<PAGE>
As filed with the Securities and Exchange Commission on September 24, 1996
Registration No. 333-9783
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 1
TO
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 Industrial (I.R.S. Employer
Jurisdiction of Incorporation Classification Code Number) Identification
or Organization) 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. |_|
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================
Title of Each Class of Amount Being Proposed Proposed Amount of
Securities to be Registered Registered Maximum Maximum Registration
Offering Price Aggregate Fee
Per Unit (1) Offering Price (1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units consisting of one share of Common Stock,
par value $.001 per share and one Redeemable
Warrant to Purchase Common Stock(2) 1,265,000 $ 5.25 $6,641,250 $2,290.09
- -----------------------------------------------------------------------------------------------------------------
Shares of Common Stock included in the Units(3) 1,265,000 -- -- --
- -----------------------------------------------------------------------------------------------------------------
Redeemable Warrants included in the Units(4) 1,265,000 -- -- --
- -----------------------------------------------------------------------------------------------------------------
Shares of Common Stock issuable upon exercise of
the Redeemable Warrants included in the Units 1,265,000 $ 5.50 $6,957,500 $2,399.14
- -----------------------------------------------------------------------------------------------------------------
Redeemable Warrants(4) (not included in the
Units) 1,265,000 $ .25 $ 316,250 $ 109.05
- -----------------------------------------------------------------------------------------------------------------
Shares of Common Stock issuable upon exercises
of Redeemable Warrants not included in the
Units 1,265,000 $ 5.50 $6,957,500 $2,399.14
- -----------------------------------------------------------------------------------------------------------------
Underwriter's Option 110,000 $ .001 $ 110 (4)
- -----------------------------------------------------------------------------------------------------------------
Units issuable on exercise of Underwriter's
Option 110,000 $ 6.30 $ 693,000 $ 238.96
- -----------------------------------------------------------------------------------------------------------------
Shares of Common Stock included in the Units
underlying Underwriter's Option 110,000 -- -- --
- -----------------------------------------------------------------------------------------------------------------
Redeemable Warrants included in Units underlying
Underwriter's Option 110,000 -- -- --
- -----------------------------------------------------------------------------------------------------------------
Shares of Common Stock issuable upon exercise of
Redeemable Warrants included in the Units
underlying Underwriter's Option 110,000 $ 5.50 -- $ 208.62
- -----------------------------------------------------------------------------------------------------------------
Redeemable Warrants issuable upon exercise of
Underwriter's Option (not included in Units) 110,000 $ .30 $ 605,000 $ 11.38
- -----------------------------------------------------------------------------------------------------------------
Shares of Common Stock issuable upon exercise of
Underwriter's Option (not included in Units) 110,000 $ 5.50 605,000 $ 208.62
- -----------------------------------------------------------------------------------------------------------------
Common Stock to be sold by Selling Shareholders 750,000 $ 5.00 $3,750,000 $1,293.10
- -----------------------------------------------------------------------------------------------------------------
Total Registration Fee $9,158.10
=================================================================================================================
</TABLE>
Pursuant to Rule 416, there are also being registered hereby, such
additional indeterminate number of shares of Common Stock as may become issuable
pursuant to the anti-dilution provisions of the Redeemable Warrants and the
Underwriter's Option.
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act.
(2) Includes 165,000 Units issuable upon exercise of the Underwriter's
Over-Allotment Option.
(3) Includes 165,000 Shares of Common Stock issuable upon exercise of the
Underwriter's Over-Allotment Option.
(4) Includes 165,000 Redeemable Warrants issuable upon exercise of the
Underwriter's Over-Allotment Option.
(5) No registration fee required pursuant to Rule 457 under the Securities Act.
- ----------
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.
================================================================================
<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.......................... Selling Shareholders
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............... Not Applicable
16. Description of Business........................... Summary; Management's Discussion and Analysis of
Financial Conditions and Results of Operations; Business
17. Management's Discussion and Analysis of Plan
of Operation...................................... Management's Discussion and Analysis of Financial
Conditions and Results of Operations
18. Description of Property........................... Prospectus Summary; Management's
Discussion and Analysis of Financial Conditions;
and Results of Operations; Business
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
19. Certain Relationships and Related Party
Transactions...................................... The Company; 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 the Offering by Hertz Technology Group, Inc. (the
"Company") of (i)1,100,000 Units, each Unit consisting of one Share of Common
Stock (the "Shares") and one Class A Warrant (the "Class A Warrants" or
"Warrants") and (ii) 1,100,000 Class A Warrants, plus 165,000 additional Units
and 165,000 additional Class A Warrants to cover over-allotments, if any (the
"Prospectus"), and one relating to the Offering, by the two principal
shareholders of the Company (the "Selling Shareholders") of 750,000 Shares (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>
1,100,000 Units,
each Unit consisting of one
Share of Common Stock and
one Class A Warrant
and
PROSPECTUS
1,100,000 Class A Warrants
HERTZ TECHNOLOGY GROUP, INC.
Hertz Technology Group, Inc. ("Company"), a Delaware corporation, is
offering 1,100,000 Units ("Units") at a price of $5.25 per Unit and 1,100,000
Class A Warrants ("Class A Warrants" or "Warrants") at a price of $.25 per
Warrant. Each Unit consists of one share of Common Stock, $.001 par value per
share ("Shares") and one Class A Warrant. The Units, Shares and Class A Warrants
are sometimes collectively referred to as the "Securities". The Class A Warrants
not included in the Units may be offered together with, or separately from, the
Units. The Shares and Class A Warrants included in the Units are detachable and
may trade separately on issuance. 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. The Units will not be listed for quotation.
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 covers the
offering of an additional 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 (Eli and Marilyn Hertz are sometimes
hereinafter referred to as the "Selling Shareholders"). The Shares being offered
by the Selling Shareholders are not being underwritten. The Company will not
receive any of the proceeds from such sale. 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
1
<PAGE>
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 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 Units,
Shares or Class A Warrants. The prices of the Units, Shares and Class A
Warrants, as well as the exercise price of the Class A Warrants, have been
determined by negotiation between the Company and the Underwriter, and do 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 11, 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.
