
of this Subsection (i) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.
All calculations under this Section 8 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 8 to the contrary notwithstanding, the Company shall be entitled, but
shall not be required, to make such changes in the Exercise Price, in addition
to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly, but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Option Securities issuable upon exercise of this
Option and, if requested, information describing the transactions giving rise to
such adjustments, to be mailed to the Holder, at the address set forth herein,
and shall cause a certified copy thereof to be mailed to its transfer agent, if
any. The Company may retain
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<PAGE>
a firm of independent certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) to make
any computation required by this Section 8, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder thereafter shall become entitled to
receive any shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of this Option shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Subsections (a) to (g), inclusive above.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, Chem International, Inc., has caused this Option to be
signed by its duly authorized officers under its corporate seal, and this Option
to be dated ________ __, 1996.
HERTZ TECHNOLOGY GROUP, INC.
By: ______________________________
Eli E. Hertz
President
(Corporate Seal)
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PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
____ Shares of Common Stock, $.001 per value per share, of Hertz Technology
Group, Inc. and _____ Warrants and herewith makes payment of $______________
therefor, and requests that the Warrants and certificates for shares of Common
Stock be issued in the name(s) of, and delivered to _________________________
whose address(es) is (are) _____________________________________________.
Dated:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _________________________________ the right to purchase Securities,
consisting of Common Stock and Warrants of Hertz Technology Group, Inc., in the
numbers set forth below represented by the foregoing Option to the extent of
_____ shares of Common Stock and ____ Warrants, and appoints
_________________________________ attorney to transfer such rights on the books
of Hertz Technology Group, Inc., with full power of substitution in the
premises.
Dated:
By: ______________________________
Address:
______________________________
______________________________
______________________________
In the presence of:
WARRANT AGREEMENT
AGREEMENT, dated as of this _____day of ________, 1996, by and between
HERTZ TECHNOLOGY GROUP, INC., a Delaware corporation ("Company"), and American
Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of up to 1,265,000 shares of
Common Stock, par value $.001 per share, and 2,530,000 Class A Redeemable Common
Stock Purchase Warrants (the "Warrants") pursuant to an underwriting agreement
(the "Underwriting Agreement") dated ________ __, 1996 between the Company and
Biltmore Securities, Inc. ("Biltmore"), and the issuance to Biltmore or its
designees of a Purchase Option to purchase 110,000 additional shares of Common
Stock and 220,000 Warrants (the "Purchase Option") the Company will issue up to
2,750,000 Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
<PAGE>
(a) "Common Stock" shall mean the common stock of the Company of which
at the date hereof consists of __________ authorized shares, par value $.001 per
share, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution, or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include (1) only shares of such class designated
in the Company's Certificate of Incorporation as Common Stock on the date of the
original issue of the Warrants or (ii), in the case of any reclassification,
change, consolidation, merger, sale, or conveyance of the character referred to
in Section 9(c) hereof, the stock, securities, or property provided for in such
section or (iii), in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or consisting of a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, New York 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean ________ __, 1997 (one
(1) year from the Effective Date).
(e) "Purchase Price" shall mean the purchase price per share to be
paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be $5.50 per share, subject to
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<PAGE>
adjustment from time to time pursuant to the provisions of Section 9 hereof, and
subject to the Company's right, in its sole discretion, to reduce the Purchase
Price upon notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the Company may,
at its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.01 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
________ __, 2001 or the Redemption Date as defined in Section 8, whichever is
earlier; provided that if such date shall in the State of New York be a holiday
or a day on which banks are authorized or required to close, then 5:00 P.M. (New
York time) on the next following day which in the State of New York is not a
holiday or a day on which banks are authorized or required to close. Upon notice
to all warrantholders the Company shall have the right to extend the warrant
expiration date.
2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant representing such Warrant to purchase one share of Common Stock upon the
exercise thereof, in accordance with the terms hereof, subject to modification
and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued, and delivered by the Warrant Agent.
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<PAGE>
(c) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of 2,750,000 shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the Initial Warrant Exercise Date, upon the exercise of
fewer than all Warrants represented by any Warrant Certificate, to evidence any
unexercised warrants held by the exercising Registered Holder, (iii) those
issued upon any transfer or exchange pursuant to Section 6; (iv) those issued in
replacement of lost, stolen, destroyed, or mutilated Warrant Certificates
pursuant to Section 7; (v) those issued pursuant to the Purchase Option; and
(vi) those issued at the option of the Company, in such form as may be approved
by the its Board of Directors, to reflect any adjustment or change in the
Purchase Price, the number of shares of Common Stock purchasable upon exercise
of the Warrants or the Redemption Price therefor made pursuant to Section 9
hereof.
(e) Pursuant to the terms of the Purchase Option, Biltmore may
purchase up to 110,000 shares of Common Stock and 220,000 Warrants. The Purchase
Option shall not be transferred, sold, assigned or hypothecated for a period of
one (1) year from the Effective Date, except that it may be transferred to
persons who are officers of Biltmore or selling group members in the offering.
3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers, or other marks of identification or
designation and such legends, summaries, or endorsements printed, lithographed,
or engraved thereon as the Company may deem appropriate and as are not
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inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage or to the requirements of Section 2(b). The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange, or in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrant
Certificates shall be numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, President, or any Vice President and by its Secretary
or an Assistant Secretary, by manual signatures or by facsimile signatures
printed thereon, and shall have imprinted thereon a facsimile of the Company's
seal. Warrant Certificates shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Warrant Certificates
shall cease to be an officer of the Company or to hold the particular office
referenced in the Warrant Certificate before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issue and
delivery thereof, such Warrant Certificates may nevertheless be countersigned by
the Warrant Agent, issued and delivered with the same force and effect as though
the person who signed such Warrant Certificates had not ceased to be an officer
of the Company or to hold such office. After countersignature by the Warrant
Agent, Warrant Certificates shall be delivered by the Warrant Agent to the
Registered Holder without further action by the Company, except as otherwise
provided by Section 4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Warrant as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date the Warrant Agent
shall
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deposit the proceeds received from the exercise of a Warrant and shall notify
the Company in writing of the exercise of the Warrants. Promptly following, and
in any event within five days after the date of such notice from the Warrant
Agent, the Warrant Agent, on behalf of the Company, shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise (plus a certificate for any remaining unexercised Warrants of the
Registered Holder), unless prior to the date of issuance of such certificates
the Company shall instruct the Warrant Agent to refrain from causing such
issuance of certificates pending clearance of checks received in payment of the
Purchase Price pursuant to such Warrants. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof, (other than those which the Company shall promptly pay or
discharge) and that upon issuance such shares shall be listed on each national
securities exchange or eligible for inclusion in each automated quotation
system, if any, on which the other shares of outstanding Common Stock of the
Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will, to the extent the Purchase Price is less than the Market Price (as
hereinafter defined), in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or
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approval and will use its reasonable efforts to obtain appropriate approvals or
registrations under state "blue sky" securities laws. With respect to any such
securities, however, Warrants may not be exercised by, or shares of Common Stock
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp, or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock issuable upon exercise of the Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
The Company will file with the Warrant Agent a statement setting forth the name
and address of the Transfer Agent of the Company for shares of Common Stock
issuable upon exercise of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue, and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office,
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the Company shall execute and the Warrant Agent shall issue and deliver to the
transferee or transferees a new Warrant Certificate or Certificates representing
an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange
in case of mutilated Warrant Certificates shall be promptly cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or disposed of or destroyed, at
the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants which are being publicly offered with shares of
Common Stock pursuant to the Underwriting Agreement will be immediately
detachable from the Common Stock and transferable separately therefrom.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent
of evidence satisfactory to them of the ownership of and loss, theft,
destruction, or mutilation of any Warrant Certificate and (in case of loss,
theft, or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
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and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
