SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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|_| Definitive Proxy Statement
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|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
HERTZ TECHNOLOGY GROUP, INC.
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
Not Applicable
________________________________________________________________________________
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HERTZ TECHNOLOGY GROUP, INC.
75 Varick Street, 11th Floor
New York, New York 10013
August __, 2000
To our stockholders:
You are cordially invited to attend a special meeting of stockholders of Hertz
Technology Group, Inc. This meeting will be held at Hertz's headquarters at 75
Varick Street, 11th Floor New York, New York 10013 on _______, 2000 at 10:00
a.m., Eastern Daylight time.
At the meeting, we will ask you to vote on a proposal to combine our company
with Return Assured.com, Inc., which was formerly known as A Sure eCommerce,
Inc. If the merger proposal is approved, the former shareholders of Return
Assured will own approximately 68% of the combined company and you collectively
will own about 32% of the combined company. The percentage ownership of both
groups of shareholders may be further reduced by conversion into common stock of
shares of convertible preferred stock to be issued to an investor which is
providing $5 million in financing when the merger closes, and by various options
and warrants granted both to the investor and to various Return Assured
employees and consultants. The proposed merger is structured as an acquisition
of Return Assured by Hertz, but the name of the combined company will be changed
to "Return Assured.com, Inc." after the merger.
After careful consideration, our board of directors unanimously approved this
proposed merger and determined the merger to be fair and in the best interests
of Hertz and you, our stockholders. Our board of directors has approved the
issuance of shares of Hertz common stock in the merger, and adopted Hertz's
amended and restated certificate of incorporation.
Our board of directors unanimously recommends a vote FOR each proposal to be
voted upon at the meeting.
A notice of the meeting and a proxy statement relating to the proposed merger is
enclosed. The proxy statement describes each proposal in detail and presents
significant related information. I urge you to read it carefully.
It is important that you use this opportunity to take part in the affairs of
Hertz by voting on the business to come before this meeting. Whether or not you
expect to attend the meeting, please complete, date, sign and promptly return
the accompanying proxy in the enclosed postage-paid envelope so that your shares
may be represented at the meeting. Your vote is very important. Returning the
proxy does not deprive you of your right to attend the meeting and to vote your
shares in person.
You will not be required to exchange your Hertz stock certificates for stock
certificates of the combined company. PLEASE DO NOT SEND YOUR STOCK
CERTIFICATES.
Sincerely,
<PAGE>
/s/ Eli E. Hertz
Eli E. Hertz, President and Chief Executive Officer
This document is being first sent to stockholders on or about August ___, 2000
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HERTZ TECHNOLOGY GROUP, INC.
75 Varick Street
11th Floor
New York, New York 10013
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS to be held September ___, 2000 at
10:00 a.m.
To our stockholders:
Hertz Technology Group, Inc. will hold a special meeting of its stockholders at
its headquarters at 75 Varick Street, 11th Floor, New York, New York on
September ____, 2000 at 10:00 a.m., Eastern Daylight time. At the meeting, you
will be asked:
1. To approve the issuance of shares of Hertz common stock in connection with
our proposed merger with Return Assured.com, Inc., including the issuance of the
shares that may be issued on conversion of the proposed Series A Convertible
Preferred Stock;
2. To adopt Hertz's amended and restated certificate of incorporation, which
will:
o change the name of the corporation from Hertz Technology Group, Inc.
to Return Assured.com, Inc.;
o increase the authorized number of shares of common stock to
50,000,000;
o create a new class of 1,000,000 shares of "blank check" Preferred
Stock and empower the Board of Directors to authorize the issuance
of one or more classes of that Preferred Stock, or one or more
series of any such class, and to fix the preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof for each such class or series;
and
3. To increase the number of shares of common stock that may be issued under
Hertz's incentive stock option plan from 750,000 shares to 2,250,000.
We do not anticipate that any other matter will be presented for action at the
meeting. If any other matters are properly brought before the meeting, the
persons named in the proxies will have discretion to vote on these matters in
accordance with their respective judgments.
These proposals are more fully described in the proxy statement that accompanies
this notice. You should read this document carefully.
Only Hertz stockholders of record at the close of business on September ___,
2000 are entitled to notice of and to vote at the meeting or at any adjournment
of the meeting.
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By Order of the Board of Directors of Hertz Technology Group, Inc.
/s/
-----------------------------------
I. Marilyn Hertz, Secretary
New York, New York August __, 2000
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TABLE OF CONTENTS
Summary......................................................................1
Summary of the Transaction...................................................3
Hertz Market Price Information..............................................10
Financial Information.......................................................|_|
Other Factors to be Considered..............................................11
The Hertz Meeting...........................................................20
The Merger Agreement........................................................33
Financing Arrangements--Sale of Preferred Shares............................41
Related Agreements..........................................................42
Per Share Market Price Data.................................................44
Financial Statements of Return Assured......................................|_|
Unaudited Pro Forma Condensed Combined Consolidated Financial Statements....45
Stockholder Proposals.......................................................47
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SUMMARY
All three of the proposals we are asking you to approve are related to a
proposed merger of Return Assured.com, Inc. a Nevada corporation, into a newly
created subsidiary of Hertz.
The Companies
Hertz Technology Group, Inc.
75 Varick Street, 11th Floor, Suite 100
New York, New York 10013 (212) 634-4000
Hertz Technology Group, Inc., headquartered in New York City, provides computer
based technical products and services. These include:
o an array of internet and network services and solutions, including
web related services, networking services and computer systems
integration;
o ergonomically engineered modular technical computer furniture;
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o PCs and related products; and
o rental of computerized training facilities.
In this proxy statement "we" refers to Hertz Technology Group, Inc. when
speaking of the time before the proposed merger is completed, and of the
combined company created by the merger when speaking of the time after the
merger is completed.
Return Assured.com, Inc.
885 West Georgia, Suite 2240
Vancouver, BC Canada V6C 3E8
Return Assured intends to provide a service that will guarantee customers who
order products through the web sites of merchant members that they will get the
product and that the merchant will honor its stated return policies. It was
founded in 1999 and is in the early stages of implementing its business plan. It
has not conducted any business or received any revenue to date and has incurred
losses through May 31, 2000 of $621,958. We have received and reviewed a copy of
Return Assured's business plan, but statements in this proxy statement as to the
intentions of Return Assured are based solely on information supplied to us by
that company.
According to a study by PriceWaterhouseCoopers, 80% of online shoppers "drop"
their shopping carts or fail to complete their online purchase for two reasons:
o Online shoppers are wary of the security risk of sending their
credit card number over the public internet; and
o Online shoppers are unsure, as in the mail order catalogue business,
that internet retailers will accept return of a product if it is
unacceptable to the consumer.
Return Assured's plan is intended to deal with the second of these issues. Its
plan is to provide a "Return Seal of Approval" logo to those e-commerce sites
that meet its criteria. If a customer orders from the site displaying this logo
Return Assured will provide assurance that the product will be delivered and
that the merchant displaying the logo will honor its stated return policies.
When a merchant applies for the Return Assured logo, Return Assured will perform
a credit check through Dun & Bradstreet and/or other sources such as the Better
Business Bureau, to verify the financial and credit standing of the merchant.
Depending on the results of its initial
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credit investigation, the merchant may be approved immediately, approved after a
review by senior management or questioned about the reasons for any adverse
financial or credit standing. Those merchants who are ultimately approved will
be authorized to display the Return Assured logo on their e-commerce web sites.
The logo itself remains on Return Assured's computers for each merchant, and the
merchant displays the logo by linking to the file from his web site. Certificate
based web mark companies like VeriSign and eTrust employ the same technology.
Return Assured will require all approved merchants, as a condition for approval,
to provide Return Assured with a copy of their current merchandise return
policies, and to ship their products on carriers which Return Assured has
approved. These carriers must provide for online tracking of shipments made by
them. Return Assured is notified each time a customer places an order through
the site on which its logo is displayed, and receives shipping information from
the merchant which will allow Return Assured to track the merchandise through
the delivery process. Return Assured is installing software to allow the
tracking to be done automatically. A customer who has not received merchandise
he orders can contact Return Assured and quickly determine the status of the
shipment. Delivery problems will be followed up with the carrier. If the
shipment has not yet been made, Return Assured will contact the merchant to
determine why and to resolve any outstanding issues.
If the customer wants to return merchandise he has ordered, Return Assured will
initially direct the customer to contact the merchant directly for a return
merchandise authorization number and to return the merchandise directly to the
merchant. If the customer has already contacted the merchant without success,
Return Assured's service representative will review the merchant's return
policies to see whether the return would be consistent with those policies. If
not, Return Assured will tell the customer that the return is not covered. If
the return is covered, Return Assured will contact the merchant to determine
whether there was a valid reason for refusal to accept the return. It will tell
the merchant that if the reason is not satisfactory, the merchant risks losing
the Return Assured logo for its site. If Return Assured is unable to persuade
the merchant to honor a valid claim, Return Assured will direct the customer to
return the merchandise to Return Assured with a claim form. On verifying that
the return is in order, Return Assured will mail its own refund check to the
customer. It will then dispose of the merchandise either by trying to sell it
for its salvage value or by donating it to a charity. It may then seek to
recover from the merchant the amount it has reimbursed the customer.
Since the Return Assured logo will be located and controlled on Return Assured's
computers, rather than on the merchant's site, Return Assured will be able to
immediately remove its logo from the site of any merchant which Return Assured
determines is not making prompt delivery of goods that are ordered, or is not
complying with its stated return policy.
Return Assured's insurance policy.
Return Assured has purchased a "cyber liability" insurance policy from Hiscox
Syndicate 33 of Lloyd's of London. As a result, it is authorized to display the
Lloyd's of London logo together with its own logo on the merchant's web site.
The policy and logo are intended to develop and build an image of stability and
reliability. The customer will not have a claim directly against the
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Lloyd's syndicate under the policy. Instead, Return Assured will have a claim to
the extent that the policy covers Return Assured's own liability to the
customer.
The policy does not insure against every failure of a merchant to honor its
return commitments. Rather, it insures against negligence on the part of Return
Assured in selecting the merchants entitled to display its logo or in monitoring
the merchant's compliance with its obligations. The policy has a deductible of
$2 million as to any merchant, so that Return Assured will have to bear the
first $2 million of an exposure.
Return Assured revenue source.
Return Assured will charge the merchant for its services based on the number of
orders placed through the merchant's site. The amount of the charge will depend
upon a variety of factors including the value of the item, the merchant's retail
sector, years in business, and whether the merchant has a physical location.
Generally the charge will range from $.25 to $1.00 per transaction.
Summary of the Transaction
The Merger
If the merger is completed, Return Assured will become a wholly-owned subsidiary
of Hertz and will change its name. Hertz's name will be changed to "Return
Assured.com, Inc." effective upon the closing of the merger.
The merger agreement is attached to this document as Annex A. We encourage you
to read the merger agreement carefully. For a more complete description of the
merger agreement, see the section entitled "The Merger Agreement" beginning on
page 33.
Merger Financing
When the merger becomes effective, GEM Global Yield Fund Limited will purchase
$5 million of a newly created Series A Preferred Stock and a warrant to purchase
a number of additional shares of common stock determined by dividing $1 million
by the average per share market value of Hertz's common stock for the five
trading days immediately prior to the closing.
Potential benefits
In deciding to recommend the merger, we gave serious consideration to Hertz's
present business and the future prospects of its divisions, including
o the fact that both computer hardware and communications services are
intensely competitive and have become essentially commodities, and
o the fact that our business of providing modular systems for easy
access to microcomputers and related equipment is becoming a
relatively mature business and increasingly competitive
We also discussed with an investment banking firm hired for the purpose whether
the proposed transaction was fair to Hertz's stockholders from a financial point
of view.
We believe the merger will provide the combined company with the opportunity to
realize several benefits, including the potential to:
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o quickly enter the rapidly expanding market for services relating to
electronic commerce;
o build on Hertz's technological expertise in the areas of networking,
internet web based services, and communications services by
expanding to complement Return Assured's expertise in the area of
e-commerce; and
o improve our access to capital because the field of electronic
commerce is believed by many to offer greater potential for
expansion than our present core businesses.
Risks
Risks associated with the merger include:
o additional and continuing charges to Hertz's future earnings as a
result of both the need to amortize goodwill created by the
accounting treatment of the transaction and the compensation and
bonus payable to Eli E. Hertz under the proposed employment
agreement with Hertz's Hergo subsidiary;
o possible reduction of Hertz's working capital because of the
expected redemption of shares from Eli E. Hertz;
o the possibility that the demand for Return Assured's proposed
service of providing assurance that online merchants will deliver
their products and honor their return policies may be less than the
parties expect;
o the possibility that the number of shares of outstanding common
stock of the combined company's may increase more than expected
because the conversion price of the preferred stock to be issued in
financing the merger is not fixed, but is determined based on the
market value of the common stock at the time of conversion;
o the possibility that Hertz may be required to pay liquidated damages
in an amount that would force it to go out of business if Hertz is
unable to maintain the effectiveness of a registration statement
under the Securities Act of 1933 covering resale of common stock
issuable on conversion of the Series A Preferred stock or otherwise
does not comply with agreements it is making with holders of that
preferred stock;
o the possibility that if Return Assured's business plan is successful
other companies with more resources and greater name recognition may
enter the field and compete in its business;
o The possibility that continuing charges for write-offs of goodwill
resulting from the transaction may make it more difficult for Hertz
to obtain financing in the future;
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o the technical, operational, managerial and personnel-related
challenges of integrating the two companies;
o the possibility that one or more States could determine that Return
Assured's proposed business is insurance; and
o the possible loss of key employees as a result of the merger.
Please refer to the risks described in "Other Factors to be Considered" on page
11, and the sections entitled "The Merger-- Hertz's reasons for the merger" on
page 26.
No other negotiations
Until the merger is completed or the merger agreement is terminated, each of
Hertz and Return Assured has agreed, with limited exceptions, not to take any
action, directly or indirectly, with respect to an acquisition proposal, as
defined on page 35 of this document.
If either of us receives an unsolicited, written, bona fide acquisition proposal
before the date of our stockholders' meeting that our board reasonably concludes
is financially superior to the merger, that company may furnish non-public
information regarding it and may enter into discussions with the person or group
who has made the acquisition proposal if it provides written notice to the other
company and follows other specified procedures.
We each have agreed to inform the other promptly as to any acquisition proposal,
request for non-public information or inquiry which we believe would lead to an
acquisition proposal. Hertz and Return Assured each has agreed to inform the
other of the status and details of any acquisition proposal.
Either of our boards may terminate the merger agreement if it receives an
acquisition proposal which, it determines, it is required to accept as a result
of its fiduciary obligations under applicable law, after negotiations with the
other party and after considering all concessions which may have been offered by
the other party.
For a more complete description of these limitations on each of our actions with
respect to an acquisition proposal, please refer to the sections entitled "The
Merger Agreement--No other negotiations," on page 34"--Termination of the merger
agreement" on page 39 and "--Termination Fee" on page 40 of this document and
the corresponding sections of the merger agreement.
Conditions to closing the merger
Each company's obligations to complete the merger are subject to the prior or
simultaneous satisfaction or waiver of several conditions. The conditions that
must be satisfied or waived before the merger can be completed include the
following, subject to exceptions and qualifications:
o we and Return Assured must obtain all required government approvals;
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o the merger agreement must be adopted and approved by the Return
Assured stockholders;
o the proposal to issue shares of Hertz common stock in the merger and
to adopt Hertz's amended and restated certificate of incorporation,
as described in this document, must be approved by the holders of
the shares of Hertz common stock outstanding as of the record date;
o the combined company must purchase from Eli E. Hertz and I. Marilyn
Hertz an aggregate of $1,025,000 of common stock at a price equal to
the greater of $3.25 or 90 percent of the average closing bid price
for the 10 trading days prior to closing;
o GEM Global Yield Fund Limited must purchase $5 million in Series A
Preferred Stock simultaneously with the closing;
o several of our officers and directors must enter into employment or
consulting agreements;
o the respective representations and warranties of Hertz and Return
Assured in the merger agreement must be true and correct in all
material respects;
o each of the companies must comply in all material respects with our
respective agreements in the merger agreement;
o we must each obtain all required consents, waivers and approvals
required in connection with the consummation of the merger;
o no material adverse change must have occurred with respect to Hertz
or Return Assured;
o Return Assured must have completed a number of specified steps to
evidence its ability to carry out its business plan.
Some of the conditions may be waived by Hertz and some may be waived by Return
Assured. For a more complete description of the conditions to closing the
merger, see the section entitled "The Merger Agreement--Conditions of all
parties to closing the merger, Conditions to Return Assured's Obligations" and
"Conditions to Hertz's obligations" on pages 37 and 38.
Votes required for approval
The vote of holders of a majority of the shares of Hertz common stock
outstanding as of September __, 2000, the record date, is required to approve
the proposal to adopt Hertz's amended and restated certificate of incorporation.