- --------------------------------------------------------------------------------
Underwriting Discounts Proceeds to the
Price to Public and Commissions (1) Company (2)
- --------------------------------------------------------------------------------
Per Unit ......... $ 5.25 $ .525 $ 4.725
- --------------------------------------------------------------------------------
Per Class A Warrant $ .25 $ .025 $ .225
- --------------------------------------------------------------------------------
Total (3) ......... $ 6,050,000 $ 605,000 $ 5,445,000
- --------------------------------------------------------------------------------
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
Securities will be made on or about __________, 1996.
----------
BILTMORE SECURITIES, INC.
The date of this Prospectus is __________, 1996
2
<PAGE>
NOTES
(1) The assumed value of each Share and Warrant included in a Unit is $5.00 and
$.25, respectively. The figures shown in this column do 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 Units at $6.30 per Unit and 110,000 Class A Warrants at $.30 per
Class A Warrant ("Underwriter's Purchase Option"). In addition, the Company
and the Underwriter have agreed to 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 $576,500, 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 Units and 165,000 additional 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
<PAGE>
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 August 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: Barry J.
Goldsammler, Chief Financial Officer.
4
<PAGE>
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's Purchase Option, or any of the options issued to Eli
E. 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 Israel", which, together with
its parent, are referred to as "Hertz Computer") and Hergo Ergonomic Support
Systems, Inc. ("Hergo").
The Company
The Company custom designs, assembles and sells microcomputers ("PCs") and
provides related technology support and services under the "Hertz" name. The
Company also designs, manufactures and sells ergonomically engineered mounting
and support structures ("Modular Racking Systems") for PCs and related computer
peripheral equipment under the "Hergo" name. Ergonomically engineered products
are designed to take into consideration the physical characteristics of computer
users and the manner in which they and their computers interact with each other.
The Company's sales are concentrated in the metropolitan New York area.
Hertz Customized Computers and Related Services. The Company designs and
sells customized PCs and provides a broad range of related services, including
system architecture design, consulting, installation, personnel training and
customer support. PCs are assembled in a number of different configurations
using standard component parts. Customization enables the Company to accommodate
customer computer needs with respect to storage capacity, speed, price,
applications, size, configuration and a range of other considerations that can
be accommodated in whole or in part by the selection of appropriate components.
Hertz PCs are primarily sold for use in network configurations. They are also
sold to original equipment manufacturers ("OEMs") for use in Magnetic Resonance
Imaging ("MRI") machines, to provide voice mail services, for use in military
radar systems and for use in shopping center kiosks 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,
manufactures and sells Modular Racking Systems which serve to conserve space and
help organize and facilitate the accessibility of all types of computer
hardware, communication and electronic devices, and other peripherals. Hergo
systems are suitable 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 PCs. The Company provides a
cohesive, functional and architecturally attractive racking system that
vertically mounts and supports multiple computers, servers and related
peripherals, such as printers,
5
<PAGE>
monitors, scanners and modems, used in tandem with each other, or in
juxtaposition with each other and interconnected for networking functions.
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 is to strengthen its business lines by
updating their respective physical facilities and manufacturing equipment and
then intensifying their respective marketing efforts. With respect to the PC
business, the Company intends to develop a national sales force and increase its
efforts to market Hertz PCs to the Federal Government and OEMs. For the Hergo
line, the Company plans on bringing to market new products, including
"Hergolite", and on strengthening its relationships with its customer base of
large U.S. corporations. "Hergolite" is a line of Modular Racking Systems,
specifically designed for the small business or home office user. The Company
also plans on actively pursuing a cross marketing program between its Hertz
Computer and Hergo Divisions with special emphasis on marketing the Company as a
PC supplier to its Hergo customers. Finally, the Company plans on establishing a
new division to offer a variety of Internet services, such as Internet access
and Web site design, 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 October 15,
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 Units,
1,100,000 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..................................The Company intends to use
the net proceeds for debt
retirement, an S
Corporation distribution, a
Hertz PC marketing program,
purchase of new Hergo
machinery, Hergo's new
product development,
establishment of an
Internet Service Division,
updating computer systems,
Hergo marketing, upgrading
new facility and production
6
<PAGE>
equipment of Hertz Computer
and for working capital
purposes. See "Use of
Proceeds."
7
<PAGE>
Proposed Nasdaq Symbols
Common Stock.........................................HTGI
Class A Warrants.....................................HTGIW
- ----------
(1) The Company is offering 1,100,000 Units (each Unit consisting of one Share
and one Warrant) at a price of $5.25 per Unit and 1,100,000 Warrants at a
price of $.25 per Warrant. 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 Units and 165,000 Warrants; (iii) the Underwriter's Purchase
Option to purchase up to 110,000 Units and 110,000 Warrants; (iv) the
option held by Eli E. Hertz to purchase 900,000 Shares; (vi) the options to
purchase 750,000 Shares reserved for issuance under the Company's Stock
Option Plan., and (vii) the issuance of 100,000 Shares reserved for
issuance under the Company's Employee Bonus Plan. See "Description of
Securities."
(3) See "Dilution."
##
8
<PAGE>
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, has been derived from the audited financial statements and
notes thereto appearing elsewhere herein.
The data for the nine months ended May 31, 1996 and 1995 has been derived
from the unaudited financial statements also appearing elsewhere herein which,
in the opinion of management, includes 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
Pro forma net income(1) 265,779 67,905 58,126 102,057
Pro forma net income per share $0.14 $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>
9
<PAGE>
<TABLE>
<CAPTION>
Hertz Technology Group, Inc.
---------------------------------------
May 31, 1996
As
Consolidated Balance Sheet Data: Actual Adjusted(3)
--------- ------------
<S> <C> <C>
Working Capital $546,750 $5,415,250
Total Assets 3,388,212 6,588,581
Capital lease obligation 19,309 19,309
Distributions payable to shareholders 224,567 --
Total Liabilities 2,484,301 816,170
Stockholders' Equity 903,911 5,772,411
</TABLE>
- ----------
(1) Pro forma net income reflects a provision for income taxes as if Hergo had
been a C Corporation throughout 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 net
income of $265,779 (which reflects a provisions for income taxes as if
Hergo were a C corporation for the nine months ended May 31, 1996) was the
base utilized in the calculation of supplementary net income per share.