8. Redemption.
(a) Subject to the provisions of paragraph 2(e) hereof, on not less
than thirty (30) days notice given, at any time after the Initial Warrant
Exercise Date, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.01 per Warrant, provided the Market Price of the Common
Stock receivable upon exercise of the Warrant shall equal or exceed $8.75 per
share (the "Target Price"), subject to adjustment as set forth in Section 8(f)
below. Market Price for the purpose of this Section 8 shall mean (i) the average
closing bid price for any twenty (20) consecutive trading days within a period
of thirty (30) consecutive trading days ending within five (5) days prior to the
date of the notice of redemption, which notice shall be mailed no later than
five days thereafter, of the Common Stock as reported by the National
Association of Securities Dealers, Inc. Automatic Quotation System or (ii) the
last reported sale price, for twenty (20) consecutive business days, ending
within five (5) days of the date of the notice of redemption, which notice shall
be mailed no later than five days thereafter, on the primary exchange on which
the Common Stock is traded, if the Common Stock is traded on a national
securities exchange.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
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(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrant shall be the Redemption Date. No failure
to mail such notice nor any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. On and
after the Redemption Date, Holders of the Warrants shall have no further rights
except to receive, upon surrender of the Warrant, the Redemption Price.
(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the redemption price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the redemption price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
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9. Adjustment of Exercise Price and Number of Shares of Common Stock or
Warrants.
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price of the Common Stock (as defined in Section 8) on the date of
the sale or issue any shares of Common Stock as a stock dividend to the holders
of Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision,
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (including any
applicable fraction of a cent) determined by multiplying the Purchase Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined as provided in subsection
9(f)(G) below) for the issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares. Such adjustment shall be made
successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as
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<PAGE>
hereinabove provided, so that each Warrant outstanding after such adjustment
shall represent the right to purchase one share of Common Stock. Each Warrant
held of record prior to such adjustment of the number of Warrants shall become
that number of Warrants (calculated to the nearest tenth) determined by
multiplying the number one by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization, or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage, or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a warrant then outstanding shall have the right
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization, or other change, consolidation,
merger, sale, or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately prior
to such reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance. Any such provision shall include
provision for adjustments that shall be as
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nearly equivalent as may be practicable to the adjustments provided for in this
Section 9. The Company shall not effect any such consolidation, merger, or sale
unless prior to or simultaneously with the consummation thereof the successor
(if other than the Company) resulting from such consolidation or merger or the
corporation purchasing assets or other appropriate corporation or entity shall
assume, by written instrument executed and delivered to the Warrant Agent, the
obligation to deliver to the holder of each Warrant such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase and the other obligations under this
Agreement. The foregoing provisions shall similarly apply to successive
reclassification, capital reorganizations, and other changes of outstanding
shares of Common Stock and to successive consolidations, mergers, sales, or
conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder, and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefore were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to Biltmore and to each registered
holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to mail such
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<PAGE>
notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail such
notice, or except as to the holder whose notice was defective. The affidavit of
an officer of the Warrant Agent or the Secretary or an Assistant Secretary of
the Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any given
time shall include shares of Common Stock owned or held by or for the account of
the Company and the sale or issuance of such treasury shares or the distribution
of any such treasury shares shall not be considered a Change of Shares for
purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10 in such
price; provided that any adjustments which by reason of this subsection (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than cash, if any
(such convertible or exchangeable securities being herein called "Convertible
Securities"), or (2) the issuance by the Company, without the receipt by the
Company of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants, or options shall consist of
cash, whether or not such rights, warrants, or options, or the right to convert
or exchange such Convertible Securities, are immediately exercisable, and the
price
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per share for which Common Stock is issuable upon the exercise of such rights,
warrants, or options or upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the minimum aggregate consideration
payable to the Company upon the exercise of such rights, warrants, or options,
plus the consideration received by the Company for the issuance or sale of such
rights, warrants, or options, plus, in the case of such Convertible Securities,
the minimum aggregate amount of additional consideration, if any, other than
such Convertible Securities, payable upon the conversion or exchange thereof, by
(y) the total maximum number of shares of Common Stock issuable upon the
exercise of such rights, warrants, or options or upon the conversion or exchange
of such Convertible Securities issuable upon the exercise of such rights,
warrants, or options) is less than the fair market value of the Common Stock on
the date of the issuance or sale of such rights, warrants, or options, then the
total maximum number of shares of Common Stock issuable upon the exercise of
such rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or sale of such rights,
warrants, or options) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the fair market value or
the Common Stock on the date of the sale of such Convertible Securities, then
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
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(v) In case the Company shall modify the rights of conversion,
exchange, or exercise of any of the securities referred to in subsection (iii)
above or any other securities of the Company convertible, exchangeable, or
exercisable for shares of Common Stock, for any reason other than an event that
would require adjustment to prevent dilution, so that the consideration per
share received by the Company after such modification is less than the market
price on the date prior to such modification, the Purchase Price to be in effect
after such modification shall be determined by multiplying the Purchase Price in
effect immediately prior to such event by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding multiplied by the
market price on the date prior to the modification plus the number of shares of
Common Stock which the aggregate consideration receivable by the Company for the
securities affected by the modification would purchase at the market price and
of which the denominator shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common Stock to be issued
upon conversion, exchange, or exercise of the modified securities at the
modified rate. Such adjustment shall become effective as of the date upon which
such modification shall take effect.