The vote of holders of a majority of the common stock present and voting at the
meeting is required to approve the proposals to issue Hertz common stock in the
merger, and to amend Hertz's incentive stock option plan to increase the number
of shares which may be issued under the plan by 1,500,000. Hertz stockholders
holding approximately 31.2% of the outstanding shares of Hertz common stock as
of the record date have given a proxy to vote all of their shares of Hertz
common stock in favor of all three proposals. In addition, KGL Investments, Ltd.
and another stockholder have indicated to us that they intend to vote the 19.8
percent of the outstanding shares of Hertz in favor of the proposals. As a
result, assuming
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these stockholders vote as they have indicated, no additional shares will be
required to approve the proposals.
For a more complete description of the votes required for approval of the merger
see the sections entitled "The Hertz Meeting--Vote and Quorum Required" on page
20.
Termination of the merger agreement
The merger agreement may be terminated under specified circumstances at any time
prior to closing the merger, as follows:
o by our mutual consent;
o by either of us, if the merger is not completed by November 10, 2000,
except that this right is not available to any party whose breach of the
merger agreement resulted in the failure of the merger to occur by this
date;
o by either of us, if an order, decree or ruling of a governmental entity
prohibiting the merger is issued and not appealable;
o by either of us, upon a breach of any of the other party's obligations
under the merger agreement if the breach would reasonably be expected to
result in failure of the terminating party's obligations to complete the
merger and the breach is not cured within 20 days (unless specified
otherwise) after notice of the breach;
o by either of us if the required approvals are not received from our
stockholders;
o by either of us if its Board of Directors determines that its fiduciary
obligations under applicable law requires that another acquisition
proposal be accepted; or
o by either of us if the other party's Board of Directors withdraws its
recommendation of the merger agreement or recommends or issues a neutral
recommendation with respect to an alternative acquisition proposal.
For a more complete description of the manner in which the merger agreement may
be terminated, see the section entitled "The Merger Agreement--Termination of
the merger agreement" on page 39.
Termination fee
If the merger agreement is terminated
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o by Return Assured because Hertz has failed to comply with its obligations
under the merger agreement;
o by Return Assured because Hertz's board has changed or withdrawn its
recommendation to its stockholders in favor of the merger-related
proposasl;
o by Hertz because the Hertz stockholders have failed to approve the merger;
or
o by Hertz because its Board of Directors has determined its fiduciary
obligations require acceptance of an alternative proposal by a third
party;
then Hertz is required to pay Return Assured a termination fee of $500,000.
In addition, if we decide to accept an alternate acquisition proposal or if the
Board of Directors withdraws its recommendation (without a violation of the
contract by Return Assured that would entitle us to cancel the contract), or if
we do something purposefully or in bad faith to prevent the merger, we will be
required to pay Return Assured an additional termination fee of $500,000.
If the merger agreement is terminated
o by Hertz because Return Assured has failed to comply with its obligations
under the merger agreement;
o by Hertz because Return Assured's board has changed or withdrawn its
recommendation to its stockholders in favor of the merger-related
proposasl;
o by Return Assured because the Return Assured stockholders have failed to
approve the merger; or
o by Return Assured because its Board of Directors has determined its
fiduciary obligations require acceptance of an alternative proposal by a
third party;
then Return Assured is required to pay Hertz a termination fee of $500,000.
In addition, if Return Assured decides to accept an alternate acquisition
proposal or its Board of Directors withdraws its recommendation (without a
violation of the contract by us that would entitle Return Assured to cancel the
contract), or if Return Assured does something purposefully or in bad faith to
prevent the merger, Return Assured will be required to pay us an additional
termination fee of $500,000.
For a more complete description of the payment of the termination fee, see the
sections entitled "The Merger Agreement--Termination Fee" on page 40.
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Accounting treatment of the merger
We intend to account for the merger as a purchase for financial reporting and
accounting purposes, in accordance with generally accepted accounting
principles. After the merger, Hertz's tangible assets will be reflected on the
balance sheet of the combined companies at their fair market value as of the
time of closing and the excess of the market price of the Hertz shares being
issued in the merger over the fair market value of those assets will be carried
on the combined company's balance sheet as goodwill, which must be written off
to earnings over a period of not more than 15 years.
Interests of executive officers and directors in the merger
When considering the recommendations of Hertz's boards of directors, you should
be aware that the directors and executive officers of Hertz have interests in
the merger and have arrangements that are different from those of Hertz
stockholders generally. These may represent conflicts of interest. They include:
o To induce Hertz's two controlling stockholders to enter into the
merger agreement, Return Assured arranged for three investors to
purchase an aggregate of 300,000 shares from them on signing the
merger agreement, at a price of $2.00 per share. Under the letter of
intent that preceded the merger agreement, this purchase was a
condition to signing the merger agreement.
o Hertz's two controlling stockholders will sell $1,025,000 in common
stock to the combined company at the time of closing. One of the
controlling stockholders will also enter into a five-year employment
agreement with the combined company's Hergo subsidiary under which
he will receive an annual salary of at least $250,000 (approximately
his present salary) plus incentive compensation of 25% of total
gross profit on sales of the subsidiary. He will also enter into a
two-year consulting agreement with the combined company under which
he will receive $125,000 per year and additional fringe benefits,
and will receive a commission on any sale of some of our
subsidiaries if they are sold within 4 years.
o Barry Goldsammler, Hertz's Executive Vice President, will enter into
a one-year employment agreement with the combined company under
which he will receive an annual salary of $125,000 (approximately
his present salary) and additional fringe benefits.
o I. Marilyn Hertz, Hertz's Vice Chairperson, will enter into a
five-year employment agreement with the combined company's Hergo
subsidiary under which she will receive an annual salary of $95,000
and additional fringe benefits.
o Hertz's Board of Directors has authorized the vesting of presently
outstanding options held by some of Hertz's officers, directors and
key employees in the discretion of Mr. Hertz.; and
o Hertz's directors and executive officers have customary rights to
indemnification against specified liabilities.
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As a result, these directors and executive officers could be more likely to vote
to approve the proposals than if they did not hold these interests. For a more
complete description of the interests of persons in the merger, see the section
entitled "The Merger--Interests of executive officers and directors in the
merger" on page 29 and "Related Party Transactions" on page 46.
Appraisal and dissenters' rights
Under Delaware law, Hertz stockholders are not entitled to appraisal or
dissenters' rights in the merger.
Restrictions on selling Hertz common stock received in the merger
All shares of Hertz common stock received by Return Assured shareholders in the
merger will be "restricted securities" under the Securities Act of 1933. We have
agreed to register the resale of those shares. An aggregate of 400,000 shares of
Hertz common stock sold to several investors (including an affiliate of the law
firm representing Return Assured) before or at the time of signing the merger
agreement are also restricted securities, but Hertz has agreed to register the
sale of the securities under the Securities Act of 1933 before the merger
becomes effective. Accordingly those shares will be freely salable subject to
the prospectus delivery requirements of the Securities Act. For a more complete
description of transfer restrictions applicable to Return Assured affiliates,
see the section entitled "The Merger--Restrictions on sales of shares of Hertz
common stock issued in the merger" on page 32.
HERTZ MARKET PRICE INFORMATION
Hertz's common stock is quoted on the Nasdaq Small Cap Market. On July 19, 2000,
the last full trading day prior to the public announcement of the proposed
merger, Hertz's common stock closed at $3.50 per share. On August 21, 2000,
Hertz's common stock closed at $2.53 per share. We urge you to obtain current
market quotations. "Per Share Market Price Data" on page 44.
This summary may not contain all of the information that is important to you.
You should read carefully this entire document and the other documents we refer
to for a more complete understanding of the merger. In particular, you should
read the annexes to this document, including the merger agreement, the stock
purchase agreement relating to the Series A Preferred Stock to be issued in
connection with the merger and the certificate of amendment to Hertz's
Certificate of Incorporation.
FINANCIAL INFORMATION
HERTZ MANAGEMENT'S DISCUSSION AND ANALYSIS FISCAL YEARS ENDED AUGUST 31, 1999
AND 1998 AND NINE MONTHS ENDED AUGUST 31, 2000 AND 1999
Year Ended August 31, 1999 compared to Year ended August 31, 1998
Revenues
Our sales for the year ended August 31, 1999, were $6.88 million, compared
to $9.40 million for the year ended August 31, 1998, a 27% decrease. A
substantial portion of the reduction in sales was attributed to the decline in
computer sales. For the year ended August 31, 1999 the Hergo Group sales were
$5,305,000 compared to sales of $4,933,000 for the year ended August 31, 1998,
an increase of $372,000 (7.5%). Sales of the Technology Group were $1,576,000
for the year ended August 31, 1999 compared to $4,470,000 for the year ended
August 31, 1998 a decrease of $2,894,000 or 65%. RemoteIT.com was acquired on
March 1, 1999 and contributed $558,000 in sales.
We believe that the newly formed subsidiary RemoteIT.com, together with the
Hergo Group, currently offers the best opportunities for future growth.
RemoteIT.com is providing networking and communications products and services,
Internet connectivity, Web development, and other value-added services. The
recent partnering with NorthPoint Communications and Bell Atlantic are steps
that have been taken to provide the latest available technologies in
communications and networking services. The PC hardware market has become
increasingly competitive and over-saturated and we are directing our efforts in
computer hardware manufacturing primarily to support the integration and
networking business generated by RemoteIT.com. We are is also directing our
resources to expanding Hergo's national presence through better distribution
channels within the reseller and dealer marketplace and expanding the product
line to include products currently in high demand such as data and
communications cabinets and enclosures. To this end we have invested
considerable resources in our acquisition of precision CNC laser and other
advanced fabricating machinery.
Gross Profit
Overall Gross profit in dollars and as a percentage of sales increased
<PAGE>
substantially during the year ended August 31, 1999 as compared to the year
ended August 31, 1998 despite the large reduction in sales. Gross profit was
$3,339,000 (49% of net sales) for the year ended August 31, 1999 as compared
with $2,943,000 (31% of net sales) for the year ended August 31, 1998, an
increase of $396,000 (13%).
Improved profit margins from the Hergo Group for the year ended August 31, 1999
were a result of efficiencies gained with new machinery and the reduction of the
costs needed to start the LAN production operation when the division was
acquired in the quarter ended February 28, 1998. Gross profit generated from the
Hergo Group for the year ended August 31, 1999 was $2,991,000 (56% of net sales)
compared to $2,567,000 (52% of net sales) for the year ended August 31, 1998.
Gross profit generated from the Technology Group for the year ended August 31,
1999 was $348,000 (22% of sales) compared to $376,000 (8% of sales) for the same
period last year.
Gross Profit increased despite the fact that sales decreased for the current
year as compared to sales for the year ended August 31, 1998. The addition of
the RemoteIT.com division contributed to the increase in the profit margin. This
is consistent with our intent on reducing the hardware portion of our technology
business in favor of a greater emphasis on service-related business. Also
contributing to our increase in Gross Profit was a full year of Edutec sales and
its higher profit margins.
<PAGE>
Selling, General and Administrative
Selling, general, and administrative expenses decreased for the year ended
August 31, 1999 compared to the year ended August 31, 1998 by $125,000 (3%). The
improvement, in light of the addition of RemoteIT.com and its associated
expenses, makes the decrease that much more positive.
Administrative expenses were impacted by the reduction of bad debt reserve,
legal expenses, consulting fees and the payment in the prior fiscal year of
final income taxes (with associated increases in accounting fees) in reference
to the closing of the Hertz Israel entity. Also, in the previous year, our stock
was issued to an employee, which resulted in compensation expense, and was not
repeated in the current fiscal year's expenses. Selling expenses were trimmed in
various areas. The number of trade shows was reduced to include only those that,
we believed, have the greatest direct impact on sales. Actual exhibit expenses
and all associated logistics costs, including some marketing and administrative
costs, were eliminated as a result.
Increased expenses included sales and administrative salaries related to the
RemoteIT.com acquisition as well as advertising (including Web site design of
RemoteIT) and various types of general and administrative expenses. General and
administrative expense increases included additional costs associated with
investigating possible business ventures as well as improvement of employee
benefits plans.
Other Income (Expense):
Other expense for the year ended August 31, 1999 was $7,000 compared to Other
Income of $32,000 for the year ended August 31, 1998. The income that was
recorded in the previous year was primarily due to an insurance claim and the
return of options by an outside consultant.
Net Interest Income for the year ended August 31, 1999 decreased by $81,000 as
compared to the comparable year ended August 31, 1998. The decrease in interest
income for the year just ended was primarily due to the reduction of marketable
securities. These securities were sold for cash flow needs that included
purchase of equipment, software development costs, purchase of treasury stock
and repayment of notes payable.
Provision for Income Taxes
We recorded a provision for taxes of $110,000 for the year ended August 31, 1999
as compared to a tax benefit of $176,000 for the year ended August 31, 1998. We
felt we should reduce the deferred tax asset by $110,000 in the interest of
conservatism. Our net operating loss carry forward will reduce our taxes on
future profits.
Net Income and Earnings Per Share
Operation results improved compared to last year. Operations before Interest,
Taxes, Depreciation, and Amortization (IBITDA), showed a $748,000 increase in
profitability when compared to the year ended August 31, 1998. For the year
ended August 31, 1999, IBITDA showed a loss of $177,000 or $.08 per share
compared to a loss of $925,000 or $.43 a share for the year ended August 31,
1998.
The net loss for the year ended August 31, 1999 was substantially
<PAGE>
reduced with a loss of 695,000 or $.33 per share compared to a loss of $810,000
or $.38 per share for the year ended August 31, 1998.
Nine Months Ended May 31, 2000 compared to Nine Months Ended May 31, 1999
Revenues
Net sales for the nine months ended May 31, 2000 were $4.95 million compared to
$5.01 million for the nine month period ended May 31, 1999, a 1% decrease.
The Hergo Group sales for the nine months ended May 31, 2000 were $3,884,000
compared to $3,907,000 for the nine month period ended May 31, 1999, a 1%
decrease.
For the nine months ended May 31, 2000 Technology Group sales were $1,062,000
compared to $1,101,000 for the nine months ended May 31, 1999, a decrease of 4%.
The decrease in volume is attributed to the reduced emphasis by us on the
personal computer line of business which is generating negative margins.
Gross Profit
Gross profit was $1,982,000 (40% of net sales) and $2,388,000 (48% of net sales)
for the nine months ended May 31, 2000 and May 31, 1999, respectively, a
decrease of $406,000.
Gross profit generated from the Hergo division for the nine months ended May 31,
2000 was $1,822,000 (47% of net sales) compared to $2,163,000 (55% of net sales)
for the nine months ended May 31, 1999. Several factors contributed to lower
gross profit for the period. Among them was higher labor and utilities costs as
well as increased costs of depreciation and amortization. During the third
quarter substantial maintenance contracts were established to cover the highly
computerized technical equipment purchased in the past year. The costs of the
contracts and the depreciation on the same machines were substantial. The
additional machinery, however, is expected to increase efficiency and in the
long run should help in reducing labor cost associated with the equipment.
During the quarter ended May 31, 2000 we reduced the carrying value of some of
our inventory due to obsolescence and design changes. The amount of the write
down of the inventory was in excess of $75,000. The combination of the increases
of these expenses amounted to $225,000, for the nine month periods ended on May
31, 2000.
Gross profit for the Technology Group for the nine months ended May 31, 2000 was
$160,000 (15% of net sales) compared to gross profit of $ 225,000 (20% of net
sales) for the nine-month period ended May 31, 1999. Many of the costs of this
group are fixed in nature and the group's low volume of sales of products and
services resulted in the high Cost of Sales. This result was further aggravated
during the previous quarter by the expenses incurred in connection with the DSL
product and the completion of the collocation program. The communication costs
incurred for these projects was $118,000 for the nine month period.
Selling, General and Administrative
Selling, general and administrative expenses increased by $201,000 for the nine
months ended May 31, 2000 compared to the nine months ended May 31, 1999.
Among the increases in expenses for the nine months ended May 31, 2000 was a
marketing test program promoting DSL services. This marketing test program
included radio advertising, print, Internet and telemarketing campaign at costs
exceeding $72,000. Additional costs were incurred in purchasing , installing,
and customizing a new accounting system.
Other Income (Expense):
Other expense for the nine months ended May 31, 2000 was $26,000 compared to
other expense of $7,000 for the comparable period last year. The largest
component of the other expense was the large expense incurred in the disposal of
obsolete and redundant equipment.
Net interest income for the nine months ended May 31, 2000 decreased by $26,000
for the comparable period last year. The decrease in interest income was
primarily due to the reduction of marketable securities balances.
Provision for Income Taxes
For accounting purposes we wrote off our deferred tax asset of $136,000 during
the quarter ended May 31, 2000. Because of this, and because we had recorded a
$34,000 tax benefit in the nine months ended May 31, 1999, total provision for
taxes increased by $170,000 for the nine months ended May 31, 2000.