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
Units and 1,100,000 Warrants by the Company and the net proceeds therefrom
and the uses thereof (assuming an initial public offering price of $5.25
per Unit and $.25 per Warrant and after deducting the underwriting
discounts and commissions and expenses of this offering estimated at
$1,181,500), and (ii) the repayment of certain indebtedness from the
proceeds of this Offering. 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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<PAGE>
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 expected 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 61% and 66% of its total sales were concentrated in the New York
metropolitan area for the year ended August 31, 1995 and for the nine months
ended May 31, 1996, respectively. A majority of these sales (36% and 41% of
total sales for these respective periods) were to federal, state and city
agencies or government affiliated organizations, including hospitals and schools
("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 Entities is 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.
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's
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 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 profit margins in this line of business become better appreciated in the
trade, there is every reason to expect a larger number of companies to enter the
field as competitors.
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<PAGE>
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 needs. There are no long term
commitments from buyers in this business, and the Company has no significant
back-log. 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.
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 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's 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; Changes in Import Duties
A significant portion (17% in fiscal 1995) of the Company's total sales are
accounted for by sales to Israel, to or through its Israel subsidiary. For the
first nine months of fiscal 1996, Hertz Israel had an operating loss of $83,000.
This loss was due in large part to a change in the Israeli tax law. Prior to
this change, computers imported to Israel were assessed a high tariff. Certain
companies and universities were exempt from this tax if the products were
13
<PAGE>
purchased in the US. In August 1994, the tariffs on imported goods to Israel
were eliminated, a move that took away the price difference between a computer
imported from the Far East and a computer imported from the U.S. This in turn
made the purchase of computers in the local Israeli market, which is dominated
by Far East imports, a more convenient purchase than a purchase from the United
States. With the removal of the incentive to buy from the U.S., many of Hertz's
customers, such as the universities which had been purchasing directly from
Hertz in the U.S., chose to do most of their purchasing in Israel. To
accommodate these customers, the Company now ships computers for Israeli
customers to Hertz Israel which then reships such computers to the ultimate
customers. The new routing schedule involved increased expense which the Company
has not been able to completely pass on to its Israeli customers. The nine month
loss also reflects severance payments and other expenses incurred in connection
with the buy-out of a minority interest and in replacing the general manager of
the Israeli 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 Duty 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. If the losses in the subsidiary continue, the Company will consider
liquidating the subsidiary and replacing it with a manufacturer's representative
in Israel.
There is always a risk when selling in Israel (as in other foreign
countries) that changes (other than changes in the Importation Duty) in existing
laws, policies and conditions could materially affect Company operations. In
addition, the proceeds of sales to Israeli customers are always subject to
change in currency exchange valuations which could adversely affect profits from
overseas sales.
Immediate and Substantial Dilution
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 Units 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 will be $5,730,827 or $1.91 per share. The
result will be an immediate increase in net tangible book value per share of
$1.46 to existing
14
<PAGE>
shareholders and an immediate dilution to new investors of $3.09 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 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 is obligated, on or before September 30, 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
o 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
15
<PAGE>
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 "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. The Company does not intend to seek
qualification for the sale of the Securities in the state of Indiana. 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."
Substantial Portion of Proceeds to be Used to Repay Indebtedness
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<PAGE>
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 Eli and Marilyn. 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 and Marilyn Hertz. See "Use of Proceeds."
17
<PAGE>
Benefit of Offering to Principal Shareholders;
Mr. and Mrs. Hertz have loaned the Company approximately $326,000. In
addition, they have 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 this
offering to repay the Company's borrowings from Eli and Marilyn Hertz, the
Company's obligation to the Bank guaranteed by them and also to fund a
distribution to Eli and Marilyn Hertz (See S Corporation Distribution) estimated
at $225,000 as of May 31, 1996. Consequently, both Eli and Marilyn Hertz stand
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. See "S Corporation
Distribution" and "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 56
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
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<PAGE>
required to implement the Company's expansion plans may take more time than is
currently contemplated.
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 By Management; Potential Anti-Takeover Effect
After giving effect to this offering (but without giving effect to the
sales of any securities by the Selling Shareholders), Eli and Marilyn 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 of 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.
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 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 redemptions 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
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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 assumed value of $5.00 per Share reflected in the
offering price of the Units 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 Potential Restrictions on Exercise of the
Warrants
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 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. The Company is either
exempt or has filed applications to register its securities as
20
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of the Effective Date in the following jurisdictions: [To be added in Amendment
no. 2].
Issuance of Authorized but unissued Shares and Sales of Restricted Shares May
Adversely Affect the Market
The Company is authorized to issue 25,000,000 Shares. If all of the
1,100,000 Units (containing 1,100,000 Shares and 1,100,000 Warrants) 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 (including those contained in the Units); 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.
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 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
21
<PAGE>
without the consent of the Underwriter. The sale or availability for sale of
significant quantities of restricted securities could adversely affect the
market price of the Securities. See "Selling Shareholders" and "Description of
Securities--Restricted Shares Eligible for Future Sales."
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 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."
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 Shares and Warrants are accepted for quotation.
Additionally, if these Company Securities are accepted for quotation and active
trading develops, 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 Shares and Warrants will be
listed on the Nasdaq SmallCap Market upon the Effective Date of this offering.
The Units will not be listed for quotation. 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."
22
<PAGE>
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 Potential Restrictions on
Exercise of the Warrants." 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."
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 and any soliciting broker-dealers 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 such solicitation.
As a result,
23
<PAGE>
the Underwriter and soliciting broker-dealers 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."
24
<PAGE>
"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 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."
25
<PAGE>
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 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 Eli and Marilyn
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.
USE OF PROCEEDS
After deducting underwriting discounts of $605,000 and other expenses of
the offering estimated to be $576,500 (which includes the Underwriter's
nonaccountable expense allowance), assuming an offering price of $5.25 per Unit
and $.25 per Warrant, the Company will receive net proceeds from the offering of
approximately $4,868,500, 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:
<TABLE>
<CAPTION>
Approximate Amount
of Net Proceeds %
--------------- ------
<S> <C> <C>
Debt Retirement (1)................................. $1,430,000 29.4%
S Corporation distribution(2)....................... 225,000 4.6%
Hertz Computer Marketing Program(3)................. 600,000 12.3%
Hergo Machinery(4).................................. 300,000 6.2%
Hergo New Product Development(5).................... 400,000 8.2%
Hertz Computer - Equipment to Provide
Internet Services and other communications(6)... 300,000 6.2%
Hertz Computer - Update Computer system............. 250,000 5.1%
Hergo Marketing(7).................................. 400,000 8.2%
Hertz up-grade of new facility and production line.. 295,000 6.1%
Working Capital..................................... 668,500 13.7%
</TABLE>
- ----------
(1) Represents payment of $326,000 for advances and loans to the Company by Mr.
and Mrs. Hertz payable on demand carrying an interest of 1% over prime, and
$895,000 representing the balance as of May 31, 1996 for loans from the
United Mizrachi Bank (the "Bank") under a line of credit terminating on May
31, 1997, which loans bear interest at Prime plus 1% and $205,000 for
short-term loans from the Bank, maturing on March 9, 1997 with interest at
Libor plus 1%.