(vi) On the expiration of any such right, warrant, or option or
the termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the adjustments
made upon the issuance or sale of such rights, warrants, options, or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options, or Convertible Securities.
(vii) In case of the sale for cash of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or purchase,
or any options for the purchase of, Common Stock or Convertible Securities, the
consideration received
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by the Company therefore shall be deemed to be the gross sales price therefor
without deducting therefrom any expense paid or incurred by the Company or any
underwriting discounts or commissions or concessions paid or allowed by the
Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the sale or exercise of the Warrants, including without
limitation the sale or exercise of any of the Warrants comprising the Purchase
Option; or
(ii) upon the sale of any shares of Common Stock in the Company's
initial public offering, including, without limitation, shares sold upon the
exercise of any over-allotment option granted to the Underwriters in connection
with such offering; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants, or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold
other than issuances of preferred stock in connection with acquisitions by the
Company; or
(iv) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities in a private placement unless the issuance or sale price is less than
85% of the fair market value of the Common Stock on the date of issuance, in
which case the adjustment shall only be for the difference between 85% of the
fair market value and the issue or sale price; or
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(vi) upon the issuance or sale of Common Stock or Convertible
Securities to shareholders of any corporation which merges into the Company or
from which the Company acquires assets and some or all of the consideration
consists of equity securities of the Company, in proportion to their stock
holdings of such corporation immediately prior to the acquisition but only if no
adjustment is required pursuant to any other provision of this Section 9.
(h) Intentionally Omitted.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(j) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant, or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants, or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants, or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this section 9(j), that
exercise of warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue
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fractions of shares, upon exercise of the Warrants or otherwise, or to
distribute certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the current
market value of such fractional share, determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ Quotation System, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last business
day prior to the date of exercise of this Warrant or if no such sale is made on
such day, the average of the closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants shall,
as such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such Warrants for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such Holder
shall have
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<PAGE>
exercised such Warrants and been issued shares of Common Stock in accordance
with the provisions hereof.
12. Rights of Action. All rights of action with respect to this Agreement
are vested in the respective Registered Holders of the Warrants, and any
Registered Holder of a Warrant, without consent of the Warrant Agent or of the
holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a warrant that:
(a) The warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true, and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
14. Cancellation of Warrant Certificates. If the Company shall purchase or
acquire any Warrant or Warrants, the Warrant Certificate or Warrant Certificates
evidencing the same shall thereupon be delivered to the Warrant Agent and
cancelled by it and retired. The Warrant Agent shall also cancel Common Stock
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, splitup, combination, or exchange.
20
<PAGE>
15. Concerning the Warrant Agent. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value, or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered, or omitted by it in reliance on any warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order, or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice,
21
<PAGE>
statement, instruction, request, direction, order, or demand believed by it to
be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses, and liabilities, including judgments,
costs, and counsel fees, for anything done or omitted by the Warrant Agent in
the execution of its duties and powers hereunder except losses, expenses, and
liabilities arising as a result of the Warrant Agent's negligence or wilful
misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving 60
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 30 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties, and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act, or deed; but if for any reason
it shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act, or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the
22
<PAGE>
resigning warrant Agent and shall forthwith cause a copy of such notice to be
mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged or any corporation resulting from any consolidation
to which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
16. Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented, or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 50% of the Warrants
then outstanding; and provided, further, that no change in the number or nature
of the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
23
<PAGE>
specifically prescribed by this Agreement as originally executed or are made in
compliance with applicable law.
17. Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such holder as shown on the registry books maintained by the Warrant Agent; if
to the Company, 325 Fifth Avenue, New York, NY 10016-5012, Attention: President,
with a copy sent to Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New
York, NY 10022, Attention: Howard L. Weinreich, Esq. or at such other address as
may have been furnished to the Warrant Agent in writing by the Company; and if
to the Warrant Agent, at its Corporate office.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws.
19. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and, the Warrant Agent and their respective successors
and assigns, and the holders from time to time of Warrant Certificates. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy, or claim, in equity or at law, or to impose upon any
other person any duty, liability, or obligation.
20. Termination. This Agreement shall terminate at the close of business
on the Warrant Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
21. Counterparts. This Agreement may be executed in several counterparts,
which taken together shall constitute a single document.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
HERTZ TECHNOLOGY GROUP, INC.
By: _____________________________
Eli E. Hertz
Its: President
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: ______________________________
Its: Authorized Officer
25
<PAGE>
EXHIBIT A
[Form of Face of Warrant Certificate]
No. W Warrants
VOID AFTER ________ __, 2001
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
HERTZ TECHNOLOGY GROUP, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants ("Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
par value $.001 per share ("Common Stock"), of HERTZ TECHNOLOGY GROUP, INC., a
Delaware corporation (the "Company"), at any time between the Initial Warrant
Exercise Date and the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of AMERICAN
STOCK TRANSFER & TRUST COMPANY as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $5.50 (the "Purchase Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to Hertz Technology Group, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated ________ __,
1996, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
<PAGE>
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Initial Warrant Exercise Date" shall mean ________ __, 1997.
The term "Expiration Date" shall mean 5:00 p.m. (New York time on ________
__, 2001, or such earlier date as the Warrants shall be redeemed. If such date
shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. This Warrant shall not be exercisable by a Registered Holder in any
state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
2
<PAGE>
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.01 per Warrant at any time after ________ __, 1997, provided the
Market Price (as defined in the Warrant Agreement) for the securities issuable
upon exercise of such Warrant shall exceed $8.75 per share. Notice of redemption
shall be given not later than the thirtieth day before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
this Warrant except to receive the $.01 per Warrant upon surrender of this
Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Delaware.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
HERTZ TECHNOLOGY GROUP, INC.
By: ______________________________
Eli E. Hertz
Its: President
Date: ______________________________
3
<PAGE>
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: ______________________________
Its: Authorized Officer
4
<PAGE>
[Form of Reverse of Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
____________________________________________
(please insert social security or other identifying number)
and be delivered to
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
____________________________________________
____________________________________________
____________________________________________
(Address)
<PAGE>
_________________________________
(Date)
_________________________________
(Taxpayer Identification Number)
If this Warrant has been solicited by a member of the National Association of
Securities Dealers, Inc., the name of such firm is:__________:
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns, and transfers unto
____________________________________________
(please insert social security or other identifying number)
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
2
<PAGE>
__________________________________
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR
TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
3
[MORSE, ZELNICK, ROSE & LANDER, LLP LETTERHEAD]
(212) 838-8269
August ___, 1996
Hertz Technology Group, Inc.