Net Income and Earnings Per Share
Operations for the nine months ended May 31, 2000 resulted in a loss of
approximately $1,289,000 or $.61 per share compared to a loss of approximately
$467,000 or $.22 per share for the comparable period last year.
Liquidity and Capital Resources
For the nine months ended May 31, 2000, we had cash provided by operations of
$604,000 as compared to $507,000 for the comparable period last year. In the
current year the bulk of the cash provided was generated from the sale of
marketable securities.
Net purchases of fixed assets for the nine months ended May 31, 2000, were
$142,000 as compared to $272,000 for the nine months ended May 31, 1999. In
addition, we had incurred $100,000 of expenses in software development costs
during the nine months ended May 31, 2000.
As of May 31, 2000, we had working capital of $1,868,000 of which $1,012,000 was
in cash and marketable securities, which are available to fund our operations
<PAGE>
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Independent Auditor's Report F-2
Report of Independent Public Accountants F-3
Consolidated Financial Statements:
Balance Sheet F-4
Statement of Operations F-5
Statement of Shareholders' Equity F-6
Statement of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
Hertz Technology Group, Inc.
We have audited the accompanying consolidated balance sheet of Hertz Technology
Group, Inc. and Subsidiaries as of August 31, 1999, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year then
ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hertz Technology
Group, Inc. and Subsidiaries as of August 31, 1999 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 21, 1999
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Hertz Technology Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Hertz Technology
Group, Inc. and Subsidiaries as of August 31, 1998, and the related consolidated
statement of operations, shareholders' equity, and cash flows for the year then
ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hertz Technology Group, Inc.
and Subsidiaries as of August 31, 1998, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
New York, New York ARTHUR ANDERSEN LLP
November 2, 1998
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
August 31, 1999 1998
--------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 32,456 $ 140,254
Marketable securities 1,592,158 1,759,994
Accounts receivable net of allowance for
doubtful accounts of
$96,133 and $130,829, respectively 1,033,726 2,362,030
Inventories 669,601 709,228
Prepaid expenses and other current assets 282,790 205,229
--------------------------------------------------------------------------------
Total Current Assets 3,610,731 5,176,735
Property and Equipment, net 1,783,728 1,543,277
Goodwill, net of accumulated amortization of
$86,349 and $27,002, respectively 244,284 237,881
Deferred Income Taxes 136,173 209,963
Other Assets 308,075 148,490
--------------------------------------------------------------------------------
Total Assets $ 6,082,991 $ 7,316,346
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 261,688 $ 616,035
Accrued expenses and other current liabilities 237,570 416,954
Current portion of capital lease obligation 46,974 --
Current portion of notes payable 126,666 126,667
--------------------------------------------------------------------------------
Total current liabilities 672,898 1,159,656
Capital Lease Obligation, net of current portion 194,318 --
Notes Payable 126,667 260,473
--------------------------------------------------------------------------------
Total liabilities 993,883 1,420,129
--------------------------------------------------------------------------------
Commitments and Contingencies (Note 9)
Shareholders' Equity:
Common stock - $.001 par value; authorized
3,000,000 shares, issued 2,306,950 and 2,256,950
shares, respectively 2,307 2,257
Additional paid-in capital 5,837,889 5,772,189
Retained earnings (accumulated deficit) (465,072) 229,799
Less treasury stock, 177,868 and 70,868 shares,
respectively, at cost (286,016) (108,028)
--------------------------------------------------------------------------------
Shareholders' equity 5,089,108 5,896,217
--------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 6,082,991 $ 7,316,346
================================================================================
See Notes to Consolidated Financial Statements
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
Year ended August 31, 1999 1998
--------------------------------------------------------------------------------
Net Sales $ 6,881,838 $ 9,403,053
Cost of Sales 3,542,941 6,460,027
--------------------------------------------------------------------------------
Gross profit 3,338,897 2,943,026
Selling, general and administrative expenses 4,001,717 4,127,160
--------------------------------------------------------------------------------
Operating loss (662,820) (1,184,134)
Other income (expense) (7,224) 31,799
Interest income, net of interest expense of $27,145
and $41,936, respectively 85,173 166,156
--------------------------------------------------------------------------------
Loss before provision (benefit) for income taxes (584,871) (986,179)
Provision (benefit) for income taxes 110,000 (175,899)
--------------------------------------------------------------------------------
Net loss $ (694,871) $ (810,280)
================================================================================
Loss per common share - basic and diluted $ (.33) $ (.38)
================================================================================
Weighted-average number of common shares
outstanding - basic and diluted 2,132,777 2,133,950
================================================================================
See Notes to Consolidated Financial Statements
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Additional Earnings Total
Common Stock Paid-in (Accumulated Treasury Stock Shareholders'
Shares Amount Capital Deficit) Shares Amount Equity
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 1, 1997 2,110,050 $ 2,110 $ 5,592,611 $ 1,040,079 -- -- $ 6,634,800
Issuance of stock to employees 50,000 50 79,675 -- -- -- 79,725
Issuance of shares to related
party in connection with
purchase of Edutec 96,900 97 99,903 -- -- -- 100,000
Repurchase of treasury stock -- -- -- -- 70,868 $ (108,028) (108,028)
Net loss -- -- -- (810,280) -- -- (810,280)
----------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1998 2,256,950 2,257 5,772,189 229,799 70,868 (108,028) 5,896,217
Issuance of shares in
connection with purchase
of RemoteIT 50,000 50 65,700 -- -- -- 65,750
Repurchase of treasury stock -- -- -- -- 107,000 (177,988) (177,988)
Net loss -- -- -- (694,871) -- -- (694,871)
----------------------------------------------------------------------------------------------------------------------------------
Balance at August 31, 1999 2,306,950 $ 2,307 $ 5,837,889 $ (465,072) 177,868 $ (286,016) $ 5,089,108
==================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
Year ended August 31, 1999 1998
--------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (694,871) $ (810,280)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 426,241 231,836
Amortization of goodwill 59,347 27,002
Provision for doubtful accounts (34,696) (20,989)
Stock issued as compensation -- 79,725
Changes in operating assets and liabilities:
Decrease in marketable securities 167,836 1,810,805
(Increase) decrease in accounts receivable 1,363,000 (880,689)
Decrease in inventories 39,627 399,564
Increase in prepaid expenses and other current
assets (98,771) (13,010)
Decrease (increase) in deferred income taxes 110,000 (209,963)
Decrease (increase) in other assets 11,974 (48,102)
(Decrease) increase in accounts payable,
accrued expenses and other current liabilities (533,731) 642,265
Decrease in other liabilities -- (5,433)
--------------------------------------------------------------------------------
Net cash provided by operating activities 815,956 1,202,731
--------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (437,278) (677,152)
Software development costs (171,559) --
Purchase of subsidiaries, net of cash acquired -- (603,418)
--------------------------------------------------------------------------------
Cash used in investing activities (608,837) (1,280,570)
--------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of notes payable (133,807) --
Repayment of capital lease obligations (3,122) --
Purchase of treasury stock (177,988) (108,028)
--------------------------------------------------------------------------------
Cash used in financing activities (314,917) (108,028)
--------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (107,798) (185,867)
Cash and cash equivalents at beginning of year 140,254 326,121
--------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 32,456 $ 140,254
================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 24,931 $ 34,235
================================================================================
Income taxes $ -- $ 116,857
================================================================================
Supplemental schedule of noncash investing and
financing activities:
Issuance of common stock relating to
purchase of subsidiaries $ 65,750 $ 100,000
================================================================================
Capital lease obligations incurred $ 244,414 $ --
================================================================================
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. PRINCIPAL The consolidated financial statements include the accounts of
BUSINESS Hertz Technology Group, Inc. ("Hertz-Tech") and its wholly
ACTIVITY owned subsidiaries (hereinafter collectively referred to as
AND the "Company"). The Company's subsidiaries include Hertz
SUMMARY OF Computer Corporation ("Hertz Computer"), Hergo Ergonomic
SIGNIFICANT Support Systems, Inc. ("Hergo")and Edutec Computer Education
ACCOUNTING Institute, Inc. ("Edutec"). As further described in Note 6, on
POLICIES: March 1, 1999 the Company acquired all of the outstanding
stock of RemoteIT.com, Inc. ("RemoteIT"). The results of
operations of RemoteIT are included in the Company's
consolidated financial statements from the date of
acquisition. On August 27, 1999, another wholly owned
subsidiary, LAN Metal Products Corp. ("LAN"), was merged into
Hergo. All significant intercompany transactions and balances
have been eliminated in consolidation.
The "Technology Group" is comprised of RemoteIT, Hertz
Computer and Edutec. RemoteIT offers full service networking
solutions and internet and web-related services, including
high speed communications services. Hertz Computer custom
designs and assembles personal workstations and networking,
communication and web servers. Edutec offers state-of-the-art
computerized training facilities that can be used for
software, sales, education or management training.
Hergo manufactures and sells space-saving modular racks and
technical furniture to help organize all types of computer
hardware and communication and electronic equipment. In
addition, Hergo provides custom, contract manufacturing and
fabrication of specialty metal products for use in a variety
of industries.
Substantially all revenue is from the sale of products.
Revenue from the sale of products is recognized at the date of
shipment to customers. Service revenue is recognized when the
services are performed.
Substantially all computers and components sold by Hertz-Tech
are covered under warranty by the manufacturers.
All advertising costs are expensed as incurred.
The Company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents. Cash
equivalents, which consist primarily of money market accounts,
are carried at cost, which approximates market value.
The Company maintains cash in bank accounts which, at times,
may exceed federally insured limits. The Company has not
experienced any loss on these accounts.
Inventories are stated at the lower of cost, determined by the
first-in, first-out method, or market.
Depreciation of property and equipment is provided for
<PAGE>
by the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized over
the lesser of their economic useful lives or the term of the
related leases.
The costs of software developed for internal use incurred
during the preliminary project stage are expensed as incurred.
Direct costs incurred during the application development stage
are capitalized. Costs incurred during the post
implementation/operation stage are expensed as incurred.
Capitalized software development costs are amortized on a
straight-line basis over the estimated useful lives of the
related assets. Approximately $172,000 of internal-use
software costs have been capitalized and are included in other
assets at August 31, 1999. No internal-use software costs were
capitalized at August 31, 1998. Amortization will begin when
that internal-use software is ready for its intended use.
Goodwill is amortized using the straight-line method over five
years. At each balance sheet date, the Company evaluates the
period of amortization of goodwill. The factors used in
evaluating the period of amortization include: (i) current
operating results, (ii) projected future operating results,
and (iii) any other material factors that affect the
continuity of the business.
Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount
of the asset may not be recoverable. The Company believes that
no such impairment existed at August 31, 1999.
Basic earnings per common share is computed using the
weighted-average number of common shares outstanding. Diluted
earnings per common share is computed using the
weighted-average number of common shares outstanding adjusted
for the incremental shares attributed to outstanding options
and warrants to purchase common stock. No incremental shares
were used in the 1999 and 1998 calculation of diluted earnings
per common share since they would have had an antidilutive
effect.
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of
estimates by management. Actual results could differ from
those estimates.
The Company elected to measure compensation cost using
Accounting Principles Board ("APB") Opinion No. 25 as is
permitted by Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, and
has elected to comply with other provisions and the
disclosure-only requirements of SFAS No. 123.
The Company does not believe that any recently issued but not
yet effective accounting standards will have a material effect
on the Company's consolidated financial position, results of
operations or cash flows.
<PAGE>
2. MARKETABLE The Company's marketable securities are comprised of equity
SECURITIES: and debt securities and are classified as trading securities.
Trading securities are recorded at fair value, with the change
in fair value during the period included in net earnings.
Net unrealized holding losses on trading securities amounted
to $23,281 for the year ended August 31, 1999. There were no
material unrealized holding gains or losses at August 31,
1998.
3. INVENTORIES: Inventories consist of the following:
August 31, 1999 1998
----------------------------------------------------------
Components $ 52,143 $176,053
Raw materials 104,271 75,780
Work-in-process 22,053 73,480
Finished goods 491,134 383,915
----------------------------------------------------------
$669,601 $709,228
==========================================================
4. PROPERTY Property and equipment, at cost, consists of:
AND
EQUIPMENT:
Depreciation/
Amortization
August 31, 1999 1998 Period
---------------------------------------------------------------
Furniture, fixtures
and office equipment $ 464,716 $ 353,199 7 years
Warehouse equipment 1,438,280 996,524 5 years
Leasehold improvements 705,434 612,169 Term of lease
Vehicles 94,391 74,237 3 years
---------------------------------------------------------------
2,702,821 2,036,129
Less accumulated
depreciation
and amortization 919,093 492,852
---------------------------------------------------------------
$1,783,728 $1,543,277
===============================================================
Property and equipment includes amounts acquired under capital
leases of approximately $230,000 at August 31, 1999.
Amortization of these assets is included in depreciation and
amortization expense. Accumulated amortization of these assets
amounted to approximately $23,000 at August 31, 1999. The
Company did not hold any property and equipment acquired under
capital leases at August 31, 1998.
5. NOTES
PAYABLE: Notes payable consist of the following:
August 31, 1999 1998
-------------------------------------------------------------
Note payable to an officer of LAN, due in
three annual installments through December
2000. The note bears interest at a rate of
<PAGE>
7% per annum. $253,333 $380,000
Other -- 7,140
--------------------------------------------------------------
253,333 387,140
Less current portion 126,666 126,667
--------------------------------------------------------------
Long-term portion $126,667 $260,473
==============================================================
Based on the borrowing rates currently available to the
Company for loans with similar terms and average maturities,
the fair value of the long-term debt approximates the carrying
amount.
Interest expense on the notes amounted to $18,429 and $21,845
for the years ended August 31, 1999 and 1998, respectively.
6. ACQUISITIONS:
In February 1999, the Company acquired all of the outstanding
stock of RemoteIT.com in exchange for issuance of 50,000
shares of common stock of the Company (adjusted to reflect the
100% stock dividend of May 18, 1999, described in Note 13).
This business combination was accounted for as a purchase. The
stock issued was valued at $65,750 and has all been recorded
as goodwill. Had the acquisition occurred at September 1, 1998
and 1997, revenue, net loss and loss per share would not have
been significantly impacted.
In July 1998, the Company acquired all of the outstanding
shares of Edutec from a related party in exchange for issuance
of 96,900 shares of common stock of the Company (adjusted to
reflect the reverse stock-split of November 2, 1998 and the
100% stock dividend of May 18, 1999, as described in Note 13)
valued at $100,000. This business combination has been
accounted for as a purchase. The fair value of the assets
acquired, including goodwill of approximately $101,000,
amounted to approximately $137,000 and the liabilities assumed
amounted to approximately $37,000.
In December 1997, the Company acquired substantially all of
the net assets of Landau Metal Products Corp. ("Landau"). The
aggregate consideration paid was $660,000 in cash and a
promissory note in the principal amount of $380,000, payable
over a three-year period. This business combination has been
accounted for as a purchase. The fair value of the assets
acquired, including goodwill of approximately $164,000,
amounted to approximately $1,051,000 and the liabilities
assumed (including the above promissory note) amounted to
approximately $391,000.
7.CAPITAL The Company leases property and equipment under capital leases
LEASE which expire through June 2004. The leases require monthly
OBLIGATIONS: payments of principal and interest, imputed at interest rates
ranging from 8% to 11% per annum.
Approximate minimum future lease payments under capital leases
are as follows:
<PAGE>
Year ending August 31,
2000 $ 66,000
2001 66,000
2002 64,000
2003 61,000
2004 37,000
--------------------------------------------
294,000
Less amount representing interest 53,000
--------------------------------------------
241,000
Less current maturities 47,000
--------------------------------------------
Long-term debt, less current
maturities $194,000
============================================
8. INCOME The provision (benefit) for income taxes for the years ended
TAXES: August 31, 1999 and 1998 consist of the following components:
Year ended August 31, 1999 1998
---------------------------------------------------
Current:
Federal -- --
State and local -- $ 11,582
Deferred:
Federal $ 77,000 (185,299)
State and local 33,000 (2,182)
---------------------------------------------------
$ 110,000 $(175,899)
===================================================
The provision (benefit) for income taxes for the years ended
August 31, 1999 and 1998 differs from the amount computed
using the federal statutory rate of 34% as a result of the
following:
Year ended August 31, 1999 1998
---------------------------------------------------
Tax at federal statutory rate (34)% (34)%
State and local income tax provision
(benefit) net of federal tax effect (6) 1
Deferred tax asset valuation allowance 59 15
----------------------------------------------------
19% (18)%
====================================================
The approximate tax effects of temporary differences that give
rise to the net short-term deferred income tax asset at August
31, 1999 and 1998 are presented below:
August 31, 1999 1998
-------------------------------------------------------
Reserve for bad debts $ 38,000 $31,290
Sales tax accrual 20,000 --
Unrealized losses on marketable
securities 12,000 --
Capitalized inventory 8,000 --
<PAGE>
Contributions carryforward 13,000 3,232
Other -- 1,688
-------------------------------------------------------
Total short-term deferred income
tax asset $ 91,000 $ 36,210
Valuation allowance $(91,000) $ --
-------------------------------------------------------
Net short-term deferred income
tax asset $ -0- $ 36,210
=======================================================
These amounts are included in prepaid expenses and other
current assets in the accompanying balance sheets.