26
<PAGE>
(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.
(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.
(7) Hiring and training sale representatives and increasing promotion and
advertising levels.
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 (including those
which are components of the Units), 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.
27
<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 consolidated 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, after deducting underwriting discounts and estimated offering
expenses, net tangible book value as adjusted would be $5,757,327, or $1.91 per
share. The result will be an immediate increase in net tangible book value per
share of $1.46 to existing shareholders and an immediate dilution to new
investors of $3.09 (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.
Assumed value of Shares included in Units 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 ............................ 1.46
------
Pro forma net tangible book value per Share, after the offering ....... 1.91
------
Dilution per Share to new investors ................................... $ 3.09
======
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 $2.94 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 $6,325,000 as the assumed value of the Shares included
in the Units 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."
28
<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.
<TABLE>
<CAPTION>
May 31, 1996
As
Actual Adjusted(1)(2)
------------------- -------------------
<S> <C> <C>
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 5,772,411
Retained earnings 777,911 777,911
---------- ----------
Total Stockholders' Equity $903,911 $4,991,500
-------- ----------
Total Capitalization $2,596,739 $5,797,108
</TABLE>
- ----------
(1) Adjusted to reflect (i) the sale of 1,100,000 Units, each Unit consisting
of one Shares and one Warrant, and 1,100,000 Warrants by the Company and
the net proceeds therefrom and the uses thereof (assuming an initial public
offering price of $5.25 per Unit 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 Units and 165,000 Warrants;
and (iii) the Underwriter's option to purchase up to 110,000 Units and
110,000 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
Loans to shareholder 326,471
------------
Total short term debt $1,673,519
==========
29
<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.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
General
The Company custom designs and assembles PC's and related products and
provides technological 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.
Computer sales figures, as used herein and elsewhere in this prospectus, include
related services, such as systems architecture designs, consulting,
installation, personnel training and customer support, most of which services
are not separately charged to customers. The proceeds of those charges, which
are separately billed, are not material.
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(1) increased from $6.81 million to $7.55 million, an 11%
increase over the same period. Increased sales of computers to OEMs 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.
________________________
(1)
x
31
<PAGE>
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.
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. In
addition, the termination of Israeli duties relating to computer purchases from
the Far East eliminated a competitive advantage that American exporters making
direct sales to Israeli purchasers enjoyed, and to accommodate its customers,
Hertz Israel was required to take deliver of computer purchases by Israeli
customers for redelivery to such customers. This circuitous routing resulted in
increased shipping costs and other costs associated with maintaining an
inventory in Israel. In addition, increased competition from Israeli suppliers
resulted in the reduction of the Company's gross margins with respect to sales
to Israeli customers. See "Risk Factors--1996 Loss in Israeli Subsidiary;
Changes in Import Duties."
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
The net interest expense 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 that 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
32
<PAGE>
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 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 primarily 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, which costs were offset in part by the eliminations of the minority
shareholder's annual salary of $50,000 as an employee. 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
33
<PAGE>
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 approximately $175,000.
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.
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 the principal shareholders. 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.
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<PAGE>
In February 1996, the Company entered into a line of credit agreement with
the Bank through Hertz Israel for $300,000 with an interest rate at the six
month Libor Rate plus 1.25% (6.9% at May 31, 1996) which is effective through
March 9, 1997. As of May 31, 1996, the
outstanding line of credit balance was $211,375 which consists of two short term
notes ($205,240 in total). These loans were originally due on September 9, 1996,
but were extended six months and are presently due on March 9, 1997. The
interest rate for the extension period is the six month libor rate plus 1.0%. 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 $195,127 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.
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 Units 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 $1,181,000. 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.
See "Risk Factors--Litigation Involving Underwriter May Affect Securities."
For the Fiscal Years Ended August 31, 1995 and 1994
As of August 31, 1995, the Company had 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 the principal shareholders. 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
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<PAGE>
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 a change in the import tax laws in Israel effectuated in 1995.
The increase in accounts receivable is mainly a result of the increased sales of
Hertz-Israel, which was due to a change in 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 shareholder loan of $176,083 in the 1995 fiscal year with an
interest rate of 10% due September 1, 1997.
36
<PAGE>
BUSINESS
The Company custom designs, assembles and sells PCs and related technology
and provides services under the "Hertz" name. It also designs, manufactures and
sells ergonomically engineered modular mounting and support structures ("Modular
Racking Systems") for PCs and related peripherals under the "Hergo" name.
Products and Service
Hertz Customized Computers and Related Services. The Company designs and
sells customized PCs and provides a broad range of related services, including
system architecture design, consulting, installation, personnel training and
customer support. PCs are assembled in a number of different configurations
using standard component parts. Customization enables the Company to accommodate
customer computer needs with respect to storage capacity, speed, price,
applications, size, configuration and a range of other considerations that can
be accommodated in whole or in part by the selection of appropriate components.
Hertz PCs are currently being used to operate MRI machines, to provide voice
mail services, for use in military radar systems and for use in shopping center
kiosks to enable prospective purchasers of music discs and tapes to select and
hear their musical selections prior to purchase.
Most of the PCs 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 and sells Modular Racking Systems which serve to conserve space and
help organize and facilitate the accessibility of all types of computer
hardware, communication and electronic devices and other peripherals. Hergo
systems are suitable 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 PCs. The Company was one of the
first companies to provide a cohesive, functional and architecturally attractive
racking system that vertically mounts and supports 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, 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.
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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.