325 Fifth Avenue
New York, New York 10016-5012
Dear Sirs:
We have acted as counsel to Hertz Technology Group Inc., a Delaware
corporation (the "Company") in connection with the preparation of a registration
statement on Form SB-2, (the "Registration Statement") filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), to register the offering by the Company of (a) 1,100,000 shares of
Common Stock (and the offering of an additional 165,000 shares if the
over-allotment option is exercised in full; (b) 2,200,000 Common Stock Purchase
Warrants (the "Warrants") to purchase shares of Common Stock (and the offering
of an additional 330,000 Warrants if the over-allotment option is exercised in
full); (c) 2,200,000 shares of Common Stock underlying the Warrants, (and the
offering of an additional 330,000 shares of Common Stock if the over-allotment
option is exercised in full); (d) Common Stock Purchase Warrants (the
"Underwriter's Warrants") to purchase 110,000 shares of Common Stock and 220,000
Warrants; (e) 110,000 shares of Common Stock underlying the Underwriter's
Warrants; (f) 220,000 shares of Common Stock underlying the Warrants which
underly the Underwriter's Warrants; and (g) any and all amendments to the
Registration Statement, and any Registration Statements for additional shares of
Common Stock, Warrants, Common Stock underlying the Warrants, Underwriter's
Warrants, Common Stock underlying the Underwriter's Warrants and Warrants
underlying the Underwriter's Warrants pursuant to Rule 462(b) of the Act.
In this regard, we have reviewed the Certificate of Incorporation of the
Company, as amended, resolutions adopted by the Company's Board of Directors,
the Registration Statement, the proposed form of the Warrants and the
Underwriter's Warrants, the other exhibits to the Registration Statement and
such other records, documents, statutes and decisions as we have deemed relevant
in rendering this opinion. Based upon the foregoing, we are of the opinion that:
<PAGE>
Hertz Technology Group, Inc.
August __, 1996
Page 2 of 2
Each share of Common Stock being offered, the Warrants, the Underwriter's
Warrants, and the Common Stock underlying the Warrants and the Underwriter's
Warrants have been duly and validly authorized for issuance and when issued as
contemplated by the Registration Statement or upon exercise of the Underwriter's
Warrants will be legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and any and all amendments thereto, and any Registration
Statements for additional shares of Common Stock pursuant to Rule 462(b) of the
Act. In giving such opinion, we do not thereby admit that we are acting within
the category of persons whose consent is required under Section 7 of the Act or
the rules or regulations of the Securities and Exchange Commission thereunder.
Members of this firm or their affiliates own an aggregate of 60,000 Common Stock
of the Company.
Very truly yours,
MORSE, ZELNICK, ROSE & LANDER, LLP
HERTZ TECHNOLOGY GROUP, INC.
1996 STOCK OPTION PLAN
1. PURPOSES. The purposes of this Stock Option Plan are to attract and
retain the best qualified personnel for positions of substantial responsibility,
to provide additional incentive to the Employees of the Company or its
Subsidiaries, if any (as defined in Section 2 below), as well as other
individuals who perform services for the Company or its Subsidiaries, and to
promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options", as
defined in Section 422A of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options", at the discretion of the Board and as reflected
in the terms of the written instrument evidencing an Option.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "Common Stock" shall mean the Common Shares of the Company (par
value $.001 per share).
(c) "Company" shall mean Hertz Technology Group, Inc., a Delaware
corporation.
(d) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(e) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board.
(f) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE>
(h) "Incentive Stock Option" shall mean a stock option intended to
qualify as an incentive stock option within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended.
(i) "Non-qualified Stock Option" shall mean a stock option not
intended to qualify as an Incentive Stock Option.
(j) "Option" shall mean a stock option granted pursuant to the Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an Option.
(l) "Optionee" shall mean an Employee or other person who receives an
Option.
(m) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Internal Revenue Code of
1986, as amended.
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(o) "SEC" shall mean the Securities and Exchange Commission.
(p) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 425(f) of the Internal Revenue Code of
1986, as amended.
3. STOCK.
Subject to the provisions of Section 11 of the Plan, the maximum aggregate
number of shares which may be optioned and sold under the Plan is 750,000 shares
of Common Stock. If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for further grant under the Plan.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors may appoint a
Committee to administer the Plan. The Committee shall consist of not less than
two members of the Board of Directors who shall administer the Plan on behalf of
the Board of Directors, subject to such terms and conditions as the Board of
Directors may prescribe. Once appointed, the Committee shall continue to serve
until otherwise directed by the Board of Directors. From time to time the Board
of Directors may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause), and appoint new members
in substitution
2
<PAGE>
therefor, fill vacancies, however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
If a majority of the Board of Directors is eligible to be granted
Options or has been eligible at any time within the preceding year, a Committee
must be appointed to administer the Plan. The Committee must consist of not less
than three members of the Board of Directors, all of whom are "disinterested
persons" as defined in Rule 16b-3 of the General Rules and Regulations
promulgated under the Exchange Act.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, in accordance with Section 422A of the Internal Revenue Code of 1986,
as amended, or to grant Non-qualified Stock Options; (ii) to determine, upon
review of review of relevant information and in accordance with Section 8(b) of
the Plan, the fair market value of the Common Stock; (iii) to determine the
exercise price per share of Options to be granted which exercise price shall be
determined in accordance with Section 8(a) of the Plan; (iv) to determine the
persons to whom, and the time or times at which, Options shall be granted and
the number of shares to be represented by each Option; (v) to interpret the
Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the
Plan; (vii) to determine the terms and provisions of each Option granted (which
need not be identical) and, with the consent of the holder thereof, modify or
amend each Option; (viii) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option; (ix) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the grant
of an Option previously granted by the Board; and (x) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
(c) Effect of the Board's Decision. All decisions, determinations, and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. ELIGIBILITY; NON-DISCRETIONARY GRANTS.
(a) General. Incentive Stock Options may be granted only to Employees.
Non-qualified Stock Options may be granted to employees as well as directors
(subject to the limitations set forth in Section 4), independent contractors and
agents, as determined by the Board. Any person who has been granted an Option
may, if he is otherwise eligible, be granted an additional Option or Options.
The Plan shall not offer upon any Optionee any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
(b) Limitation on Incentive Stock Options. No Incentive Stock Option
may be granted to an Employee if, as the result of such grant, the aggregate
fair market value (determined at the time each option was granted) of the Shares
with respect to which such Incentive Stock Options are exercisable for the first
time by such Employee during any calendar year (under all such plans of the
Company and any Parent and Subsidiary) shall exceed One Hundred Thousand Dollars
($100,000).