The tax effects of available tax carryforwards and other
temporary differences that give rise to the net long-term
deferred income tax asset are presented below:
August 31, 1999 1999 1998
-------------------------------------------------------
Federal net operating loss
carryforward $ 473,995 $ 359,963
State and local net operating loss
carryforwards 205,404 --
Deferred rent 11,120 --
Accelerated depreciation (4,570) --
Basis difference in amortization of
intangibles 21,224 --
-------------------------------------------------------
Total long-term deferred income tax
asset 707,173 359,963
Valuation allowance (571,000) (150,000)
-------------------------------------------------------
Net long-term deferred income
tax asset $136,173 $ 209,963
=======================================================
At August 31, 1999, the Company has a federal net operating
loss carryforward of approximately $1,700,000 available to
offset taxable income through 2019. The Company also has state
operating loss carryforwards aggregating $1,663,000 which
expire through 2014. A valuation allowance has been
established for the deferred tax assets that are not expected
to be realized.
The Company files consolidated federal, state and local income
tax returns.
9. COMMITMENTS
AND
CONTINGENCIES:
The Company is obligated under noncancelable operating leases
for warehouse and office space through December 2002. The
aggregate approximate minimum future payments under these
leases are payable as follows:
Year ending August 31,
2000 $340,000
<PAGE>
2001 291,000
2002 284,000
2003 60,000
-----------------------------------------------------
$975,000
=====================================================
These leases are subject to escalation for the Company's
proportionate share in real estate taxes and other operating
expenses. Total rent expense charged to operations amounted to
approximately $272,000 and $347,000 for the years ended August
31, 1999 and 1998, respectively.
The Company has two operating leases for automobiles expiring
through April 2000. The approximate minimum future lease
payment is $5,000 for the year ending August 31, 2000.
As of August 31, 1999, the Company has employment agreements
with six key employees expiring through October 2002. The
aggregate approximate minimum commitment for future salaries
are as follows:
Year ending August 31,
2000 $ 632,000
2001 474,000
2002 160,000
2003 27,000
---------------------------------------------------
$ 1,293,000
===================================================
The agreements provide for base compensation and fringe
benefits. One of the agreements provides for additional
compensation based on certain levels of net sales, as defined.
10. 401(k) In January 1999, the Company adopted an employee savings plan
PLAN: which qualifies under Section 401(k) of the Internal Revenue
Code (the "Code"). Under the plan, all employees who are at
least 21 years of age and have completed 1 year of service are
eligible to defer up to 22% of their pre-tax compensation
subject to the Code's limits. The Company matches 3% of
employee contributions. The Company contributed approximately
$24,000 for the year ended August 31, 1999.
11. SEGMENT The Company operates primarily in two industry segments: (i)
INFORMATION: Hertz-Tech and (ii) Hergo. The accounting policies of the
segments and the products and services provided by the
operating segments are described in Note 1. The tables below
present information about reported segments.
At August 31, 1999:
Technology
Group Hergo Other Consolidated
----------------------------------------------------------------
Sales (unaffiliated) $1,576,499 $5,305,339 $6,881,838
Gross profit 347,757 2,991,140 3,338,897
<PAGE>
Operating income
(loss) (1,445,406) 1,001,388 $(218,802) (662,820)
Assets 1,646,565 2,813,214 1,623,212 6,082,991
Capital expenditures 247,669 419,023 666,692
Depreciation expense 153,136 273,105 426,241
At August 31, 1998:
Technology
Group Hergo Other Consolidated
----------------------------------------------------------------
Sales (unaffiliated) $ 4,470,108 $4,932,945 $9,403,053
Gross profit 375,744 2,567,282 2,943,026
Operating income
(loss) (1,641,979) 687,845 $(230,000)(1,184,134)
Assets 3,060,402 2,365,966 1,889,978 7,316,346
Capital expenditures 214,624 462,528 677,152
Depreciation expense 85,742 146,094 231,836
12. GEOGRAPHIC
AND CUSTOMER
CONCENTRATION:
The Company had sales to customers in the New York Tri-State
area of approximately 63% and 72% of net sales for the years
ended August 31, 1999 and 1998, respectively. Approximately
16% and 43% of net sales were to federal, state and city
agencies and government-affiliated organizations, including
hospitals and schools, for the years ended August 31, 1999 and
1998, respectively.
During the year ended August 31, 1998, sales to a single
customer by the Technology Group accounted for approximately
15% of the Company's net sales.
13. CAPITAL
TRANSACTIONS:
On November 2, 1998, the Company approved a 1-for-3 reverse
split of the Company's common stock and Class A warrants. In
addition, on May 18, 1999, the Company approved a 100% stock
dividend on its common stock. After the record date of the
stock dividend, each outstanding Class A warrant became
exercisable to purchase two shares of common stock. All share
and per share data included in this report have been
retroactively adjusted to give effect to the reverse split and
stock dividend as of the first date presented.
The Company amended the number of shares of common stock
authorized from 25,000,000 to 3,000,000 in February 1999.
In connection with the Company's initial public offering and
with the underwriter's subsequent exercise of its
over-allotment option, the Company has outstanding 843,333
Class A warrants. In addition, the Company has outstanding an
Underwriter's Purchase Option (the "Underwriter's Option") to
purchase up to
<PAGE>
110,000 units, consisting of 73,333 shares of common stock and
73,333 Class A warrants. The Underwriter's Option is
exercisable through November 2001. To date, this option has
not been exercised. Each warrant is convertible into two
shares of common stock at an exercise price of $8.25 per share
(adjusted to reflect the reverse stock split of November 2,
1998 and the 100% stock dividend of May 18, 1999, as described
above). To date no warrants have been exercised.
The Company has a stock option plan (the "Plan") covering up
to 500,000 of its common shares, under which incentive and/or
nonqualified options to purchase shares of common stock may be
granted to directors, employees and consultants to the
Company. Options granted under the plan are exercisable for a
period of up to 10 years from the date of the grant at an
exercise price which is not less than the fair market value of
such shares at the date of the grant. In the case of options
granted to a shareholder owning more than 10% of the
outstanding shares of the Company on the date of the grant,
the options are exercisable for a period not to exceed five
years from the date of the grant at an exercise price which is
not less than 110% of the fair market value of such shares at
the date of the grant. Options to purchase 191,452 shares of
common stock (excluding canceled shares) have been granted
under the Plan as of August 31, 1999. In addition, options to
purchase 898,600 shares of common stock (excluding canceled
shares) have been granted outside the Plan as of August 31,
1999.
A summary of the status of the Company's options as of August
31, 1999 and 1998, and changes during the years then ended is
presented below:
1999 1998
----------------------------------------------------------------
Weighted- Weighted-
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
----------------------------------------------------------------
Outstanding at beginning
of year 851,853 $6.55 600,000 $8.25
Granted 1,101,452 .93 261,853 2.50
Canceled (863,253) 6.43 (10,000) 2.50
Exercised -- -- -- --
----------------------------------------------------------------
Outstanding at end
of year 1,090,052 $.93 851,853 $6.55
================================================================
The Company has elected to apply APB Opinion No. 25 and
related interpretations in accounting for its stock options
and has adopted the disclosure-only provisions of SFAS No.
123. Had the Company elected to recognize compensation cost
based on the fair value of the options granted at the grant
date as prescribed by SFAS No. 123, the Company's net loss and
loss per share would have been as follows:
Year ended August 31, 1999 1998
<PAGE>
-------------------------------------------------------------
Net loss as reported $ (694,871) $(810,280)
Net loss - pro forma (2,297,416) (1,933,986)
-------------------------------------------------------------
Loss per share - as reported
(basic and diluted) (.33) (.38)
Loss per share - pro forma
(basic and diluted) (1.08) (.91)
-------------------------------------------------------------
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for the years
ended August 31, 1999 and 1998: expected volatility of 209%
and 207%, respectively; risk-free interest rates of 5% and
4.45%, respectively; expected lives varying from 3 to 4 years;
and no dividend yield.
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
------- ----------
2000 1999
---- ----
Unaudited Audited
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $245,134 $32,456
Marketable securities 767,353 1,592,158
Accounts receivable, less allowance for
doubtful accounts of $81,133 and $96,133 respectively 908,252 1,033,726
Inventories 569,737 669,601
Prepaid expenses and other current assets 205,403 282,790
------------------------------------
Total current assets 2,695,879 3,610,731
------------------------------------
PROPERTY AND EQUIPMENT, net 1,545,925 1,783,728
GOODWILL, net 194,689 244,284
DEFERRED INCOME TAXES 0 136,173
OTHER ASSETS 405,100 308,075
------------------------------------
Total assets $4,841,593 $6,082,991
====================================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
MAY 31, AUGUST 31,
------- ----------
2000 1999
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $272,436 $261,688
Accrued expenses and other current liabilities 367,439 237,570
Current portion of capital lease obligations 57,924 46,974
Current portion of notes payable 130,046 126,666
------------------------------------
Total current liabilities 827,845 672,898
------------------------------------
CAPITAL LEASE OBLIGATION, NET OF CURRENT PORTION 190,054 194,318
NOTES PAYABLE 16,595 126,667
------------------------------------
Total liabilities 1,034,494 993,883
------------------------------------
SHAREHOLDERS EQUITY:
Common stock, $.001 par value: 6,000,000 shares authorized 2,315,418 shares
and 2,306,950 shares issued as of May 31, 2000 and August 31, 1999, respectively 2,315 2,307
Additional paid-in capital 5,845,091 5,837,889
Less: Treasury Stock, 177,867 shares at cost (286,016) (286,016)
Accumulated Deficit (1,754,291) (465,072)
------------------------------------
Total shareholders' equity 3,807,099 5,089,108
------------------------------------
Total liabilities and shareholders' equity $4,841,593 $6,082,991
====================================
</TABLE>
See notes to Consolidated Financial Statements
-4-
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
MAY 31,
-------
2000 1999
------------ ------------
<S> <C> <C>
NET SALES $ 4,946,371 $ 5,007,769
COST OF SALES 2,964,535 2,619,904
---------------- ---------------
Gross Profit 1,981,836 2,387,865
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,143,932 2,942,858
---------------- ---------------
Operating loss (1,162,096) (554,993)
OTHER INCOME (EXPENSE)
Other (26,291) (7,095)
Interest, net 35,341 61,084
---------------- ---------------
Loss before provision (benefit) for income taxes (1,153,046) (501,004)
PROVISION (BENEFIT) FOR INCOME TAXES 136,173 (34,363)
---------------- ---------------
Net loss $ (1,289,219) $ (466,641)
================ ===============
LOSS PER COMMON SHARE - BASIC AND DILUTED (0.61) (0.22)
================ ===============
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 2,129,623 2,135,480
================ ===============
</TABLE>
See notes to Consolidated Financial Statements
-5-
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED MAY 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
MAY 31,
-------
2000 1999
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,289,219) ($466,641)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 397,884 273,714
Amortization of goodwill 49,595 46,381
Provision for doubtful accounts (15,000) (34,696)
Loss on disposal/sale of assets 38,319 0
Changes in operating assets and liabilities:
Decrease in marketable securities 824,805 56,431
Decrease in accounts receivable 140,474 1,475,599
Decrease in inventories 99,864 70,245
(Increase) decrease in prepaid expenses and other current assets 77,387 (218,569)
Decrease in deferred income taxes 136,173 0
(Increase) decrease in other assets 3,175 (142,024)
Increase (decrease) in accounts payable, accrued expenses and other
current liabilities 140,617 (552,997)
--------------- ---------------
Net cash provided by operating activities 604,074 507,443
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (142,043) (272,300)
Software development cost (100,200) 0
Proceeds from sale of assets 9,655 0
--------------- ---------------
Net cash used in investment activities (232,588) (272,300)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (127,704) (126,667)
Repayment of capital lease obligations (38,314) 0
Purchase of treasury stock 0 (176,498)
Proceeds from exercise of stock options 7,210 0
--------------- ---------------
Net cash used in financing activities (158,808) (303,165)
--------------- ---------------
Net decrease in cash and cash equivalents 212,678 (68,022)
CASH and cash equivalents, beginning of period 32,456 140,254
--------------- ---------------
CASH and cash equivalents, end of period $245,134 $72,232
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $23,759 $16,215
Income taxes paid $0 $35,277
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Capital lease obligations incurred $45,000 $187,000
Entry into financing agreement $21,012 $0
</TABLE>
See notes to Consolidated Financial Statements
-6-
<PAGE>
HERTZ TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER EQUITY
FOR YEAR ENDED AUGUST 31,1999 AND NINE MONTHS ENDED MAY 31,2000
(UNAUDITED)
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Paid- in Treasury (Accumulated
Stock Capital Stock Deficit) Total
----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, August 31,1998 $ 2,257 $ 5,772,189 $ (108,028) $ 229,799 $ 5,896,217
Net Loss -- -- -- (694,871) (694,871)
Issuance of stock to Employees 50 65,700 -- -- 65,750
Treasury stock -- -- (177,988) -- (177,988)
-------------------------------------------------------------------------------------
BALANCE, August 31,1999 2,307 5,837,889 (286,016) (465,072) 5,089,108
Net Loss -- -- -- (1,289,219) (1,289,219)
Stock Options Exercised 8 7202 7,210
----------------------------------------------------------------------------------------
BALANCE, May 31, 1999 $ 2,315 $ 5,845,091 $ (286,016) $ (1,754,291) $ 3,807,099
========================================================================================
</TABLE>
See notes to Consolidated Financial Statements
-7-
<PAGE>
HERTZ TECHNOLOGY GROUP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
MAY 31, 2000
1. BASIS OF PRESENTATION AND OPERATIONS
The accompanying consolidated financial statements are unaudited and in the
opinion of management, reflect all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation in accordance with
generally accepted accounting principles and with the instructions to Form
10-QSB. Operating results for the nine-month period ended May 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
August 31, 2000. For further information, refer to the financial statements and
footnotes thereto included in the Hertz Technology Group, Inc. ("Hertz" or the
"Company") audited financial statements for the year ended at August 31, 1999.
2. EARNINGS PER SHARE
No diluted shares were used in the calculation of diluted EPS for the nine-month
periods ended May 31, 2000 and 1999, since they would have an antidilutive
effect.
3. SEGMENT INFORMATION
The Company operates primarily in two industry segments: (i) The Technology
Group and (ii) Hergo. The tables below present information about the reported
segments.
-8-
<PAGE>
Nine Months Ended May 31, 2000:
Technology
Group Hergo Other Consolidated
--------------------------------------------------------------------------------
Sales (unaffiliated) $ 1,062,000 $3,884,000 $4,946,000
Loss before Tax (609,000) 265,000 (809,000) (1,153,000)
--------------------------------------------------------------------------------
Nine Months ended May 31, 1999:
Technology
Group Hergo Other Consolidated
--------------------------------------------------------------------------------
Sales (unaffiliated) $ 1,101,000 $3,907,000 $ 5,008,000
Loss before Tax (1,111,000) 722,000 (112,000) (501,000)
--------------------------------------------------------------------------------
Assets at May 31, 2000:
Technology
Group Hergo Other Consolidated
--------------------------------------------------------------------------------
Assets $1,410,000 $2,448,000 $984,000 $ 4,842,000
--------------------------------------------------------------------------------
4. CAPITAL TRANSACTIONS
At the Annual Meeting of Shareholders on February 16, 2000, the Company
increased the authorized Common Stock from 3,000,000 to 6,000,000 shares. In
addition, the Company increased the stock options available under the 1996 Stock
Option Plan from 500,000 to 750,000 shares.
-9-
<PAGE>
A SURE eCOMMERCE, INC.
Interim Financial Statements
May 31, 2000 (Unaudited)
and August 31, 1999
(U.S. Dollars)
INDEX Page
----- ----
Reports of Independent Chartered Accountants 1-2
Financial Statements
Balance Sheet 3
Statement of Operations 4
Statement of Stockholders' Equity 5
Statement of Cash Flows 6
Notes to Financial Statements 7-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
We have reviewed the accompanying consolidated balance sheet and statements of
operations and deficit, cash flows and stockholders' equity of A Sure eCommerce,
Inc. (a development stage company) as at May 31, 2000 and for the three month
and nine month periods then ended. These financial statement are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of the financial information
consists principally of applying analytical procedures to financial data and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying statements for them to be in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in note 4 to the financial
statements, the Company has no established source of revenue. This raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
"Pannell Kerr Forster"
Chartered Accountants
Vancouver, British Columbia
August 11, 2000
1
<PAGE>
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO THE BOARD OF DIRECTORS
OF A SURE eCOMMERCE, INC.