Strategic Growth Plan
The Company's strategic growth plan consists of strengthening both of its
business lines by updating their respective physical facilities and equipment
and then intensifying their respective marketing efforts. With respect to the PC
business, the Company intends to develop a national sales force,
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<PAGE>
increase its efforts to market Hertz PCs with the Federal Government and
expand 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 large company customer base. The Company also
plans on actively pursuing a cross marketing program between its Hertz Computer
and its Hergo Divisions with special emphasis on marketing the Company as a PC
supplier to Hergo Customers. Finally, the Company plans on establishing a new
division to offer a variety 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 October 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 a 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 week to week or from one day to the
next, and for this reason, the Company tries not to 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.
39
<PAGE>
Marketing and Sales
The customized computer and related services. Sales to commercial customers
are generally made by unsolicited telephone calls initiated by prospective
customers. 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 the New York State Office of General Services
("OGS") and to the Federal Government's General Services Administration ("GSA").
Approximately 36% of the Company's total sales for its 1995 fiscal year
(41% of total sales for the nine month period ended on May 31, 1996) were to
Governmental Entities. The Company has been approved by OGS as an approved
provider to New York State governmental purchasing units and 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 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 PCs to operate their computer driven products.
Failure of their PCs would render their own products 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 17% 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 (as compared to
36% for the 1995 fiscal year) 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 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 these factors can easily be lost if
the Company's pricing and technical features of its products
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<PAGE>
will not be able to compete with the prices and technology of comparable
products from other suppliers.
The business of providing functional, architecturally attractive Modular
Racking Systems specifically designed to mount, support and allow easy access to
PCs 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."
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 leases which expired 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, consisting of 13,201 square feet
for a six year period beginning on September 1, 1996, at an
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annual rental of $115,508 a year. The Company expects to move its entire
operations on Fifth Avenue to the Varick Street premises in October. The Company
also leases an aggregate of
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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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors, persons elected to serve as directors commencing on
the Effective Date and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C> <C>
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, Director and
Secretary
Bruce Borner 45 Director*
Beryl Ackerman 47 Director*
</TABLE>
- ----------
*Elected as a director, effective as of the Effective date.
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, the Company has three directors. The Board will
be expanded to five directors following this Offering. The Board has elected
Bruce Borner and Beryl Ackerman to fill the two vacancies on the Board,
effective upon the Effective Date. The bylaws permit the board of directors to
fill any vacancies and directors so elected may serve until the next annual
meeting of shareholders or until their successors are 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, including those directors elected, effective as of the
Effective Date, 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.
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I. Marilyn Hertz was a co-founder of Hertz Computer and the founder of
Hergo. She 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 Citibank in its computer systems
department. 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.
Bruce Borner has, for more than five years, been president of Computer
Projections, a company which is a consultant to, and developer of, a wide range
of information/database systems for diverse industries. Mr. Borner has a MBA
from the Harvard Business School, Management Development Institute (IMD) in
Lausanne, Switzerland.
Beryl Ackerman has, since June 1994, been a consultant to Justified
Computer System, a computer consulting firm. Prior thereto, he was a computer
specialist for the New York City Department of Transportation. He is also a
Coordinator for Computer Systems in the Continuing Education Program at Queens
College, and a lecturer at Baruch College.
Committees of the Board of Directors
The Board of Directors has an Audit Committee which will be comprised of
Bruce Borner and Beryl Ackerman. 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 which will be
comprised of Bruce Borner and Beryl Ackerman. The Compensation Committee reviews
and recommends compensation for officers and directors, administers 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, 1994, 1995 and 1996,
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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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal Position Year Salary Bonus
- --------------------------- ---- ------ -----
<S> <C> <C> <C>
Eli E. Hertz, 1996 $175,000 --
Chairman, President and 1995 140,769 --
Chief Executive Officer 1994 217,873 --
I. Marilyn Hertz, 1996 $165,000 --
Vice Chairperson 1995 180,769 --
1994 278,702 --
Barry J. Goldsammler, 1996 $111,500 --
Executive Vice President, 1995 97,401 --
Secretary and Chief 1994 105,395 --
Financial Officer
</TABLE>
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. Their salaries
may not be increased during the first three years and can be increased
thereafter only with the approval of a disinterested majority of 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.
Under the Agreements, 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
On August 7, 1996, in order to attract and retain persons 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 on a 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 September 12, 1996, no options had been granted
under the Option Plan.
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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<PAGE>
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.
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 Units, each Unit containing one Share and one
Warrant, at a price of $5.25 per Unit and 1,100,000 Warrants at a price of
$.25 per Warrant. 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."
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<PAGE>
(3) Assumes none of the 750,000 Shares offered under the Alternate Prospectus
are sold. If the 750,000 Shares are sold, Eli and Marilyn Hertz will own
18.2%, individually, and 36.3%, collectively, of the outstanding Shares.
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<PAGE>
CERTAIN TRANSACTIONS
Since 1993, the Company has borrowed moneys from Mr. and Mrs. 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 Eli and Marilyn Hertz. As of
July 1, 1996, the balance outstanding under this agreement was $895,000.
Pursuant to an agreement dated August 26, 1994, by and among Eli E. Hertz,
Amir Rotlevi ("Rotlevi") and Hergo
(a) Eli E. Hertz acquired the 25% stock interest in Hergo, held by Rotlevi
(an original shareholder of Hergo) for $10,000; and
(b) Hergo reimbursed Rotlevi $18,345 for equipment which Rotlevi had
contributed to the Company. In connection with Rotlevi's sale of his stock
interest, Hergo entered into a consulting agreement for one year with AFC
Industries Inc., a corporation in which Rotlevi was the principal, under which
the corporation was paid $134,800, $34,800 on the execution of the agreement
$40,000 on January 3, 1995 and the balance in 26 semi weekly installments.
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
51
<PAGE>
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.
52
<PAGE>
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 carry 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
deems 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 1,100,000 Warrants at a price of $.25 per Warrant,
as well as 1,100,000 Warrants with an assumed value of $.25 included in the
1,100,000 Units being offered.
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
53
<PAGE>
$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 state 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 Warrants
or of Units in this Offering, in which latter case at the rate of one Warrant
for each Unit 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
54
<PAGE>
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 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 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
55
<PAGE>
"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.
56
<PAGE>
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. The Company will not receive any of the proceeds from such
sale. Alternatively, the Selling Shareholders may from time to time offer such
securities through underwriters, dealers or agents. The Selling Shareholders are
not required to effect sales through the Underwriter. 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
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<PAGE>
any underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for shares 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 Units and 1,100,000 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 Units at $5.25 per Unit 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 Unit 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 Units and 165,000 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.