3
<PAGE>
(c) Annual Limitation on all Stock Options. No Stock Options may be
granted to any Employee in any fiscal year if as a result of such grant the
aggregate number of shares subject to options granted to such Employee that year
(under all such plans of the Company and any Parent or Subsidiary) exceed
100,000 shares subject to the anti-dilution provisions of this Plan (Section 11)
and/or other Plans as applicable.
6. TERM OF THE PLAN. The Plan shall become effective upon the earlier to
occur of (i) its adoption by the Board of Directors, or (ii) its approval by
vote of the holders of a majority of the outstanding shares of the Company
entitled to vote on the adoption of the Plan. The Plan shall continue in effect
until August 6, 2006 unless sooner terminated under Section 13 of the Plan.
7. TERM OF THE OPTION. The term of each Option shall be ten (10) years
from the date of grant hereof or such shorter term as may be provided in the
instrument evidencing the Option. However, in the case of an Incentive Stock
Option granted to an Employee who, immediately before the Incentive Stock Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the day of grant
thereof or such shorter time as may be provided in the instrument evidencing the
Option.
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant
to the exercise of an Option shall be such price as is determined by the Board,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, immediately before the grant
of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of
the Company or any Parent or Subsidiary, the per Share exercise
price shall be no less than 110% of the fair market value per
Share on the date of grant, as the case may be;
(B) granted to an Employee not subject to the provisions of
Section 8(a)(i)(A), the per Share exercise price shall be no less
than one hundred percent (100%) of the fair market value per
Share on the date of grant.
(ii) In the case of a Non-qualified Stock Option, the per Share
exercise price shall be no less than one hundred percent (100%)
of the fair market value per Share on the date of grant.
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<PAGE>
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices or, if applicable, the closing price of the Common Stock on the
date of grant, as reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) System or, in the event the Common Stock is listed
on a stock exchangeable, the fair market value per Share shall be the closing
price on such exchange on the date of grant of the Option, as reported in the
Wall Street Journal.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option or in payment of any withholding taxes thereon, including
the method of payment, shall be determined by the Board an may consist entirely
of (i) cash, check or promissory note; (ii) other Shares of Common Stock owned
by the Employee have a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (iii) an assignment by the Employee of the net proceeds to be
received from a registered broker upon the sale of the Shares or the proceeds of
a loan from such broker in such amount; or (iv) any combination of such methods
of payment, or such other consideration and method of payment for the issuance
of Shares to the extent permitted under New York Law and meeting rules and
regulations of the SEC to plans meeting the requirements of Section 16(b)(3) of
the Exchange Act.
9. EXERCISE OF OPTION.
(a) Procedure or Exercise; Rights as a Stockholder. Any option granted
hereunder shall be exercisable at such times and subject to such conditions as
may be determined by the Board, including performance criteria with respect to
the Company and/or the Optionee, and as shall be perishable under the terms of
the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
instrument evidencing the Option by the person entitled to exercise the Option
and full payment for the Shares with respect to which the Option is exercised
has been received by the Company. Full payment may, as authorized by the Board,
consist of any consideration and method of payment allowable under Section 8(c)
of the Plan; it being understood that the Company shall take such action as may
be reasonably required to permit use of an approved payment method. Until the
issuance, which in no event will be delayed more than thirty (30) days from the
date of the exercise of the Option, (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the Company)
of the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in the Plan.
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<PAGE>
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee. If any Employee ceases to
serve as an Employee, he may, but only within thirty (30) days (or such other
period of time not exceeding three (3) months as is determined by the Board)
after the date he ceases to be an Employee of the Company, exercise his Option
to the extent that he was entitled to exercise it as of the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of such termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) Notwithstanding the provisions of Section 9(b) above, in the event
an Employee is unable to continue his employment with the Company as a result of
his total and permanent disability (as defined in Section 105(d)(4) of the
Internal Revenue Code of 1986, as amended), he may, buy only within three (3)
months (or such other period of time not exceeding twelve (12) months as is
determined by the Board) from the date of disability, exercise his Option to the
extent he was entitled to exercise it at the date of such disability. To the
extent that he was not entitled to exercise it at the date of such disability,
or if he does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death
an Employee of the Company and who shall have been in
Continuous Status as an Employee since the date of grant of
the Option, the Option may be exercised, at any time within
twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to
exercise that would have accrued had the Optionee continued
living one (1) month after the date of death; or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Board)
after the termination of Continuous Status as an Employee, the
Option may be exercised, at any time within three (3) months
following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the Stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
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<PAGE>
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split or the payment of a stock dividend with
respect to the Common Stock or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, or
in the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Board of Directors of the Company shall, as to outstanding Options, either (i)
make appropriate provision for the protection of any such outstanding Options by
the substitution on an equitable basis of appropriate stock of the Company or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to one share of Common Stock of the Company; provided, only
that the excess of the aggregate fair market value of the shares subject to the
Options immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to such Options immediately before such substitution over the purchase
price thereof, or (ii) upon written notice to an Optionee, provide that all
unexercised Options must be exercised within a specified number of days of the
date of such notice or they will be terminated. In any such case, the Board of
Directors may, in its discretion, advance the lapse of any waiting or
installment periods and exercise dates.
12. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each person to whom
an Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) The Board may amend or terminate the Plan from time to time in
such respects as the Board may deem advisable; provided, however, that the
following revisions or amendments shall require approval of the holders of a
majority of the outstanding shares of the Company entitled to vote:
(i) any increase in the number of Shares subject to the Plan, other
than in connection with an adjustment under Section 11 of the
Plan;
(ii) any change in the designation of the class of persons eligible
to be granted options; or
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<PAGE>
(iii) any material increase in the benefits accruing to participants
under the Plan.
(b) Stockholder Approval. If any amendment requiring stockholder
approval under Section 13(a) of the Plan is made, such stockholder approval
shall be solicited as described in Section 17(a) of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares, if in the opinion of
counsel for the Company, such a representation is required by, or appropriate
under, any of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Adoption of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted by the Board of Directors. If such
stockholder approval is obtained at a duly held stockholders' meeting, it may be
obtained by the affirmative vote of the holders of a majority of the outstanding
shares of the Company entitled to vote thereon. The approval of such
stockholders of the Company shall be (1) solicited substantially in accordance
with
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<PAGE>
Section 14(a) of the Exchange Act and the rules and regulations promulgated
thereunder, or (2) solicited after the Company has furnished in writing to the
holders entitled to vote substantially the same information concerning the Plan
as that which would be required by the rules and regulations in effect under
Section 14(a) of the Exchange Act at the time such information is furnished.