(A DEVELOPMENT STAGE COMPANY)
We have audited the accompanying balance sheet of A Sure eCommerce, Inc. (a
development stage company) as at August 31, 1999 and the related statement of
operations, stockholders' equity and cash flows for the initial 82 days ended
August 31, 1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance whether these financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in these 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 audit provides a reasonable basis for our
opinion.
In our opinion, these financial statements presents fairly, in all material
respects, the financial position of the Company as at August 31, 1999 and the
results of its operations and its cash flows for the period referred to above in
conformity with generally accepted accounting principles in the United States.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in note 4 to the financial
statements, the Company has no established source of revenue. This raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
"Pannell Kerr Forster"
Chartered Accountants
Vancouver, British Columbia
June 19, 2000
2
<PAGE>
A SURE eCOMMERCE, INC.
(A Development Stage Company)
Balance Sheet
(U.S. Dollars)
<TABLE>
<CAPTION>
========================================================================================
May 31, August 31,
2000 1999
----------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Assets
Current
Cash $ 4,283 $ 2,674
Accounts receivable 21,674 372
Prepaid expenses 21,494 585
----------------------------------------------------------------------------------------
Total Current Assets 47,451 3,631
Property and Equipment (note 3) 83,929 1,016
----------------------------------------------------------------------------------------
Total Assets $ 131,380 $ 4,647
========================================================================================
Liabilities
Current
Accounts payable and accrued liabilities $ 187,642 $ 14,664
Due to shareholders 0 16,302
----------------------------------------------------------------------------------------
Total Liabilities 187,642 30,966
----------------------------------------------------------------------------------------
Commitment (note 6)
Stockholders' Equity
Common Stock and Paid-In Capital In Excess of $0.001 Par Value
Authorized
100,000,000 Shares authorized
Issued and outstanding
90 Shares
(August 31, 1999 - 90) 1 1
Subscriptions received 566,288 35,426
Other comprehensive income (593) (33)
Deficit accumulated during the development stage (621,958) (61,713)
----------------------------------------------------------------------------------------
Total Stockholers' Equity (56,262) (26,319)
----------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 131,380 $ 4,647
========================================================================================
</TABLE>
See notes to financial statements.
3
<PAGE>
A SURE eCOMMERCE, INC.
(A Development Stage Company)
Statement of Operations
For the Period From June 10, 1999 (Inception) to May 31, 2000
(U.S. Dollars)
<TABLE>
<CAPTION>
=============================================================================================================
Period From Period From
June 10, June 10,
1999 1999
Three Nine (Inception) (Inception)
Months Ended Months Ended Through Through
May 31, May 31, August 31, May 31,
2000 2000 1999 2000
-------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
General and Administrative
Expenses
Consulting $181,649 $279,267 $21,317 $300,584
Professional fees 79,010 97,081 10,590 107,671
Travel and promotion 43,954 60,538 23,821 84,359
Internet service and web design 26,296 33,734 0 33,734
Rent 14,457 32,921 1,655 34,576
Office and miscellaneous 8,268 25,823 4,330 30,153
Loan receivable write off 0 13,230 0 13,230
Wages and salaries 7,518 7,518 0 7,518
Depreciation 4,322 10,133 0 10,133
-------------------------------------------------------------------------------------------------------------
Net Loss for Period $(365,474) $(560,245) $(61,713) $(621,958)
=============================================================================================================
</TABLE>
See notes to financial statements.
4
<PAGE>
A SURE eCOMMERCE, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
For the Period From June 10, 1999 (Inception) to May 31, 2000
(U.S. Dollars)
<TABLE>
<CAPTION>
============================================================================================================
Common Shares Total
--------------------- Accumulated Comprehensive Subscriptions Stockholders'
Number Amount Deficit Income Received Equity
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of
Common Stock
For cash
- Initial shares 90 $1 $0 $0 $0 $1
- Subscriptions
received 0 0 0 0 35,426 35,426
Exchange Loss 0 0 0 (33) 0 (33)
Net Loss 0 0 (61,713) 0 0 (61,713)
------------------------------------------------------------------------------------------------------------
Balance, August 31, 1999 90 1 (61,713) (33) 35,426 (26,319)
Common Stock
To be issued
for cash in
private placement 0 0 0 0 530,862 530,862
Exchange Loss 0 0 0 (560) 0 (560)
Net Loss 0 0 (560,245) 0 0 (560,245)
------------------------------------------------------------------------------------------------------------
Balance, May 31, 2000
(Unaudited) 90 $1 $(621,958) $(593) $566,288 $(56,262)
============================================================================================================
</TABLE>
See notes to financial statements.
5
<PAGE>
A SURE eCOMMERCE, INC.
(A Development Stage Company)
Statement of Cash Flows
For the Period From June 10, 1999 (Inception) to May 31, 2000
(U.S. Dollars)
<TABLE>
<CAPTION>
=================================================================================================================
Period From Period From
June 10, June 10,
1999 1999
Three Six (Inception) (Inception)
Months Ended Months Ended Through Through
May 31, May 31, August 31, May 31,
2000 2000 1999 2000
-----------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating Activities
Net loss $(365,474) $(560,245) $ (61,713) $(621,958)
Depreciation 4,322 10,133 0 10,133
Services rendered in exchange
of shares to be issued 0 0 18,430 18,430
Change in non-cash working
Accounts receivable (12,289) (21,302) (372) (21,674)
Changes in amount due from
shareholder 0 (16,302) 16,302 0
Prepaid expenses (11,304) (20,909) (585) (21,494)
Accounts payable and
accrued liabilities 132,712 172,978 14,664 187,642
-----------------------------------------------------------------------------------------------------------------
Net Cash Used By Operating Activities (252,033) (435,647) (13,274) (448,921)
-----------------------------------------------------------------------------------------------------------------
Net Cash Used By Investing Activity
Acquisition of fixed assets (13,196) (93,046) (1,016) (94,062)
-----------------------------------------------------------------------------------------------------------------
Financing Activities
Subscriptions received 267,500 530,862 16,996 547,858
Issuance of common stock 0 0 1 1
-----------------------------------------------------------------------------------------------------------------
267,500 530,862 16,997 547,859
-----------------------------------------------------------------------------------------------------------------
Effect of Foreign Currency
Translation in Cash 0 (560) (33) (593)
-----------------------------------------------------------------------------------------------------------------
Inflow of Cash 2,271 1,609 2,674 4,283
Cash, Beginning of Period 2,012 2,674 0 0
-----------------------------------------------------------------------------------------------------------------
Cash, End of Period $ 4,283 $ 4,283 $ 2,674 $ 4,283
=================================================================================================================
</TABLE>
See notes to financial statements.
6
<PAGE>
A SURE eCOMMERCE, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 2000 and August 31, 1999
(U.S. Dollars)
================================================================================
1. ORGANIZATION AND NATURE OF OPERATIONS
The Company was incorporated under the laws of the State of Nevada on June
10, 1999. The Company is in the development stage as more fully defined in
Statement No. 7 of the Financial Accounting Standards Board. Planned
principal operations of the Company have not yet commenced.
The Company is in the internet e-commerce industry promoting confidence in
online retail shopping.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Loss per share
Loss per share computations are based on the weighted average number
of common shares outstanding during the period.
(b) Depreciation and amortization
Depreciation and amortization are provided using the
declining-balance method based on the following annual rates:
Computer hardware and software - 20%
Office furniture and equipment - 30%
The Company reviews long-term assets to determine if the carrying
amount is recoverable based on the estimate of future cash flow
expected to result from the use of the asset and its eventual
disposition. If in this determination there is an apparent
shortfall, the loss will be recognized as a current charge to
operations.
(c) Revenue recognition
As the Company is continuing to develop its technologies, no
revenues have been earned to date. Once sales have been earned by
the Company, the Company will recognize such revenues.
7
<PAGE>
A SURE eCOMMERCE, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 2000 and August 31, 1999
(U.S. Dollars)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Foreign currency translation
Amounts recorded in foreign currency are translated into United
States dollars as follows:
(i) Monetary assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date; and
(ii) Revenues and expenses, at the average rate of exchange for the
year.
Unrealized gains and losses arising from this translation of foreign
currency are excluded from net loss for the period and accumulated
as a separate component of shareholder's equity (deficiency).
(e) 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 amounts of assets and
liabilities and disclosures 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 and would impact future results of
operations and cash flows.
(f) Financial instruments
The Company's financial instruments consist of cash, account
receivable, accounts payable and accruals and due to shareholders.
Unless otherwise noted it is management's opinion that the Company
is not exposed to significant interest, currency or credit risks
arising from these financial instruments.
3. FIXED ASSETS
<TABLE>
<CAPTION>
======================================================================================================
August 31,
May 31, 2000 (Unaudited) 1999
------------------------------------------------------------------------------------------------------
Accumulated
Cost Depreciation Net Net
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computer hardware
and software $78,794 $8,987 $69,807 $1,016
Office furniture
and equipment 15,268 1,146 14,122 0
------------------------------------------------------------------------------------------------------
$94,062 $10,133 $83,929 $1,016
======================================================================================================
</TABLE>
8
<PAGE>
A SURE eCOMMERCE, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 2000 and August 31, 1999
(U.S. Dollars)
================================================================================
4. GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. However, the Company has no current source of revenue.
Without realization of additional capital, it would be unlikely for the
Company to continue as a going concern.
5. RELATED PARTY TRANSACTIONS
(a) Some services are provided without charge by officers other than
those mentioned in note 5(b) and have not been reflected herein. The
officers and directors of the Company may be involved in other
business activities and may, in the future, become involved in other
business opportunities. If a specific business opportunity becomes
available, such persons may face a conflict in selecting between the
Company and their other business interests. The Company has not
formulated a policy for the resolution of such conflicts.
(b) Included in consulting fees are $59,960 paid to directors and
officers of the Company.
6. COMMITMENT
The Company occupies leased office premises in Vancouver, Canada under the
terms of a lease expiring April 30, 2003, requiring annual rental payments
of $36,135 ($53,932 Cdn.).
7. COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
======================================================================================================
Period From Period From
June 10, 1999 June 10, 1999
Three Nine (Inception) (Inception)
Months Ended Months Ended Through Through
May 31, May 31, August 31, May 31,
2000 2000 1999 2000
------------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss $(365,474) $(560,245) $(61,713) $(621,958)
Other comprehensive
income 0 (560) (33) (593)
------------------------------------------------------------------------------------------------------
$(365,474) $(560,805) $(61,746) $(622,551)
======================================================================================================
</TABLE>
9
<PAGE>
A SURE eCOMMERCE, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 2000 and August 31, 1999
(U.S. Dollars)
================================================================================
8. SUBSEQUENT EVENTS
(a) Merger
The Company has announced a merger with a NASD listed company, Hertz
Technology Group Inc. ("Hertz") as a result the Company will have
shares issued and will issue shares on closing as outlined below.
(b) The Company will issue shares and warrants subsequent to May 31,
2000 as follows:
(i) Share capital
<TABLE>
<CAPTION>
==============================================================================================
Status
----------------------------------------------------------------------------------------------
<S> <C> <C>
Common Shares
3,395,685 Shares Issued subsequent to
May 31, 2000
560,000 Issued for $800,000 cash at 1.43 per share Issued subsequent to
May 31, 2000
740,000 Issued as finders fees subject to closing of merger To be issued
Preferred Shares
1,666,667 Convertible preferred shares to GEM Global To be issued
Yield Fund for total proceeds of $5,000,000.
Number of shares to be issued to be determined
based on fair market value of the shares at the
time of the merger.
==============================================================================================
</TABLE>
(ii) Options
<TABLE>
<CAPTION>
==============================================================================================
Number Exercise
of Options Price Status
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1,200,000 1.43 Officers, directors and Granted subsequent to May 31,
employees 2000
287,500 2.00 GEM Global yield fund Granted subsequent to May 31,
2000
==============================================================================================
</TABLE>
10
<PAGE>
A SURE eCOMMERCE, INC.
(A Development Stage Company)
Notes to Financial Statements
May 31, 2000 and August 31, 1999
(U.S. Dollars)
================================================================================
8. SUBSEQUENT EVENTS (Continued)
(iii) Warrants
<TABLE>
<CAPTION>
========================================================================================
Number Exercise
of Warrants Price Status
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
28,000 1.43 Issued as part of a $200,000
note financing subsequent to Issued subsequent
May 31, 2000 to May 31, 2000
600,000 2.00 A Sure shareholders subsequent Issued subsequent
to May 31, 2000 to May 31, 2000
440,000 1.00 Issued as finders fees subject To be issued
to closing of merger
666,666 3.00 GEM Global Yield and KIL subject To be issued
to closing of merger
========================================================================================
</TABLE>
(d) Name change
Subsequent to May 31, 2000, as approved at the shareholders' meeting
August 7, 2000, the Company changed its name to "Return Assured
Inc.".
UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited combined consolidated pro forma financial statements
give effect to the merger, pursuant to which Return Assured will become a
wholly-owned subsidiary of Hertz, to be accounted for as a purchase. The
unaudited pro forma condensed combined consolidated balance sheet presents the
combined financial position of Hertz and Return Assured as of May 31, 2000
assuming that the proposed merger had occurred on that date. Such pro forma
information is based upon the historical balance sheet data of Hertz and Return
Assured as of that date. The unaudited pro forma condensed consolidated
statements of operations give effect to the proposed merger of Hertz and Return
Assured by combining the results of operations of Hertz for the year ended
August 31, 1999 and for the nine-month period ended May 31, 2000 with the
results of Return Assured from inception (June 10, 1999) through August 31, 1999
and for the nine-month period ended May 31, 2000, respectively, on a purchase
basis as if the merger had occurred on September 1, 1998. Return Assured is a
development stage company.
The unaudited pro forma combined consolidated financial statements are based on
the estimates and assumptions set forth in the notes to these financial
statements, which are preliminary and have been made solely for purposes of
developing this pro forma information. The unaudited pro forma combined
consolidated financial statements are not necessarily an indication of the
results that would have been achieved had such transactions been consummated as
of the dates indicated or that may be achieved in the future.
These unaudited pro forma combined consolidated financial statements
should be read in conjunction with the historical financial statements and
related notes of Hertz and Return Assured, appearing elsewhere in this proxy
statement.
11
<PAGE>
Hertz Technology Group, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
May 31, 2000
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Historical
---------------------------------
Return Pro Forma
Hertz Assure Adjustments Pro Forma
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash $ 245 $ 4 $ 4,975 3 $ 4,199
(1,025) 2
Marketable securities 767 767
Accounts receivable 908 22 930
Inventories 570 570
Prepaid expenses and other current assets 205 21 226
--------------------------------------------------------------------------------------------------------------------
Total current assets 2,695 47 3,950 6,692
--------------------------------------------------------------------------------------------------------------------
Property and Equipment, net 1,546 84 1,630
Goodwill 195 18,416 1 18,416
(195) 1
Other Assets 405 405
--------------------------------------------------------------------------------------------------------------------
Total Assets $ 4,841 $ 131 $ 22,171 $ 27,143
====================================================================================================================
Current Liabilities:
Accounts payable $ 272 $ 188 $ 460
Accrued expenses and other current liabilities 367 367
Current portion of capital lease obligations 58 58
Current portion of notes payable 130 130
--------------------------------------------------------------------------------------------------------------------
Total current liabilities 827 188 -- 1,015
--------------------------------------------------------------------------------------------------------------------
Capital Lease Obligations, net of current portion 190 190
Notes Payable 17 17
--------------------------------------------------------------------------------------------------------------------
Total Liablities 1,034 188 -- 1,222
--------------------------------------------------------------------------------------------------------------------
Shareholders Equity:
Preferred Stock -- 5,000 3 5,000
Common Stock 2 5 1 7
Subscriptions received 566 566
Accumulated other comprehensive loss (1) (1)
Additional paid in capital 5,845 22,028 1 21,971
(5,845) 1
(7) 1
(1,025) 2
(25) 3
1,000 4
Less: treasury stock (286) 286 1 --
Accumulated deficit (1,754) (622) 1,754 1 (1,622)
(1,000) 4
--------------------------------------------------------------------------------------------------------------------
Shareholders Equity 3,807 (57) 22,171 25,921
--------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders Equity $ 4,841 $ 131 $ 22,171 $ 27,143
====================================================================================================================
</TABLE>
<PAGE>
Hertz Technology Group, Inc. and Subsidiaries and Return Assured, Inc.