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<PAGE>
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 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 Units and 110,000 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 of the
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 Units and Warrants 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
except for designated purposes
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<PAGE>
for a period of twenty four (24) months following the Effective Date without
the consent of the Underwriter.
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. The Underwriter has indicated that it will designate a
person as a non-director observer.
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:
60
<PAGE>
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 is obligated, on or before September 30, 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
61
<PAGE>
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. The Company does not intend to seek
qualification for the sale of the Securities in the state of Indiana. 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.
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
62
<PAGE>
Company is presently discussing settlement of the remaining issues. These
consist of plaintiff's remaining claims consisting of its claim against Hergo
for copyright infringement and its claim against Hertz for contributing to
copyright infringement and Hergo's claims against plaintiff consisting of unfair
competition and violation of Sections 349 and 350 of the New York General
Business Law, dealing with deceptive acts and practices and false advertising.
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,
tortiously interfering with defendants business arrangement with the Government
of Israel. The Company believes that Hertz Computer has meritorious defenses to
the counterclaim. Moreover, 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 tortious conduct.
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.
63
<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 Flows for the Years Ended
August 31, 1995 and 1994 .............................................. F-5
Notes to Consolidated Financial Statements as of
August 31, 1995 and 1994 .............................................. F-6
Report of independent Public Accountants for Hertz Computer
Information System (1984) 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 Flows 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 and Stockholders of Hertz Technology Group, Inc.:
We have audited the accompanying consolidated balance sheet of Hertz Technology
Group, Inc. (a Delaware 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
1995 1994
------------ ------------
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
============ ============
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
============
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
1995 1994
----------- -----------
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
----------- -----------
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
Pro forma net income per share has been computed by dividing pro forma net
income by the weighted average number of shares of common stock outstanding
during the period as if the Company were recapitalized on September 14, 1994.
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, tortiously 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 tortious conduct.
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
On September __, 1996, the Company filed Amendment No. 1 to the registration
statement with the Securities and Exchange Commission to register approximately
1,100,000 units of common stock, $.001 par value per share at an expected IPO
price of $5.25 per unit and 1,100,000 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 $4,868,500 net of
commissions and offering expenses of $1,181,000.
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
audinting 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/ [Illegible]
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 liabilities 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)
NINE MONTHS ENDED
MAY 31,
-------
1996 1995
----------- -----------
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
=========== ===========
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
===========
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)
NINE MONTHS ENDED
MAY 31,
-------
1996 1995
--------- ---------
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
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 the
stockholders. 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 9, 1997. Presently, two short term loans totaling
$205,240 at May 31, 1996 are outstanding against this line of credit. These
loans were originally due on September 9, 1996, but were extended six months and
are presently due on March 9, 1997. The interest rate for the extension period
is the six month Libor rate plus 1.0%. 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
On August 7,1996, 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 August 6, 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 September 12,
1996, no options have been granted under the Option Plan.
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 securers 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 modification 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 which respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
1,100,000 Units
each Unit consisting of one
Share of Common Stock and
one Class A Warrant
and
1,100,000 Class A Warrants
HERTZ TECHNOLOGY GROUP, INC.
PROSPECTUS
BILTMORE SECURITIES, INC.
September ____, 1996
================================================================================
<PAGE>
[ALTERNATE PAGE FOR SELLING SHAREHOLDERS' PROSPECTUS]
SUBJECT TO COMPLETION, DATED SEPTEMBER ___, 1996
PROSPECTUS
HERTZ TECHNOLOGY GROUP, INC.
750,000 SHARES OF COMMON STOCK
This Prospectus relates to 750,000 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 HTGIW,
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 Units, each Unit consisting of one Share and one redeemable Class A
Warrant (the "Warrant") and 1,100,000 Warrants and up to 165,000 additional
Units and 165,000 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 $4,868,500 from the sale of
the Units and Warrants included in the underwritten public offering, and will
receive approximately $790,000 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 ......................................HTGIW
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) 1,100,000 Units, each unit consisting of one Share and one Warrant and
1,100,000 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 Units and 165,000 Warrants, (iii) the
Underwriter's Purchase Options to purchase up to 110,000 Units and 110,000
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."
2
<PAGE>
[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 Units and 1,100,000 Warrants and up to an additional 165,000 Units and
165,000 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 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.
<TABLE>
<CAPTION>
Shares Beneficially Number of Shares Shares Beneficially
Owned Prior to this Being Offered Owned After
Name(1) Offering For Sale(2) this Offering(2)
------- -------- ----------- ----------------
No. of Shares Percentage
------------- ----------
<S> <C> <C> <C> <C>
Eli E. Hertz ..................... 920,000 375,000 545,000 18.2%
I. Marilyn Hertz.................. 920,000 375,000 545,000 18.2%
Total............................. 1,840,000 750,000 1,090,000 36.3%
</TABLE>
- ----------
(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
4
<PAGE>
[ALTERNATE PAGE FOR SELLING SHAREHOLDER PROSPECTUS]
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 Securities Act of 1933, as amended (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
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 Securities Exchange Act of
1934, as amended (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 modification
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
September ____, 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
for 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 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 administrator; 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
II-1
<PAGE>
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 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 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 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."
II-2
<PAGE>
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 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 September 5, 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.
II-3
<PAGE>
(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.
Item 27. Exhibits
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement*
1.2 Form of Selected Dealer Agreement*
2.1 Form of Exchange Agreement
3.1A Certificate of Incorporation of the Company
3.1B Certificate of Amendement to 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 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
10.7 Agreement of Lease between Simon Trakinski
and William Trakinski and Hergo Ergonomic
Support Systems, Inc. for 26-58 Borough Place,
Woodside, NY 11377.***
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
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.***
10.11 Lease for premises in Ashdod, Israel.***
10.12 Revolving Credit Agreement dated as of June 28,
1995 by and between Hertz Computer Corporation
and Mizrachi Bank and Trust Company.*
10.13 Security Agreement dated June 28, 1995 between
Hertz Computer Corporation and United
Mizrachi Bank and Trust Company.*
10.14 Share Purchase Agreement, dated August 26,
1994, by and among Eli E. Hertz, Amir Rotlevi
and Hergo Ergonomic Support Systems, Inc.*
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).