18. OTHER PROVISIONS. The Stock Option Agreement authorized under the Plan
shall contain such other provisions, including, without limitations,
restrictions upon the exercise of the Option, as the Board of Directors of the
Company shall deem advisable. Any Incentive Stock Option Agreement shall contain
such limitations and restrictions upon the exercise of the Incentive Stock
Option as shall be necessary in order that such option will be an Incentive
Stock Option as defined in Section 422A of the Internal Revenue Code of 1986, as
amended.
19. INDEMNIFICATION OF BOARD. In addition to such other rights of
indemnification as they may have as directors or as members of the Board, the
members of the Board shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection without the Plan or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding that such Board member is liable for
negligence or misconduct in the performance of his duties, provided that within
sixty (60) days after institution of any such action, suit or proceeding a Board
member shall, in writing, offer the Company the opportunity, at its own expense,
to handle and defend the same.
20. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
21. COMPLIANCE WITH EXCHANGE ACT RULE 16b-3. With respect to persons
subject to Section 16 of the Exchange Act, transactions under the Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the Plan or
action by the Board fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Board.
22. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender.
23. HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 1st day of July, 1996 between HERTZ
TECHNOLOGY GROUP, INC., a Delaware corporation (the "Company") and ELI E. HERTZ
("Hertz"). Except where the context indicates otherwise, the term Company shall
include the Company and any subsidiary.
1. Period.
Subject to the terms and conditions hereof, the term of employment of
Hertz under this Agreement shall be for the period (the "Employment Period")
commencing on the effective date of the Company's initial public offering (the
"Commencement Date") and terminating on the expiration of five (5) years from
such date, unless sooner terminated by the death of Hertz or as provided in
Paragraphs 5, 6 or 7 hereof.
2. Duties and Responsibilities. The Company shall employ Hertz and Hertz
accepts such employment as Chief Executive Officer of the Company during the
Employment Period. Hertz shall report to and be subject to the direction of the
Board of Directors and shall perform such duties commensurate with his title and
position as may be assigned to him from time to time by the Board of Directors.
During the Employment Period, Hertz shall devote his full time, energy, skill
and attention to the businesses of the Company and shall perform his duties in a
diligent, trustworthy, loyal and businesslike manner.
<PAGE>
3. Compensation and Benefits.
(a) Hertz' base compensation shall be at the annual rate of $225,000,
payable in regular installments in accordance with the Company's practice for
its executives, less applicable withholding for income and employment taxes as
required by law and other deductions to which Hertz shall agree.
(b) Hertz shall be entitled to such increase in base compensation or
bonuses as and when determined by the Board of Directors.
(c) Except as otherwise provided herein, Hertz shall be entitled to
participate, to the extent he qualifies, in any bonus or other incentive
compensation, profit-sharing or retirement plans, life or health insurance plans
or other benefit plans maintained by the Company, upon such terms and conditions
as are made available to executives of the Company, generally. Hertz shall also
be entitled to the use of a luxury automobile.
(d) Hertz shall be entitled to reimbursement of all reasonable,
ordinary and necessary business related expenses incurred by him in the course
of his duties and upon submission of appropriate documentation in accordance
with the Company's procedures.
(e) Hertz shall be entitled to four full weeks of paid vacation during
each calendar year which shall be taken in accordance with the procedures of the
Company in effect from time to time.
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<PAGE>
(f) Hertz shall be entitled to disability benefits and medical
insurance at the same level as now provided by the Company or at such higher
level as the Company may hereafter provide for other executives or employees in
the Company.
4. Stock Options. On the Commencement Date, the Company and Hertz shall
enter into a Stock Option Agreement (the "Stock Option Agreement'), pursuant to
which the Company shall grant to Hertz options (the "Stock Options") to acquire
up to 900,000 shares of common stock, par value $.001 per share, of the Company
(the "Common Stock") at the exercise price and on the same terms as the purchase
of the Common Stock upon exercise of Class A Warrants issuable under the
Company's initial public offering of its Common Stock under a Registration
Statement on Form SB-2.
5. Termination in Case of Death or Disability. In case of a Disability,
which for this purpose shall mean that as a result of illness or injury, Hertz
is unable substantially to perform his duties hereunder for a period of at least
one hundred eighty (180) consecutive days, the Company may terminate Hertz's
employment hereunder upon giving Hertz at least thirty (30) days' written notice
of termination; provided, however, that if Hertz is eligible to receive
disability payments pursuant to a disability insurance policy paid for by the
Company, Hertz shall assign such benefits to the Company for all periods as to
which he is receiving full payment under this Agreement. This Agreement shall
terminate upon the death of Hertz.
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<PAGE>
6. Other Termination by the Company.
(a) The Company may terminate Hertz's employment for Cause (as defined
in sub-paragraph (b) below); provided, however, that the Company shall not
terminate this Agreement for reasons set forth in Section 6(b)(i) unless the
Company shall first have delivered to Hertz a notice which specifically
identifies such Cause and Hertz shall not have cured the same within thirty (30)
days after receipt of such notice (the "Cure Period").
(b) "Cause" shall mean (i) a material breach by Hertz of any of the
terms, covenants, agreements or representations set forth herein, or (ii) Hertz
willingly engaging in misconduct which is materially injurious to the Company,
monetarily or otherwise, including, but not limited to, engaging in any conduct
which constitutes a crime under federal, state or local laws (other than traffic
violations).
7. Termination by Hertz for "Good Reason". Hertz may terminate his
employment for "Good Reason" if:
(a) he is assigned, without his express written consent, any duties
inconsistent with his positions, duties, responsibilities, authority and status
with the Company as of the date hereof, or a change in his reporting
responsibilities or titles as in effect as of the date hereof; or
(b) his compensation or benefits are reduced.
8. Liquidated Damages. It is understood that if Hertz (i) shall elect to
terminate his employment for a Good Reason (as defined above) or (ii) his
employment is terminated by the Company otherwise than as provided in Section 5
and 6, Hertz will
4
<PAGE>
suffer damages which will be difficult to calculate. Consequently, in the event
of a termination of Hertz's employment for either of these reasons, Hertz shall
be entitled by way of liquidated damages and not as a penalty to receive a
single lump sum payment in an amount equal to the amount of the compensation
payments that, but for his termination of employment under this Section 8, would
have been payable to Hertz for the remainder of the Employment Period or twelve
(12) months, whichever is higher.