Notes to Unaudited Pro Forma Consolidated Balance Sheet
May 31, 2000
The pro forma consolidated balance sheet of Hertz and Return Assured gives
effect to the issuance of Hertz common stock in exchange for all the outstanding
stock of Return Assured as if it had occurred on May 31, 2000. For accounting
purposes, this transaction is being accounted for as a purchase with Return
Assured being the acquiror. Further, Hertz and Return Assured have entered into
other agreements that will take place concurrently with the closing of this
merger. Following is a summary of the pro forma adjustments to reflect the
foregoing:
1. Adjustment which reflects (a) the issuance of 4,695,685 shares of common
stock at an assumed market value of $3 per share, (b) the assumed issuance
of 287,500 additional shares of common stock relating to outstanding
options of Return Assured which expire immediately prior to the closing
and are expected to be exercised , (c) the issuance of 1,734,666 warrants
and 1,200,000 options, recorded at fair value using the Black Scholes
method and (d) costs of the merger estimated at $275,000. The excess of
the value of the shares, options and warrants issued and the costs of the
transaction over the net assets of Hertz has been recorded as goodwill.
2. Adjustment to record the purchase of $1,025,000 of common stock from Eli
E. Hertz and I. Marilyn Hertz, which is estimated at 315,385 shares of
common stock at an assumed market value of $3.25 per share
3. Adjustment to record sale of $5,000,000 of newly created Series A
Preferred Stock to GEM Global Yield Fund and $25,000 of costs associated
with the Preferred Stock transaction.
4. Adjustment to record the intrinsic value of the beneficial conversion
feature of the preferred stock. The preferred stock is convertible at the
date of issuance.
<PAGE>
Hertz Technology Group, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
For the Nine Months Ended May 31, 2000
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
--------------------------
Return Pro Forma
Hertz Assured Adjustments Pro Forma
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 4,946 $ 4,946
Cost of Sales 2,965 2,965
---------------------------------------- ---------
Gross Profit 1,981 -- -- 1,981
Selling, general and administrative expenses 3,144 $ 560 94 (1) 5,083
456 (2)
829 (4)
---------------------------------------- ---------
Operating loss (1,163) (560) (1,379) (3,102)
Other Income (Expense):
Other (26) (26)
Interest, net 35 35
---------------------------------------- ---------
Loss before provision (benefit) for income taxes (1,154) (560) (1,379) (3,093)
Provision (benefit) for income taxes 136 136
---------------------------------------- ---------
Net Loss (1,290) (560) (1,379) (3,229)
Preferred stock dividends 38 (3) 38
---------------------------------------- ---------
Amount available to common shareholders $(1,290) $ (560) $ (1,417) $ (3,267)
======================================== =========
Loss per common share - basic and diluted (5) $ (0.61) $ (6,222.22) $ (0.48)
========================== =========
Weighted average number of common shares
outstanding - basic and diluted (5) 2,130 0.09 6,797
========================== =========
</TABLE>
<PAGE>
Hertz Technology Group, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Statement of Operations
For the Nine Months Ended May 31, 2000
1. Adjustment which records the $125,000 per year consulting agreement with
Eli Hertz amounting to $93,750 for the nine-month period. No adjustment
has been made for the base salaries of the employment agreements with Eli
Hertz, I. Marilyn Hertz and Barry Goldsammler as the employment agreements
are not significantly different than the actual salaries earned by these
individuals during the period.
2. Adjustment which records the bonus due to Eli Hertz under his employment
agreement amounting to 25% of the gross profit of Hergo
3. Adjustment which records 1% dividend on $5,000,000 of Series A Preferred
Stock to GEM Global Yield Fund
4. Adjustment which records the amortization of the goodwill amounting to
approximately $16,579,000 over a period of 15 years
5. Pro forma net income per share is computed by dividing the pro forma net
income by Hertz's weighted average number of shares after giving effect to
(a) the issuance of 4,695,685 shares of common stock at an assumed market
value of $3 per share, (b) the assumed issuance of 287,500 shares of
common stock relating to options of Return Assured which expire
immediately prior to the closing and are expected to be exercised and (c)
the purchase of 315,385 shares in connection with the purchase of
$1,025,000 of common stock from Eli Hertz in conjunction with the merger
at an assumed price of $3.25 per share. Incremental shares from the effect
of options, warrants and convertible preferred stock have not been
included in the weighted average shares calculation on a diluted basis as
the effect would have been antidilutive.
<PAGE>
Hertz Technology Group, Inc. and Subsidiaries
Pro Forma Statement of Operations
For the year ended August 31, 1999
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
---------------------------
Return Pro Forma
Hertz Assured Adjustments Pro Forma
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 6,882 $ 6,882
Cost of Sales 3,543 3,543
---------------------------------------------------------------
Gross Profit 3,339 -- 3,339
Selling, general and administrative expenses 4,002 $ 62 125 (1) 6,042
748 (2)
1,105 (4)
---------------------------------------------------------------
Operating loss (663) (62) (1,978) (2,703)
Other Income (Expense):
Other (7) (7)
Interest, net 85 85
---------------------------------------------------------------
Loss before provision (benefit) for income taxes (585) (62) (1,978) (2,625)
Provision (benefit) for income taxes 110 110
---------------------------------------------------------------
Net Loss (695) (62) (1,978) $ (2,735)
Preferred stock dividends 50 (3) 50
----------------------------------------- ---------
Amount available to common shareholders $ (695) $ (62) $ (2,028) $ (2,785)
========================================= =========
Loss per common share - basic and diluted (5) $ (0.33) $ (688.89) $ (0.41)
========================= =========
Weighted average number of common shares
outstanding - basic and diluted (5) 2,133 0.09 6,801
========================= =========
</TABLE>
<PAGE>
Hertz Technology Group, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended August 31, 1999
1. Adjustment which records the consulting agreement with Eli Hertz amounting
to $125,000 for the year. No adjustment has been made for the base
salaries of the employment agreements with Eli Hertz, I. Marilyn Hertz and
Barry Goldsammler as the employment agreements are not significantly
different than the actual salaries earned by these individuals during the
year.
2. Adjustment which records the bonus due to Eli Hertz under his employment
agreement amounting to 25% of the gross profit of Hergo
3. Adjustment which records 1% dividend on $5,000,000 of Series A Preferred
Stock to GEM Global Yield Fund
4. Adjustment which records the amortization of the goodwill amounting to
approximately $16,579,000 over a period of 15 years
5. Pro forma net income per share is computed by dividing the pro forma net
income by Hertz's weighted average number of shares after giving effect to
(a) the issuance of 4,695,685 shares of common stock at an assumed market
value of $3 per share, (b) the assumed issuance of 287,500 shares of
common stock relating to options of Return Assured which expire
immediately prior to the closing and are expected to be exercised and (c)
the purchase of 315,385 shares in connection with the purchase of
$1,025,000 of common stock from Eli Hertz in conjunction with the merger
at an assumed price of $3.25 per share. Incremental shares from the effect
of options, warrants and convertible preferred stock have not been
included in the weighted average shares calculation on a diluted basis as
the effect would have been antidilutive.
<PAGE>
OTHER FACTORS TO BE CONSIDERED
If the merger-related proposals are approved at your meeting, they will result
in shareholders of Return Assured becoming stockholders of Hertz and the
business of Return Assured combining with the business of Hertz. In evaluating
these proposals, please carefully consider the information presented throughout
this document, and in particular the following factors. Some of
11
<PAGE>
those factors relate to the merger itself, and the balance relate to the
business of the combined company after the merger.
RISKS RELATING TO THE PROPOSED MERGER
Shares of outstanding common stock of the combined company's may increase more
than expected because the conversion price of the preferred stock to be issued
in financing the merger is not fixed, but is determined based on the market
value of the common stock at the time of conversion.
The operations of the combined companies is being financed by the sale of $5
million in convertible preferred stock. Sale of that stock is a condition of the
merger. This convertible preferred stock has a maximum conversion price of $3.00
per share. However, if the market price of Hertz's stock at the time of
conversion is below $3.00 per share the conversion price is reduced to the
market price at that time. As a result, if Hertz's common stock declines
significantly in price, Hertz will have to issue far more shares of common stock
than it would if the conversion price were fixed. Nothing in the agreement for
sale of the preferred stock would prevent the holder of the preferred stock from
repeatedly selling the stock short and "covering" his short sale at a lower
price. He would not be subject to the usual risks of a short seller, who might
have to buy back the stock he has sold at an undetermined and much higher price
in order to cover his short position, because the conversion can never go above
$3.00 per share. In addition, a holder of the preferred stock could continue
converting and selling at ever lower prices without incurring an economic loss.
These sales could result in a major decline in the price of the Hertz common
stock. They could also make Hertz more vulnerable to a takeover by an outside
party.
Hertz may be required to redeem the preferred stock for an amount that would
force it to go out of business.
The agreement for sale of the convertible preferred stock requires Hertz to
maintain an effective registration statement covering resale of the shares of
common stock that may be issued upon conversion. If Hertz is unable to maintain
the effectiveness of that registration statement or otherwise does not comply
with agreements it is making with holders of that preferred stock, it will have
to redeem all the outstanding preferred stock at the stated value of $1,000 per
share plus accrued dividends. There is no provision in the agreement for payment
of this obligation over time, and Hertz will not have any commitment for credit
to finance the payment of the redemption price. As a result, a redemption may
leave it with not enough liquid assets to continue paying its other debts and it
may be forced to go out of business.
The integration of our two companies may be difficult.
Merging our two companies involves technological, operational and personnel-
related risks. The integration process will be complex, time-consuming and
expensive, and will disrupt the business of the combined company after the
merger if not completed in a timely and efficient manner. If the merger is
approved, the combined company will use common information and communication
systems, facilities, operating procedures, financial controls and human
resources practices. We may lose key employees that we do not anticipate losing,
and the attention of our
12
<PAGE>
management team may be diverted from other ongoing business concerns more than
we anticipate.
Executive officers and directors of both companies have different interests from
yours.
The directors and executive officers of both Hertz and Return Assured have
interests in the merger that are different from yours and may represent a
conflict of interest. Because of these benefits, these persons may be influenced
to vote in favor of or to recommend the merger. These benefits include:
o Two of Hertz's controlling stockholders will sell $1,025,000 in
common stock to the combined company at the time of closing. One of
these stockholders will also enter into a five-year employment
agreement with the combined company's Hergo subsidiary under which
he will receive an annual salary of at least $250,000 (approximately
his present salary) plus incentive compensation of 25% of total
gross profit on sales of the subsidiary. He will also enter into a
two-year consulting agreement with the combined company under which
he will receive $125,000 per year and additional fringe benefits and
will receive a commission on the sale of some of our subsidiaries if
they are sold within 4 years;
o Barry Goldsammler, Hertz's Executive Vice President, will enter into
a one-year employment agreement with the combined company under
which he will receive an annual salary of $125,000 (approximately
his present salary) and additional fringe benefits.
o I. Marilyn Hertz, Hertz's Vice Chairperson will enter into a
five-year employment agreement with the combined company under which
she will receive an annual salary of $95,000 and additional fringe
benefits.
o At the effective time of the merger, each outstanding option to
purchase Return Assured common stock, including any stock option
held by any executive officer or director of Return Assured, will be
assumed by Hertz and will become an option to acquire common stock
of the combined company after the merger;
o Hertz's Board of Directors has authorized the vesting of presently
outstanding options held by some of Hertz's officers, directors and
key employees in the discretion of Mr. Hertz; and
o Hertz's directors and executive officers have customary rights to
indemnification against specified liabilities.
Our counsel in the transaction had pre-existing relationships with the attorneys
for Return Assured.
13
<PAGE>
Our regular corporate attorneys initially advised us in the transaction. But in
the last stages of negotiation it developed that there would be a conflict of
interest between their representation of us and their individual representation
of Eli E. Hertz, our President. At that time we retained the firm of Raice
Paykin Krieg & Schrader LLP, to represent us in completing the transaction.
David C. Thomas, a member of that firm giving us legal advice in the transaction
also acts in an of counsel capacity to Kaplan, Gottbetter & Levenson LLP, Return
Assured's attorneys, (consisting primarily of attending meetings of
approximately 1 hour per week) and receives relatively small amounts in payment
for those services. In addition, Mr. Thomas was from May of 1999 until March of
this year performing services for that firm on a contract basis substantially
full time. Hertz management received assurances that this relationship would not
affect Mr. Thomas's ability to render unbiased legal advice in the transaction.
Nevertheless, this pre-existing relationship could conceivably have affected the
advice we received on legal matters.
Failure to complete the merger could harm our stock price and future business
and operations.
Both Hertz and Return Assured face a number of special risks if the merger is
not completed, including the following:
o We may be required to pay Return Assured a termination fee of
$500,000 to if the transaction does not close because we do not
carry out our obligations under the merger agreement, because we
decide to accept an alternate acquisition proposal or because our
Board of Directors withdraws its recommendation of the transaction.
In addition, if we decide to accept an alternate acquisition
proposal, if the Board of Directors withdraws its recommendation
(without a violation of the contract by Return Assured that would
entitle us to cancel the contract), or if we do something
purposefully or in bad faith to prevent the merger we will be
required to pay Return Assured an additional termination fee of
$500,000.
o costs related to the merger, such as legal and accounting fees and
financial advisor fees, must be paid even if the merger is not
completed.
o current and prospective Hertz employees may experience uncertainty
about their future roles with the combined company, which may hurt
each company's ability to attract and retain key management,
marketing, technical and administrative personnel. This may impede
subsequent integration of the two companies, and if the merger is
not completed it may harm Hertz in particular.
o If the merger is terminated and Hertz's board of directors
determines to seek another business combination, Hertz cannot assure
you that it will be able to find a party willing to combine with it
on equivalent or more attractive terms.
14
<PAGE>
Risks Related to the Business of the Combined Company After the Merger
The combined companies will incur significant charges to their earnings for a
long time into the future as a result of the goodwill created by accounting for
the merger as a purchase.
The merger must be accounted for as a purchase of Hertz by Return Assured. Under
purchase accounting, Hertz's tangible assets will be entered on the combined
company's books at their fair market value. The difference between the market
value of the shares Hertz is issuing to the Return Assured stockholders in the
merger and the fair market value of Hertz's tangible assets is entered initially
on the balance sheet as goodwill. We expect the transaction to result in
approximately $18.4 million of goodwill. That goodwill will be charged to
earnings over 15 years, which will result in an expense charge of $1.23 million
per year for the next 15 years. This continuing write-off may make it difficult
for Hertz to obtain financing in the future.
The combined companies will incur additional charges to their earnings for
compensation payable to Mr. Hertz under his proposed employment agreement with
Hergo and his consulting agreement with Hertz.
The proposed employment arrangements after the merger include a five-year
employment agreement between Eli E. Hertz and Hertz's Hergo subsidiary and a
two-year consulting agreement between Mr. Hertz and Hertz. Under the employment
agreement, Mr. Hertz is to receive not less than $250,000 per year
(approximately his present salary), and under the consulting agreement he is to
receive not less than $125,000 per year. These costs will be in addition to
whatever compensation the combined company decides to pay its senior management.
The share of gross profit will be payable whether or not Hertz or the subsidiary
earns a net profit. The added costs will be a continuing drag on earnings over
the terms of these agreements, and may make it difficult to obtain financing in
the future.
The cash payment required to redeem Mr. Hertz's common stock may reduce the
available working capital of the combined companies, which could make it more
difficult for Hertz to meet its obligations and limit future expansion.
Return Assured has agreed to purchase $1,025,000 in common stock from Eli E.
Hertz when the merger is completed. This obligation will become an obligation of
the combined companies if Return Assured does not assign its right to buy the
shares to an outside third party. The only sources of funds that will be
available to purchase the shares are the cash and cash equivalents of the
combined companies on hand at the time the merger is completed and the proceeds
of sale of the Series A Preferred Stock. As a result, the combined companies may
not have sufficient working capital, making it difficult for them to meet their
obligations and limiting future expansion plans.
The demand for Return Assured's proposed service may be less than the parties
expect.
Return Assured believes there is a considerable demand from merchants to provide
their customers with the assurance that the goods they order will be delivered,
and that the merchants will honor their return policies. But Return Assured
management has not conducted any marketing studies to confirm that this demand
exists or the extent of the demand. We may find that as customers become more
comfortable with e-commerce they will not feel the need for
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outside assurance of delivery and returns. If that happens, the number of
merchants willing to pay for Return Assured's proposed service may be too small
to be profitable.
If Return Assured's business plan is successful other companies with more
resources and greater name recognition may make competition so intense that the
proposed business will not be profitable.
Return Assured's business plan is based on its being the first to market with
its proposed service. Its service is not protected by patents or other
intellectual property rights, and if it is successful a number of other
companies with far more money and greater name recognition may decide to compete
with it. This competition could both reduce the number of merchants who select
Return Assured to provide the service and create downward pressure on the amount
Return Assured could charge for the service so that Return Assured would not
have enough revenue to generate a profit.
Return Assured's cyber liability insurance policy does not cover substantial
portions of the cost Return Assured might incur if a merchant is unable or
unwilling to deliver its product or honor its return policy.