</TABLE>
- ----------
* Filed with this amendement
** To be filed by amendment.
*** In accordance with Rule 202 of Regulation S-T, these documents are being
filed in paper pursuant to a continuing hardship exemption.
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 provided, however, that any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which is registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 24(b), if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective 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.
II-6
<PAGE>
(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, 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 September 17, 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 Amendment No.1 to the Registration Statement has been signed on
September 17, 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, Principal
- ----------------------------------- Accounting Officer and Director
Barry J. Goldsammler
II-8
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
- ------- ----------- ----------
1.1 Form of Underwriting Agreement*
1.2 Form of Selected Dealer Agreement*
2.1 Form of Exchange Agreement
3.1A Certificate of Incorporation of the Company
3.1B Certificate of Amendement to 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 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
10.7 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.***
10.11 Lease for premises in Ashdod, Israel.***
10.12 Revolving Credit Agreement dated as of June 28,
1995 by and between Hertz Computer Corporation
and Mizrachi Bank and Trust Company.*
10.13 Security Agreement dated June 28, 1995 between
Hertz Computer Corporation and United
Mizrachi Bank and Trust Company.*
10.14 Share Purchase Agreement, dated August 26,
1994, by and among Eli E. Hertz, Amir Rotlevi
and Hergo Ergonomic Support Systems, Inc.*
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).
- ----------
* Filed with this amendement
** To be filed by amendment.
*** In accordance with Rule 202 of Regulation S-T, these documents are being
filed in paper pursuant to a continuing hardship exemption.
<PAGE>
EXHIBIT 1.1
1,100,000 Class A Redeemable Common Stock Purchase Warrants
and
1,100,000 Units, each Unit consisting of
one (1) Share of Common Stock, par value $.001 per share
and
one (1) Class A Redeemable Common Stock Purchase Warrant
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
Units, each consisting of one (1) share of Common Stock, par value $.001 per
share ("Common Stock") and one (1) Class A Redeemable Common Stock Purchase
Warrant ("Warrants") and 1,100,000 additional Class A Redeemable Common Stock
Purchase Warrants ("Additional Warrants"). The Units and Additional Warrants may
be collectively referred to hereinafter as the "Securities". Each Warrant and
Additional 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
<PAGE>
purchase all or any part of an aggregate of 165,000 additional Units and 165,000
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:
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"
2
<PAGE>
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 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.
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(e) The shares of Common Stock underlying the Units, 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 Registration
Statement. The terms of the Common Stock conform to the description thereof in
the Registration Statement and Prospectus.
The Warrants and Additional Warrants (collectively, referred
to hereinafter as 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
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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.
(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.
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(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.
(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
6
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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 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
7
<PAGE>
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.
(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 $4.725 per Unit and $.225 per
Warrant, at the place and time hereinafter specified, 1,100,000 Units and
1,100,000 Additional 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 Units and 165,000 Additional Warrants to cover over
allotments at the same price per Unit and per Additional 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
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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.
(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
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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 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
10
<PAGE>
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 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
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<PAGE>
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 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.
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(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.
(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 securities of the Company 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
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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.
(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
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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 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
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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. 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.
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(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 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
underlying the Units, 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;
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(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 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
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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 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.
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(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.
(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
20
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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 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
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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.
(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.
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(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 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,
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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 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
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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 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
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<PAGE>
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 "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.
26
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(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 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.
27
<PAGE>
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 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
Units, each Unit consisting of one (1) share of Common Stock, par value $.001
per share and one (1) Class A Redeemable Common Stock Purchase Warrant, and
110,000 Additional Warrants. In the event of conflict in the terms of this
28
<PAGE>
Agreement and the Purchase Option with respect to language relating to the
Purchase Option, the language of the Purchase Option shall control.
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
29
<PAGE>
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.
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.
30
<PAGE>
By: ______________________
Name:
Title:
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
<PAGE>
EXHIBIT 1.2
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 CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
AND
1,100,000 UNITS CONSISTING OF
1,100,000 SHARES OF COMMON STOCK, $.001 PAR VALUE
AND
1,100,000 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 Units, each consisting of one (1) share of
Common Stock, $.001 par value per share ("Common Stock") of Hertz Technology
Group, Inc. (the "Company") and one (1) Class A Redeemable Common Stock Purchase
Warrant ("Warrant"), as well as 1,100,000 additional Class A Redeemable Common
Stock Purchase Warrants (the "Additional Warrants") (hereinafter, collectively
referred to as the "Securities"; including any Units and/or Additional Warrants
offered pursuant to an over-allotment option, the "Firm Securities"). Each
Warrant and Addiftional Warrant is exercisable to purchase one
<PAGE>
(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 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 $5.25 per Unit and $.25 per Additional 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
2
<PAGE>
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 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
3
<PAGE>
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.
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 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
you 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>
5
<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
6
<PAGE>
TO: Biltmore Securities, Inc.
6700 North Andrews Avenue
Suite 500
Fort Lauderdale, FL 33309
We hereby subscribe for_________Units, each consisting of one (1) share
of Common Stock, $.001 par value per share, and one (1) Class A Redeemable
Common Stock Purchase Warrant of Hertz Technology Group, Inc. and _______
additional 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
<PAGE>
EXHIBIT 4.1
HERTZ TECHNOLOGY GROUP, INC.
Incorporated Under the Laws of the State of Delaware
CUSIP: 42804Y 10 5
This certifies that
is the owner of
Fully paid and non-assessable shares of Common Stock of the par value
of $.001 per share of Hertz Technology Group, Inc., transferable on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney,
upon surrender of this Certificate, properly endorsed. This certificate is not
valid until countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated:
Secretary: President:
<PAGE>
EXHIBIT 4.2
[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. 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.
<PAGE>
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.
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
<PAGE>
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: ______________________________
[Seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: ______________________________
Its: Authorized Officer
[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
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____________________________________________
(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)
_________________________________
(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)
<PAGE>
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(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.
_________________________________
(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.
<PAGE>
EXHIBIT 4.3
Option to Purchase
110,000 Units
and
110,000 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 Units (the "Units") consisting of one
(1)share of Common Stock, par value $.001 per share ("Common Stock"), and one
(1)Class A Redeemable Common Stock Purchase Warrant ("Warrant") and 110,000
additional Class A Redeemable Common Stock Purchase Warrants (the "Additional
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
Units, the securities underlying the Units, and Additional 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 Units and 110,000 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 Units each consisting of one (1) share of Common Stock and
one (1) Class A Warrant and 1,100,000 Warrants (collectively, the "Public
Securities") through
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the Underwriter, in consideration of $110.00 received for the Option.