Such payment shall be made by the Company to Hertz within fifteen (15) days
following his termination of employment for the reason set forth in this Section
8. Hertz shall not be required to mitigate the amount of any payment provided in
this Section 8 nor shall the amount payable under this Section be reduced by any
compensation earned by Hertz after the date of his termination of employment.
9. Confidentiality; Non-Compete.
(a) Hertz agrees that during the Employment Period, or at any time
thereafter, he will not, directly or indirectly, use for his own benefit or for
the benefit of any third party, or reveal or cause to be revealed to any person,
firm, entity or corporation, any Confidential Information (as defined herein)
which relates to the Company or its customers. Confidential Information shall
include, but not be limited to, trade secrets, supplier lists, customer lists,
intellectual property and any other information, whether or not proprietary,
which relates to the business of the Company and which otherwise is not
considered to be public information; provided, however, that the parties
acknowledge that it is not the intention of this paragraph to include
5
<PAGE>
within its subject matter (i) information not proprietary to the Company, (ii)
information which is then in the public domain, or (iii) information required to
be disclosed by law.
(b) Hertz further agrees that during the Employment Period and for a
period of one (1) year thereafter, he will not, directly or indirectly, in any
manner (i) engage in any business which competes with any business conducted by
the Company, and will not, directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be employed by or connected in any manner with any corporation, firm, entity, or
business that is so engaged unless duly authorized by written consent of the
Company; provided, however, that nothing herein shall prohibit Hertz from owning
not more than three (3%) percent of the outstanding stock of any publicly held
corporation; (ii) persuade or attempt to persuade any employee of the Company to
leave the employ of the Company or to become employed by any other entity; (iii)
persuade or attempt to persuade any current client or former client to reduce
the amount of business it does or intends or anticipates doing with the Company
or (iv) take any action which might divert from the Company any opportunity of
which he became aware during his employment with the Company which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
(c) Hertz acknowledges that a violation of any of the covenants
contained in this paragraph 9 may cause irreparable injury to the Company and
that the Company will be entitled, in addition to any other rights and remedies
it may have, to
6
<PAGE>
injunctive relief; provided, however, that nothing contained herein constitutes
a waiver by Hertz of his rights to contest the existence of any such violation
of such covenants.
(d) In the event the covenants contained in this paragraph 9 should be
held by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
(e) In the event this Agreement shall be terminated, then
notwithstanding such termination, the provisions of this paragraph 9 shall
survive such termination.
10. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
11. Notice. Any notice, request, instruction or other document to be given
hereunder by any party shall be in writing and shall be deemed to have been duly
given when delivered personally or five (5) days after dispatch by registered or
certified mail, postage prepaid, return receipt requested, to the party to whom
the same is so given or made:
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<PAGE>
If to the Company
addressed to: Hertz Technology Group, Inc.
325 Fifth Avenue
New York, NY 10016-5012
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, NY 10022
Attn: Howard L. Weinreich, Esq.
If to Hertz to: Eli E. Hertz
75-08 186th Street
Fresh Meadow, NY 11366-1722
12. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York
applicable to agreements made and to be performed in New York, and may not be
changed or terminated orally.
13. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
HERTZ TECHNOLOGY GROUP, INC.
By:_______________________________
Eli E. Hertz
Chief Executive officer
__________________________________
ELI E. HERTZ
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of the 1st day of July, 1996 between HERTZ
TECHNOLOGY GROUP, INC., a Delaware corporation (the "Company") and I. MARILYN
HERTZ ("Hertz"). Except where the context indicates otherwise, the term Company
shall include the Company and any subsidiary.
1. Period.
Subject to the terms and conditions hereof, the term of employment of
Hertz under this Agreement shall be for the period (the "Employment Period")
commencing on the effective date of the Company's initial public offering (the
"Commencement Date") and terminating on the expiration of five (5) years from
such date, unless sooner terminated by the death of Hertz or as provided in
Paragraphs 4, 5 or 6 hereof.
2. Duties and Responsibilities. The Company shall employ Hertz and Hertz
accepts such employment as a senior executive during the Employment Period. She
shall oversee the marketing and promotional activities on behalf of the Company,
be in charge of human resources and shall coordinate the Company's activities
and participation at trade shows. She shall report to and be subject to the
direction of the Chief Executive Officer and the Board of Directors and shall
perform such duties commensurate with her title and position as may be assigned
to her from time to time by the Board of Directors. During the Employment
Period, Hertz shall devote her full
<PAGE>
time, energy, skill and attention to the businesses of the Company and shall
perform her duties in a diligent, trustworthy, loyal and businesslike manner.
3. Compensation and Benefits.
(a) Hertz' base compensation shall be at the annual rate of $75,000,
payable in regular installments in accordance with the Company's practice for
its executives, less applicable withholding for income and employment taxes as
required by law and other deductions to which Hertz shall agree.
(b) Hertz shall be entitled to such increase in base compensation or
bonuses as and when determined by the Board of Directors.
(c) Except as otherwise provided herein, Hertz shall be entitled to
participate, to the extent she qualifies, in any bonus or other incentive
compensation, profit-sharing or retirement plans, life or health insurance plans
or other benefit plans maintained by the Company, upon such terms and conditions
as are made available to executives of the Company, generally. Hertz shall also
be entitled to the use of a luxury automobile.
(d) Hertz shall be entitled to reimbursement of all reasonable,
ordinary and necessary business related expenses incurred by him in the course
of her duties and upon submission of appropriate documentation in accordance
with the Company's procedures.
(e) Hertz shall be entitled to four full weeks of paid vacation during
each calendar year which shall be taken in accordance with the procedures of the
Company in effect from time to time.
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<PAGE>
(f) Hertz shall be entitled to disability benefits and medical
insurance at the same level as now provided by the Company or at such higher
levels as the Company may hereinafter provide for other executives or employees
of the Company.
4. Termination in Case of Death or Disability. In case of a Disability,
which for this purpose shall mean that as a result of illness or injury, Hertz
is unable substantially to perform her duties hereunder for a period of at least
one hundred eighty (180) consecutive days, the Company may terminate Hertz's
employment hereunder upon giving Hertz at least thirty (30) days' written notice
of termination; provided, however, that if Hertz is eligible to receive
disability payments pursuant to a disability insurance policy paid for by the
Company, Hertz shall assign such benefits to the Company for all periods as to
which she is receiving full payment under this Agreement. This Agreement shall
terminate upon the death of Hertz.