Return Assured is purchasing a "cyber liability" insurance policy from Lloyd's
of London covering its own negligence in selecting a merchant or failing to
carefully monitor the shipment and return of the merchant's products. However,
that policy has a deductible of $2 million for each merchant. Since most claims
are likely to to be less in the aggregate than $2 million per merchant, it is
unlikely that Return Assured would ever be able to make a claim under the
policy. In addition, since the policy covers Return Assured's own negligence in
selecting a merchant or failing to carefully monitor the shipment and return of
the merchant's products, coverage may not be available if a merchant fails to
deliver or honor its return policies for reasons beyond its control or for a
reason that Return Assured should not have recognized in allowing the merchant
to use the Return Assured logo.
State regulations governing insurance could apply to Return Assured's business,
making that business impractical.
Virtually every state tightly regulates companies who are in the business of
insurance. Return Assured does not believe that its proposed business is
insurance under the laws of any state, but this business will be entirely new
and one or more states might try to regulate Return Assured's operations as
insurance. This risk may be increased by the presence of the Lloyd's of London
logo on the Return Assured web site. If Return Assured's business were to be
regulated as insurance its business plan would most probably not be practicable
because the costs of complying with the insurance regulations would be so high
that Return Assured would have to raise its charges to a level most merchants
would not be willing to pay. In addition, the cost of defending against state
regulators' claims, if brought, could be prohibitive.
Return Assured will be almost entirely dependent on third parties to develop and
implement its proposed service.
Except for Mr. Sebal, Return Assured's President, Return Assured's senior
management has virtually no experience in the e-commerce field. Mr. Carter, its
Chairman, comes from the oil business. Mr. Mulberry, its Senior Vice President
comes from the banking and financial services fields. Return Assured has entered
into an agreement with IBM to evaluate its business plan and assist
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in developing and implementing its proposed web site, but we cannot give any
assurance that Return Assured, even with IBM's assistance, will be able to
implement its business plan and Return Assured's principal managers may lack the
experience to assess the effectiveness of IBM's efforts.
Hertz and Return Assured have limited operating histories as online commerce
companies, which will make the business of the combined company difficult to
evaluate.
The merger will combine two companies that have limited operating histories as
online commerce companies. Hertz has been in the business of providing internet
and web-based services for only a little over a year. Return Assured was formed
less than a year ago. The prospects of the combined company will therefore be
subject to the risks, expenses and uncertainties frequently encountered by young
companies that operate in the new and rapidly evolving markets for internet
products and services. These risks include:
o evolving and unpredictable business models;
o intense competition;
o our need and ability to manage growth; and
o the rapid evolution of technology in electronic commerce.
There is no assurance as to future plans for Hertz's present core businesses.
Management believes that the business combination with Return Assured is a
logical extension of its internet-related services. The parties expect that some
of the web-based services of Hertz's RemoteIT Division will complement Return
Assured's web-based proposed business, and that the expertise of that division
will enhance Return Assured's ability to pursue its business plan. Hertz's other
operations are less closely linked to Return Assured's business plans and we do
not have any assurance as to Return Assured's intentions as to the future
operations of those businesses. Mr. Eli Hertz, Hertz's President, is to become
the president of the combined companies' Hergo subsidiary and expects to
continue operating that subsidiary on a more or less autonomous basis. Over the
longer-term, Return Assured's management, which will become the management of
the combined companies, might determine that one or more of Hertz's present core
businesses is not central to its business plans, and the combined company would
be free to dispose of those operations as it sees fit.
We will likely incur net losses for the foreseeable future.
Based on pro forma financial statements, we would have incurred net losses in
each of 1999 and 2000. As of May 31, 2000, Hertz had a net accumulated deficit
of approximately $1,754,000 and Return Assured had a net accumulated deficit of
approximately $622,000. Hertz and Return Assured expect the combined company to
experience substantial quarterly net losses for the foreseeable future, due
primarily to the following factors:
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o Amortization of the goodwill arising from this transaction will be a
continuing drain on the earnings of the combined company as that
goodwill is charged to earnings over future quarters;
o Competitive pricing pressures in Hertz's present core businesses are
expected to continue to negatively affect gross margins; and
o Probable significant spending on operating expenses, in particular
marketing expenses to bring the attention of businesses and
consumers to Return Assured's services.
Our operating results may fluctuate significantly and may be difficult to
predict.
Hertz's operating results have fluctuated in the past, and the operating results
of the combined company will likely fluctuate in the future due to a number of
factors, many of which will be outside our control. These factors include:
o pricing competition;
o failure of a major merchant, requiring us to incur large costs in
paying for goods that were not delivered or returns that were not
honored;
o seasonal fluctuations in buying patterns of merchandise sold by
merchants using our services;
o the announcement or introduction of new types of service offerings
or customer services by us or our competitors;
o the amount and timing of costs relating to expansion of our
operations;
o interruptions to or increases in the costs associated with the
normal flow of our business operations, including the occurrence of
technical or communications failures or stoppages by common
carriers; and
o governmental regulation and taxation policies which may reduce the
volume of merchandise purchased online from our merchants.
Due to these factors, factors discussed elsewhere in this document, or
unforeseen factors, in some future quarter our operating results may not meet
the expectations of securities analysts and investors, and if this happens the
trading price of the common stock of the combined company may decline.
We will operate in an extremely competitive market and we could lose revenue and
customers to competitors.
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It is perceived to be easy to enter the online commerce services market, and
current and new competitors can launch new online commerce web sites at
relatively low cost. Competition in services to online commerce will likely
increase as well-recognized web participants decide to enter this market
segment. Increased competition may result in price reductions, reduced gross
margins, increased marketing costs or loss of market share, or any combination
of these problems.
Major credit card companies already offer some protection against both failure
to deliver and the delivery of defective products, and they may decide to
compete with Return Assured's service by, for example, themselves undertaking to
resolve delivery disputes or guaranty delivery and returns for customers who use
their cards to purchase online.
We may not be successful in competing against these competitors. Many of these
competitors have greater financial, marketing, customer support, technical and
other resources than we will. As a result, they may be able to provide the same
services Return Assured provides on more favorable terms than us, and they may
be able to respond more quickly to changes in customer preference or to devote
greater resources to the development, promotion and sale of their services than
we can. If competition increases and our branding efforts are not successful, we
may not be able to command higher margins on our services, or we may lose
revenue and customers to our competitors.
Our business may be affected by government regulation.
The need for Return Assured's services may be reduced by future state or federal
regulation providing for governmental enforcement of the obligations of online
merchants to deliver their products and honor returns policies. Even if this
does not happen, it is possible that one or more states may decide that Return
Assured's proposed business is close enough to the business of insurance that it
should be regulated like insurance. This could result in interference with our
business that would create unacceptable costs to us.
The tax treatment of the internet and electronic commerce is currently
unsettled. A number of proposals have been made at the federal, state and local
level and by some foreign governments that could impose taxes on the sale of
goods and services and other internet activities. Our business may be harmed by
the passage of laws in the future imposing taxes or other burdensome regulations
on online commerce.
Due to the increasing popularity and use of the internet, it is possible that a
number of laws and regulations may be adopted with respect to the internet
generally, covering issues such as user privacy, pricing and characteristics and
quality of products and services. Similarly, the growth and development of the
market for internet commerce may prompt calls for more stringent consumer
protection laws that may impose additional burdens on those companies conducting
business over the internet. The adoption of any additional laws or regulations
may decrease the growth of commerce over the internet, increase our cost of
doing business or otherwise have a harmful effect on our business.
We may have to qualify to do business in other jurisdictions. Because the
combined company's service will be available over the internet in multiple
states and foreign countries, those jurisdictions may claim that it is required
to qualify to do business as a foreign corporation in
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each of these states and foreign countries. If we fail to qualify as a foreign
corporation in a jurisdiction where we are required to do so, we could be
subject to taxes and penalties.
We cannot predict our future capital needs and we may not be able to secure
additional financing.
To fully implement Return Assured's current business plan, we will likely need
to raise additional funds within the next 12 months in order to fund continuing
operating losses or to acquire complementary businesses, technologies or
services. Additional financing may not be available on terms favorable to us, or
may not be available to us at all. If we raise additional funds by issuing
equity securities, you may experience significant dilution of your ownership
interest, and these securities may have rights senior to the rights of common
stock holders. If additional financing is not available when required or is not
available on acceptable terms, we may be unable to fund continuing operations,
promote our brand name, enhance or develop our services, take advantage of
business opportunities or respond to competitive pressures, any of which could
harm our business.
We have no direct control over shipping and quality of products (returns)
shipped by merchants.
We will rely on vendors to ship merchandise directly to customers. Consequently,
we will have limited control over the goods shipped by these vendors, and
shipments of goods may be subject to delays. In addition, we may accept returns
from customers for which we will not receive reimbursements from manufacturers
or vendors. If the quality of service provided by these vendors falls below a
satisfactory standard or if our level of returns exceeds expectations, this
could have a harmful effect on our business.
Our online commerce services will be vulnerable to interruption.
Merchant access to our web site will directly affect the volume of orders and
thus affect our revenues. System interruptions may make our web site unavailable
or prevent us from processing shipments and returns efficiently, reducing the
attractiveness of our services. We may need to add hardware and software and
further develop and upgrade our existing technology, transaction-processing
systems and network infrastructure to accommodate increased traffic on our web
site and increased sales volume. We will maintain substantially all of our
computer and communications hardware at one facility, in a colocation facility.
Our systems and operations could be damaged or interrupted by fire, flood, power
loss, telecommunications failure, network break-ins, earthquake and similar
events. Our backup systems and disaster recovery plan may not be adequate, and
we may not have sufficient business interruption insurance to compensate us for
losses from a major interruption. Computer viruses, physical or electronic
break-ins, deliberate attempts by third parties to exceed the capacity of our
systems and similar disruptions could cause system interruptions, delays and
loss of critical data, and could prevent us from providing services and
processing order tracking and return.
We expect our stock price to be volatile.
The market price of the shares of the common stock of Hertz has been, and the
market price of the shares of common stock of the combined company is likely to
be, subject to wide fluctuations in response to several factors, such as:
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o actual or anticipated variations in our results of operations;
o announcements of technological innovations;
o new services or product introductions by us or our competitors;
o changes in financial estimates by securities analysts; and
o conditions and trends in the Internet and electronic commerce
industries.
The stock markets generally, and the Nasdaq Small Cap Market in particular, have
experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many technology companies and
that often have been unrelated or disproportionate to the operating performance
of those companies. These market fluctuations, as well as general economic,
political and market conditions such as recessions, interest rates or
international currency fluctuations may adversely affect the market price of the
common stock of the combined company.
THE HERTZ MEETING
Date, time, place and purpose of the Hertz meeting
Hertz Technology Group, Inc. will hold a special meeting of its stockholders at
its headquarters at 75 Varick Street, 11th Floor, New York, New York on _____,
2000 at 10:00 a.m., Eastern Daylight time. At the meeting, Hertz stockholders of
record at the close of business on September __, 2000 will be asked:
1. To approve the issuance of shares of Hertz common stock in connection with
our proposed merger with Return Assured.com, Inc., including the shares of
common stock that may be issued on conversion of the proposed Series A
Convertible Preferred Stock.
2, To adopt Hertz's amended and restated certificate of incorporation, which
will:
o change the name of the corporation from Hertz Technology Group, Inc.
to Return Assured.com, Inc.;
o increase the authorized number of shares of common stock to
50,000,000
o create a new class of 1,000,000 shares of "blank check" Preferred
Stock and empower the Board of Directors to authorize the issuance
of one or more classes of that Preferred Stock, or one or more
series of any such class, and to fix the preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof for each such class or series;
and
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3. To increase the number of shares of common stock that may be issued under
Hertz's incentive stock option plan by 1,500,000 shares to 2,250,000.
Hertz does not anticipate that any other matter will be presented for action at
the meeting. If any other matters are properly brought before the meeting, the
persons named in the proxies for the Hertz meeting will have discretion to vote
on these matters in accordance with their respective judgments.
Record date and outstanding shares
The record date for the Hertz stockholders' meeting is September ___, 2000. Only
holders of record of Hertz common stock at the close of business on the record
date are entitled to notice of and to vote at the meeting. As of the close of
business on the record date, there were 2,249,593 shares of Hertz common stock
outstanding and entitled to vote, held of record by approximately ____
stockholders, although Hertz has been informed that there are in excess of _____
beneficial owners. Each Hertz stockholder is entitled to one vote for each share
of Hertz common stock held as of the record date.
On the record date, directors, executive officers and affiliates of Hertz as a
group owned 754,396 shares of Hertz common stock. These shares constituted
approximately 33.5% of all of the outstanding shares of Hertz common stock as of
the record date.
Vote and quorum required
The holders of a majority of the shares of Hertz common stock entitled to vote
at the Hertz stockholders' meeting, present in person or represented by proxy,
will constitute a quorum for the purposes of the meeting. Each of the proposals
must be approved by the holders of a majority of the shares held by those
present at the meeting or represented by proxy at the meeting that are voted
"for," "against" or "abstain" on this proposal.
Abstentions will have the same effect as votes against the proposals. If a
broker, bank, custodian, nominee or other record holder of Hertz common stock
indicates on a proxy that it does not have discretionary authority to vote
certain shares on a particular matter, which is called a broker non-vote, those
shares will be counted for purposes of determining the presence or absence of a
quorum for the Hertz stockholders' meeting, will have the same effect as votes
against Proposal No. 1 and 2, and will not be considered present at the meeting
with respect to Proposal No. 3.
Hertz stockholders holding approximately 51% of the outstanding shares of Hertz
common stock as of the record date have agreed to vote all of their shares of
Hertz common stock in favor of all of the proposals, or have indicated that they
will vote in this manner. See "Related Agreements-- Proxy in favor of the
proposals" on page 45.
Expenses of proxy solicitation
Hertz will pay the expenses of soliciting proxies to be voted at the Hertz
stockholders' meeting. Following the original mailing of the proxies and other
soliciting materials, Hertz and its agents also may solicit proxies by mail,
telephone, telegraph or in person. Following the original
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mailing of the proxies and other soliciting materials, Hertz will request
brokers, custodians, nominees and other record holders of Hertz common stock to
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of Hertz common stock and to request authority for the exercise
of proxies. In these cases, upon the request of the record holders, Hertz will
reimburse these holders for their reasonable expenses.
Voting of proxies
The proxy relating to the Hertz stockholders' meeting that accompanies this
document is solicited on behalf of the Hertz board of directors for use at the
Hertz stockholders' meeting. Please complete, date and sign this accompanying
proxy and promptly return it in the enclosed envelope or otherwise mail it to
Hertz. All properly signed proxies that Hertz receives prior to the vote at the
Hertz stockholders' meeting and that are not revoked will be voted at the
meeting according to the instructions indicated on the proxies or, if no
direction is indicated, in favor of each proposal. A Hertz stockholder may
revoke his or her proxy at any time before it is exercised at the meeting by
taking any of the following actions:
o delivering to the secretary of Hertz a written notice, bearing a
date later than the date of the proxy, stating that the proxy is
revoked;
o signing and delivering to the secretary of Hertz a proxy relating to
the same shares and bearing a later date prior to the vote at the
meeting; or
o attending the Hertz stockholders' meeting and voting in person,
although attendance at the meeting will not, by itself, revoke a
proxy. Please note, however, that if your shares are held of record
by a broker, bank or other nominee and you vote at the Hertz
stockholders' meeting, you must bring to the meeting a letter from
the broker, bank or other nominee confirming your beneficial
ownership of the shares.
No dissenters' or appraisal rights
Holders of Hertz common stock are not entitled to dissenters' rights or
appraisal rights with respect to the merger-related proposal to be considered at
the Hertz stockholders' meeting.
PROPOSAL NO. 1--ISSUANCE OF SHARES IN THE MERGER
Based on the shares of Return Assured common stock outstanding as of August 21,
2000 and on the exchange ratio of 1 share of Hertz common stock for each share
of Return Assured common stock outstanding immediately before the consummation
of the merger, Hertz will issue approximately 4,695,685 shares of Hertz common
stock in the merger. In addition, each option, warrant and purchase right to
acquire Return Assured common stock that is outstanding immediately before the
merger will be assumed by Hertz and converted into an option to acquire 1 share
of Hertz common stock after the merger. As of August 21, 2000, options, warrants
and purchase rights to acquire approximately 2,888,833 shares of Return Assured
common stock were outstanding, which based on the exchange ratio will be
converted into options and purchase rights to acquire approximately 2,888,833
shares of Hertz common stock.
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Nasdaq rules require us to obtain shareholder approval for the issuance of
securities involving the sale of 20% or more of our common stock at less than
the greater of the fair market value or book value of our common stock. Nasdaq
may delist the securities of any issuer that fails to obtain such stockholder
approval before the issuance of such securities. Since the price at which the
Series A Preferred Stock may be converted could be below market price as a
result of the conversion formula for that stock, we are also asking that you
approve the issuance of that stock.
For a discussion of the merger as it relates to the proposal to issue shares of
Hertz common stock in connection with the merger, please refer to the sections
entitled "The Merger" beginning on page 26 and "The Merger Agreement" beginning
on page 33. The merger agreement is included as Annex A to this document.