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 Units, the Common Stock and the Warrants included in
the Units, 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 Units and Warrants hereunder at prices of $6.30 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
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<PAGE>
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 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
3
<PAGE>
have authorized and reserved a sufficient number of shares of Common Stock for
issuance upon exercise of the Warrants included in the Option Securities.
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
4
<PAGE>
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 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
5
<PAGE>
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 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 Units 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
6
<PAGE>
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 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
7
<PAGE>
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 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
8
<PAGE>
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 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
9
<PAGE>
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 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
10
<PAGE>
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 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
11
<PAGE>
this Option by the Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(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
12
<PAGE>
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 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)
13
<PAGE>
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,_________Units of Hertz Technology Group, Inc., each Unit
consisting of one (1) Share of Common Stock, $.001 per value per share,and one
(1) Class A Redeemable Common Stock Purchase Warrant of Hertz Technology Group,
Inc. and _____ Additional Warrants and herewith makes payment of $______________
therefor, and requests that the Additional Warrants and certificates for Units
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 Units and Additional Warrants of Hertz Technology
Group, Inc., in the numbers set forth below represented by the foregoing Option
to the extent of _____ Units and____Additional 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:
<PAGE>
EXHIBIT 4.4
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 Units
("Units"), each Unit consisting of one (1) share of Common Stock, par value
$.001 per share, and one (1) Class A Redeemable Common Stock Purchase
Warrant(the "Warrants") in addition to 1,265,000 additional Class A Redeemable
Common Stock Purchase Warrants, (the "Additional 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
Units and 110,000 Additional 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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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 Units, which include up to 110,000 Warrants as well as
110,000 Additional 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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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 in Units
with shares of Common Stock as well as the Additional Warrants 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)
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upon surrender and cancellation thereof, the Company shall execute 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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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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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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<PAGE>
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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<PAGE>
(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
16
<PAGE>
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 contained in the Units and the Additional 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
17
<PAGE>
shall only be for the difference between 85% of the fair market
value and the issue or sale price; or
(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.
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<PAGE>
(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 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
19
<PAGE>
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have 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.
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.
<PAGE>
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.
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.
2
<PAGE>
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: ______________________________
[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)
_________________________________
(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:__________:
<PAGE>
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.
_________________________________
(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.
2
<PAGE>
EXHIBIT 5.1
[MORSE, ZELNICK, ROSE & LANDER, LLP LETTERHEAD]
(212) 838-8269
September 20, 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 (a) the Company of (i)1,100,000 Units, each
Unit consisting of one share of Common Stock and one Class A Warrant to purchase
a share of Common Stock (the "Warrants") (and the offering of an additional
165,000 Units if the over-allotment option is exercised; (ii) 1,100,000 shares
of Common Stock included in the Units (and an additional 165,000 shares if the
over allotment Option is exercised, (iii) 1,100,000 Warrants included in the
Units (and an additional 165,000 Warrants if the over-allotment option is
exercised), (iv) 1,100,000 shares of Common Stock issuable upon exercise of the
Warrants included in the Units (and an additional 165,000 shares if the
over-allotment option is exercised), (v) 1,100,000 Warrants not included in the
Units (and an additional 165,000 Warrants if the over-allotment option is
exercised), (vi) 1,100,000 shares of Common Stock issuable upon exercise of the
Warrants not included in the Units (and an additional 165,000 shares if the
over-allotment option is exercised), (vii) an option (the "Underwriter's Option)
to purchase 110,000 Units and 110,000 Warrants, (viii) 110, 000 Units issuable
on exercise of the Underwriter's Option, (ix) 110,000 shares of Common Stock
included in the Units underlying the Underwriter's Option, (x) 110,000 Warrants
included in Units underlying Underwriter's Option, (xi) 110,000 shares of Common
Stock issuable upon exercise of the Warrants included in the Units underlying
the Underwriter's Option, (xii) Warrants issuable upon exercise of the
Underwriter's Option (not included in the Units), (xiii) shares of Common Stock
issuable upon exercise of the Underwriter' Option (not included in Units), and
(b) certain shareholders of 750,000 shares of Common Stock, and any and all
amendments to the Registration Statement, and any Registration Statements for
additional shares of Common Stock, Warrants, Common Stock underlying the Units,
Warrants, Underwriter's Option, Common Stock underlying the Underwriter's
Warrants and Warrants underlying the Underwriter's Option pursuant to Rule
462(b) of the Act.
<PAGE>
Hertz Technology Group, Inc.
September 20, 1996
Page 2 of 4
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 Option, 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:
Each Unit and each share of Common Stock included in the Units being
offered, the Warrants, the Underwriter's Option, and the Common Stock underlying
the Units, the Warrants and the Underwriter's Option (including the Common Stock
underlying the Warrant underlying the Underwriter's Option) being offered
pursuant to the Registration Statement and all amendments thereto and any
Registration Statements pursuant to Rule 462(b) of the Act for additional Units,
shares of Common Stock, Warrants, the Underwriter's Option and Common Stock
underlying Warrants and the Underwriter's Option (including the Common Stock
underlying the Warrants underlying the Underwriter's Option) have been duly and
validly authorized for issuance and when issued as contemplated by the
Registration Statement or upon exercise of the Warrants or the Underwriter's
Option, 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 pursuant to Rule 462(b) of the Act for additional Units, shares of
Common Stock, Warrants, Underwriter's Option and Common Stock underlying
Warrants and the Underwriter's Option (including the Common Stock underlying
Warrants underlying the Underwriter's Option). 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 shares of Common Stock of the Company.
Very truly yours,
/s/Morse, Zelnick, Rose & Lander, LLP
MORSE, ZELNICK, ROSE & LANDER, LLP
<PAGE>
EXHIBIT 23.1
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.
/s/ Arthur Andersen LLP
New York, New York
September 18, 1996
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF SHLOMO ZIV & CO.]
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.
Sincerely,
/s/ Shlomo Ziv & Co.
Shlomo Ziv & Co.
certified Public Accountants (Isr.)
September 18, 1996