6. Other Termination by the Company.
(a) The Company may terminate Hertz's employment for Cause (as defined
in sub-paragraph (b) below); provided, however, that the Company shall not
terminate this Agreement for reasons set forth in Section 6(b)(i) unless the
Company shall first have delivered to Hertz a notice which specifically
identifies such Cause and Hertz shall not have cured the same within thirty (30)
days after receipt of such notice (the "Cure Period").
(b) "Cause" shall mean (i) a material breach by Hertz of any of the
terms, covenants, agreements or representations set forth herein, or (ii) Hertz
willingly engaging in misconduct which is materially injurious to the Company,
monetarily or
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otherwise, including, but not limited to, engaging in any conduct which
constitutes a crime under federal, state or local laws (other than minor traffic
violations).
7. Termination by Hertz for "Good Reason". Hertz may terminate her
employment for "Good Reason" if:
(a) she is assigned, without her express written consent, any duties
inconsistent with her positions, duties, responsibilities, authority and status
with the Company as of the date hereof, or a change in her reporting
responsibilities or titles as in effect as of the date hereof; or
(b) her compensation or benefits are reduced.
8. Liquidated Damages. It is understood that if Hertz (i) shall elect to
terminate her employment for a Good Reason (as defined above) or (ii) her
employment is terminated by the Company otherwise than as provided in Section 5
and 6, Hertz will suffer damages which will be difficult to calculate.
Consequently, in the event of a termination of Hertz's employment for either of
these reasons, Hertz shall be entitled by way of liquidated damages and not as a
penalty to receive a single lump sum payment in an amount equal to the amount of
the compensation payments that, but for her termination of employment under this
Section 8, would have been payable to Hertz for the remainder of the Employment
Period or twelve (12) months, whichever is higher.
Such payment shall be made by the Company to Hertz within fifteen (15)
days following her termination of employment for the reason set forth in this
Section 8. Hertz shall not be required to mitigate the amount of any payment
provided in this
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Section 8 nor shall the amount payable under this Section be reduced by any
compensation earned by Hertz after the date of her termination of employment.
9. Confidentiality; Non-Compete.
(a) Hertz agrees that during the Employment Period, or at any time
thereafter, she will not, directly or indirectly, use for her own benefit or for
the benefit of any third party, or reveal or cause to be revealed to any person,
firm, entity or corporation, any Confidential Information (as defined herein)
which relates to the Company or its customers. Confidential Information shall
include, but not be limited to, trade secrets, supplier lists, customer lists,
intellectual property and any other information, whether or not proprietary,
which relates to the business of the Company and which otherwise is not
considered to be public information; provided, however, that the parties
acknowledge that it is not the intention of this paragraph to include within its
subject matter (i) information not proprietary to the Company, (ii) information
which is then in the public domain, or (iii) information required to be
disclosed by law.
(b) Hertz further agrees that during the Employment Period and for a
period of one (1) year thereafter, she will not, directly or indirectly, in any
manner (i) engage in any business which competes with any business conducted by
the Company, and will not, directly or indirectly, own, manage, operate, join,
control or participate in the ownership, management, operation or control of, or
be employed by or connected in any manner with any corporation, firm, entity, or
business that is so engaged unless duly authorized by written consent of the
Company; provided,
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however, that nothing herein shall prohibit Hertz from owning not more than
three (3%) percent of the outstanding stock of any publicly held corporation;
(ii) persuade or attempt to persuade any employee of the Company to leave the
employ of the Company or to become employed by any other entity; (iii) persuade
or attempt to persuade any current client or former client to reduce the amount
of business it does or intends or anticipates doing with the Company or (iv)
take any action which might divert from the Company any opportunity of which she
became aware during her employment with the Company which would be within the
scope of any of the businesses then engaged in or planned to be engaged in by
the Company.
(c) Hertz acknowledges that a violation of any of the covenants
contained in this paragraph 9 may cause irreparable injury to the Company and
that the Company will be entitled, in addition to any other rights and remedies
it may have, to injunctive relief; provided, however, that nothing contained
herein constitutes a waiver by Hertz of her rights to contest the existence of
any such violation of such covenants.
(d) In the event the covenants contained in this paragraph 9 should be
held by any court or other duly constituted judicial authority to be void or
otherwise unenforceable in any particular jurisdiction or with respect to any
particular activity, then such covenants so affected shall be deemed to have
been amended and modified so as to eliminate therefrom the particular
jurisdiction or activity as to which such covenants are so held to be void or
otherwise unenforceable, and, as to all other jurisdictions and activities
covered hereby, the terms and provisions hereof shall remain in full force and
effect.
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(e) In the event this Agreement shall be terminated, then
notwithstanding such termination, the provisions of this paragraph 9 shall
survive such termination.
10. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be enforceable by the parties hereto, their personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
11. Notice. Any notice, request, instruction or other document to be given
hereunder by any party shall be in writing and shall be deemed to have been duly
given when delivered personally or five (5) days after dispatch by registered or
certified mail, postage prepaid, return receipt requested, to the party to whom
the same is so given or made:
If to the Company
addressed to: Hertz Technology Group, Inc.
325 Fifth Avenue
New York, NY 10016-5012
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, NY 10022
Attn: Howard L. Weinreich, Esq.
If to Hertz to: I. Marilyn Hertz
75-08 186th
Fresh Meadow, NY 11366-1222
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12. Governing Law; Change or Termination. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York
applicable to agreements made and to be performed in New York, and may not be
changed or terminated orally.
13. Validity. The invalidity or unenforceability of any provision of this
Agreement in any respect shall not affect the validity or enforceability of such
provision in any other respect or of any other provision of this Agreement, all
of which shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be duly executed and delivered as of the date first hereinabove
written.
HERTZ TECHNOLOGY GROUP, INC.
By:_______________________________
I. Marilyn Hertz
Senior Executive officer
__________________________________
I. MARILYN HERTZ
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Company
Hertz Computer Corporation incorporated under the law of New York. (1)
Hergo Ergonomic Support Systems, Inc. incorporated under the laws of
New York. (1)
Hertz Computer System (1985) Ltd. (Hertz-Israel) incorporated under the laws
of the State of Israel. (2)
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1. Will have become subsidiaries of the Company upon the recapitalization
immediately prior to the Effective Date.
2. A subsidiary of Hertz Computer Corporation.
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
New York, New York Arthur Andersen LLP
August 6, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated 11/30/95 included
in this registration statement and to all references to our Firm included in
this registration statement.
/s/Shlomo Ziv & Co.
Shlomo Ziv & Co.
Certified Public Accountants (Isr.)
August 2, 1996