PROPOSAL NO. 2--ADOPTION OF HERTZ'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION
Hertz's certificate of incorporation currently authorizes the issuance of
6,000,000 shares of common stock, par value $.001 per share. On July 14, 2000,
Hertz's board of directors adopted Hertz's amended and restated certificate of
incorporation, subject to stockholder approval. This new certificate of
incorporation will:
o change the name of the corporation from Hertz Technology Group, Inc.
to Return Assured.com, Inc.;
o increase the authorized number of shares of common stock to
50,000,000
o create a new class of 1,100,000 shares of "blank check" preferred
stock and empower the Board of Directors to authorize the issuance
of one or more classes of that preferred stock, or one or more
series of any such class, and to fix the preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof for each such class or series;
Hertz's amended and restated certificate of incorporation is included as Annex B
to this document.
Current commitments for use of shares
As of August 21, 2000, Hertz had:
o 2,249,593 shares of common stock outstanding;
o 729,490 shares reserved for future issuance under employee stock
option and employee stock purchase plans, of which 485,942 shares
were subject to issuance upon the exercise of currently outstanding
options and purchase rights;
o 1,100,000 shares reserved for issuance upon exercise of
non-statutory options; and
o 177,867 treasury shares.
Based upon these numbers, Hertz has 1,763,560 shares of common stock remaining
available for other purposes. Therefore, without amending its certificate of
incorporation to authorize additional shares of common stock, Hertz would not
have enough shares to issue in the merger.
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Hertz's board of directors recommends a vote for the proposal to issue shares of
Hertz common stock in the merger.
Purpose and effect of Hertz's Amended and Restated Certificate of Incorporation
Purpose and effect of changing the corporate name from Hertz Technology Group,
Inc. to Return Assured.com, Inc.
Changing the corporate name of Hertz Technology Group, Inc. to Return
Assured.com, Inc. after the merger was a negotiated aspect of the merger
agreement that each party concluded would be beneficial to the combined entity
going forward. As a result, although Hertz will continue as a corporate entity
after the merger, Hertz's legal corporate name will be changed to Return
Assured.com, Inc.
Purpose of changes to authorized stock.
Hertz's board believes that it is in Hertz's best interest to increase the
number of shares of common stock that it is authorized to issue in order to give
Hertz the number of shares required to effect the merger with Return Assured and
obtain the financing from GEM.
Hertz's board also believes that the availability of additional authorized
shares will provide Hertz with the flexibility to issue securities for other
proper corporate purposes which may be identified in the future, such as to
raise equity capital, to adopt additional employee benefit plans or reserve
additional shares for issuance under such plans and to acquire other companies.
No additional action or authorization by the stockholders of the combined
company would be necessary prior to the issuance of these additional shares,
unless required by applicable law or the rules of any stock exchange or national
securities association trading system on which the common stock of the combined
company is then listed or quoted.
Dilutive effect of potential new stock issuances. Hertz's stockholders generally
do not have preemptive rights with respect to its common stock. Should the board
of directors of the combined company elect to issue additional shares of common
stock, existing stockholders would not have any preferential rights to purchase
these shares. Therefore, additional issuances of common stock by the combined
company could dilute the earnings per share, voting power and share holdings of
current stockholders.
Anti-takeover effect of increase in authorized common stock. The proposed
increase in the authorized number of shares of common stock of the combined
company could, under some circumstances, have an anti-takeover effect, although
this is not the intention of this proposal. For example, in the event of a
hostile attempt to take over control of the combined company, it may be possible
for the combined company to seek to impede the attempt by issuing shares of its
common stock, which could dilute the voting power of the other outstanding
shares and increase the potential cost to acquire control of the combined
company. Therefore, the increase in authorized shares may have the effect of
discouraging unsolicited takeover attempts. By potentially discouraging
unsolicited takeover attempts, the increase may limit the opportunity for the
stockholders of the combined company to dispose of their shares at the higher
price generally available in takeover attempts or that may be available under a
merger or acquisition proposal. The increase may also have the effect of
permitting the combined company's management, including its board of directors,
to retain its position, and place it in a better position to resist
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changes that stockholders may wish to make if they are dissatisfied with the
conduct of the business of the combined company. However, Hertz's board of
directors is not aware of any attempt to take control of Hertz and has not
presented this proposal with the intent that it be utilized as a type of anti-
takeover device.
Hertz's certificate of incorporation presently does not authorize any class of
equity securities other than the common stock. The proposed amendment to the
certificate of incorporation would authorize the issuance by Hertz of up to one
million shares of preferred stock.
The Board of Directors believes that the authorization of the preferred stock is
in the best interests of Hertz and its stockholders and believes that it is
advisable to authorize such shares and have them available in connection with
possible future transactions, such as financing, strategic alliances,
acquisitions and other uses not presently determinable and as may be deemed to
be feasible and in the best interests of Hertz. $5 million in preferred stock
will be issued in to GEM to finance the merger and later operations of the
combined companies. In addition, the Board of Directors believes that it is
desirable that Hertz have the flexibility to issue shares of preferred stock
without further stockholder action, except as otherwise provided by law.
The preferred stock will have such designations, preferences, conversion rights,
cumulative, relative, participating, optional or other rights, including voting
rights, qualifications, limitations or restrictions thereof as may be determined
by the Board of Directors. Thus, if the certificate of incorporation is amended
to provide for an authorized class of preferred stock with rights, preferences
and designations of such shares to be determined by the Board of Directors, the
Board of Directors would be entitled to authorize the creation and issuance of
up to one million shares of preferred stock in one or more series with such
limitations and restrictions as may be determined in the Board's sole
discretion, without further authorization by Hertz's stockholders.
It is not possible to determine the actual effect of the preferred stock on the
rights of the stockholders of Hertz until the Board of Directors determines the
rights of the holders of a series of the preferred stock. These effects might
include
o restrictions on the payments of dividends to holders of the common
stock;
o dilution of voting power to the extent that the holders of shares of
preferred stock are given voting rights;
o dilution of the equity interests and voting power if the preferred
stock is convertible into common stock; and
o restrictions upon any distribution of assets to the holders of the
common stock upon liquidation or dissolution and until the
satisfaction of any liquidation preference granted to the holders of
preferred stock.
Holders of common stock will not have preemptive rights to subscribe for shares
of preferred stock.
The Board of Directors is required by Delaware law to make any determination to
issue shares of preferred stock based upon its judgment as advisable and in the
best interests of the stockholders
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and Hertz. Although the Board of Directors has no present intention of doing so,
it could issue shares of preferred stock (within the limits imposed by
applicable law) that could, depending on the terms of such series, make more
difficult or discourage an attempt to obtain control of Hertz by means of a
merger, tender offer, proxy contest or other means, when, in the judgment of the
Board of Directors, those actions would be in the best interests of the
stockholders and Hertz. The issuance of shares of preferred stock could be used
to create voting or other impediments or to discourage people seeking to gain
control of Hertz, for example, by the sale of preferred stock to purchasers
favorable to the Board of Directors. In addition, the Board of Directors could
authorize holders of a series of preferred stock to vote either separately as a
class or with the holders of the common stock on any merger, sale or exchange of
assets by Hertz or any other extraordinary corporate transaction. The existence
of the additional authorized shares could have the effect of discouraging
unsolicited takeover attempts. The issuance of new shares could also be used to
dilute the stock ownership of the person or entity seeking to obtain control of
Hertz should the Board of Directors consider the action of such entity or person
not to be in the best interests of the stockholders and Hertz. The issuance of
Preferred Stock could also have the effect of diluting the earnings per share
and book value per share of the common stock.
The approval of this proposal to amend the certificate of incorporation will
require the affirmative vote of the majority of the shares of Hertz's
outstanding common stock.
Change in Board of Directors
Under the merger agreement, Return Assured is to designate, before the merger is
completed, the size and composition of the Board of Directors. Return Assured
informs us that at the present time its intention is that immediately after the
merger, the combined company's board of directors would have the following
members:
J.A. Carter. Mr. Carter served as Chairman of the Board for Carter Oil and Gas
Co., a Canadian resource company based in Vancouver, BC, Canada from 1978 to
1989. Mr. Carter was the Owner, CEO, and Chairman of the Board of Northern Life
Insurance Company of London, Ontario, Canada from 1983 to 1984.
Michael Mulberry. Before joining Return Assured in March, 1999, Mr. Mulberry was
employed by Nesbit Burns, a Canadian brokerage firm, as a stock broker/financial
planner from June 1996 to March, 1998. From 1991 to 1996 he was employed as a
financial planner for Financial Planning Group. From 1988 to 1991 he was
employed as a financial planner for London Life Insurance.
Matthew Sebal. Mr. Sebal was a principal in IBM's e-business Services Group for
British Columbia, Canada from 1998 to 2000. From 1997 to 1998, Mr. Sebal was
Director of Business Development for Communicate.com. From 1995 to 1997, he was
Senior Strategist for Emerge Online, Inc. From 1990 to 1995, he was President of
Sebal Enterprises, an import-export business.
Robert Blagman. Mr. Blagman is president and Chief Executive Officer of Blagman
Media International, Inc. (OTC BB: BMII), a direct marketing and advertising
company. From 1978 to 1988, Mr. Blagman was employed by Katz Communications, a
direct marketing and advertising company where he was Vice President National
Sales Manager. From 1992 to 1994 he was National and Local Sales Manager for
Walt Disney's owned and operated KCAL TV of Los Angeles and from 1988 to 1992 he
was employed by KCOP TV of Los Angeles, in the same capacity.
Dale Vander Geissen. In 1997 Mr. Vander Geissen was the National President of
the Independent Electrical Contractors Association (IEC), a trade association
consisting of 3,200 members and 85,000 skilled workers throughout the United
States. Prior to that he served on various IEC Executive Committees for more
than eleven years. From 1997 to the present, Mr. Vander Geissen has served as
the National Membership Chairman of the IEC. He is currently retired.
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Recommendation of Management on Proposal 2
Hertz's board of directors recommends a vote for the proposal to adopt Hertz's
amended and restated certificate of incorporation.
Proposal No. 3 to increase the number of options available under
Hertz's stock option plan from 750,000 to 2,250,000.
We have a stock option plan (the "Plan") covering up to 750,000 of our common
shares, under which incentive and/or nonqualified options to purchase shares of
common stock may be granted to our directors, employees and consultants. Options
granted under the plan are exercisable for a period of up to 10 years from the
date of the grant at an exercise price which is not less than the fair market
value of such shares at the date of the grant. In the case of options granted to
a shareholder owning more than 10% of our outstanding shares on the date of the
grant, the options are exercisable for a period not to exceed five years from
the date of the grant at an exercise price which is not less than 110% of the
fair market value of such shares at the date of the grant. Options to purchase
506,000 shares of common stock (excluding canceled shares) have been granted
under the Plan as of August 31, 2000. In addition, options to purchase 1,100,000
shares of common stock (excluding canceled shares) have been granted outside the
plan as of August 31, 2000.
The Board of Directors recommends that the shareholders approve an increase in
the number of stock options available for issuance under the Stock Option Plan
from 750,000 to 2,250,000. Only 244,000 options are remaining for issuance. As a
result of the merger, 1,487,500 options previously issued by Return Assured will
become options to purchase shares of Hertz. In addition, we believe that in the
future for incentive options to be issued for key employees, consultants and
acquisitions, the number of options should be increased to allow for these
incentives.
Recommendation of Management on Proposal No. 3
The Board of Directors recommends a vote FOR this proposal.
The Merger
Hertz's reasons for the merger
At a meeting held on July 14, 2000, the board of directors of Hertz concluded
that the merger was in the best interests of Hertz and its stockholders and
determined to recommend that the Hertz stockholders approve the stockholder
proposals relating to the merger. Mr. and Mrs. Hertz were not present at this
meeting. In deciding to recommend the merger, the Board gave serious
consideration to Hertz's present business and the future prospects of its
divisions, including
o the fact that both computer hardware and network and communications
services are intensely competitive and have become essentially
commodities;
o the fact that our business of providing modular systems for easy
access to microcomputers and related equipment is becoming a
relatively mature business and increasingly competitive;
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o the phasing out of several of Hertz's existing contracts to supply
goods or services;
o a series of annual Hertz losses; and
o Hertz's limited cash resources coupled with a decline in the market
value of its stock that could make it difficult to raise additional
funds on acceptable terms.
The decision of the board of directors of Hertz was based upon several potential
benefits of the merger, including the potential to:
o quickly enter the rapidly expanding market for services relating to
electronic commerce;
o build on Hertz's technological expertise in the areas of internet
and web-based services by expanding to take advantage of Return
Assured's expertise in the area of e-commerce.
o improve our access to capital because the field of electronic
commerce is believed by many to offer greater potential for
expansion than our present core businesses.
In its evaluation of the merger, the Hertz board reviewed several factors,
including, but not limited to, the following:
o historical information concerning our respective businesses,
financial performance and condition, operations, technology and
management, including reports concerning results of operations;
o Hertz management's view of the financial condition, results of
operations and businesses of Hertz and Return Assured before and
after giving effect to the merger and the Hertz board's
determination of the merger's effect on stockholder value;
o current financial market conditions and historical market prices,
volatility and trading information; and
o the consideration Return Assured shareholders will receive in the
merger in light of comparable merger transactions.
We also discussed with an investment banking firm hired for the purpose whether
the proposed transaction was fair to Hertz stockholders from a financial point
of view.
The Hertz board also identified and considered a number of potentially negative
factors in its deliberations concerning the merger including the following:
o the possibility that the demand for Return Assured's proposed
service of providing assurance that online merchants will deliver
their products and honor their return policies may be less than the
parties expect;
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o the possibility that the number of shares of outstanding common
stock of the combined company may increase more than expected
because the conversion price of the preferred stock to be issued in
financing the merger is not fixed, but is determined based on the
market value of the common stock at the time of conversion;
o the possibility that Hertz may be required to pay liquidated damages
in an amount that would force it to go out of business if Hertz is
unable to maintain the effectiveness of a registration statement
under the Securities Act of 1933 covering resale of common stock
issuable on conversion of the Series A Preferred stock or otherwise
does not comply with agreements it is making with holders of that
preferred stock;
o the possibility that if Return Assured's business plan is successful
other companies with more resources and greater name recognition may
enter the field;
o The possibility that continuing charges for write-offs of goodwill
resulting from the transaction may make it more difficult for Hertz
to obtain financing in the future;
o the technical, operational, managerial and personnel-related
challenges of integrating the two companies; and
o the possible loss of key employees as a result of the merger.
The board concluded, however, that the potential benefits to Hertz and its
stockholders of the merger outweighed the risks associated with the merger.
The discussion of the information and factors considered by the Hertz board is
not intended to be exhaustive. In view of the variety of factors considered in
connection with its evaluation of the merger, the Hertz board did not find it
practicable to, and did not, quantify or otherwise assign relative weight to the
specific factors considered in reaching its determination.
Recommendation of Hertz's board of directors
After careful consideration, the Hertz board of directors (with Mr. & Mrs. Hertz
not participating in the meeting) has determined the merger agreement and the
merger to be fair to and in the best interests of the Hertz stockholders. In
connection with the merger, Hertz's board of directors recommends approval of
the proposal to issue shares of Hertz common stock in the merger, to adopt
Hertz's amended and restated certificate of incorporation and to increase the
number of shares available for issuance under Hertz's option plan.
In considering the recommendation of the Hertz board of directors with respect
to the merger, you should be aware that some directors and officers of Hertz
have interests in the merger that are different from, or are in addition to, the
interests of Hertz stockholders generally, and well as the fact that our counsel
in the transaction had a pre-existing relationship with the law firm
representing Return Assured. Please see "The Merger--Interests of executive
officers and directors in the merger" on page 29.
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Interests of executive officers and directors in the merger
When considering the recommendations of Hertz's boards of directors, you should
be aware that the directors and executive officers of Hertz have interests in
the merger and related arrangements that are different from the interests of
Hertz stockholders generally. These include:
o To induce Hertz's two controlling stockholders to enter into the
merger agreement, Return Assured arranged for the three investors to
purchase an aggregate of 300,000 shares from them on signing the
merger agreement, at a price of $2.00 per share. Under the letter of
intent that preceded the merger agreement, this purchase was a
condition to signing the merger agreement.
o Eli E. Hertz, Hertz's President and Chief Executive Officer sold
300,000 shares of Hertz common stock owned by him to three investors
at $2.00 per share when the merger agreement was signed. As a
condition to the merger, Mr. Hertz will also sell $1,025,000 in
common stock to the combined company at the time of closing. Mr.
Hertz will also enter into a five-year employment agreement with the
combined company's Hergo subsidiary under which he will receive an
annual salary of at least $250,000 plus incentive compensation of
25% of total gross profit. He will also enter into a two-year
consulting agreement with the combined company under which he will
receive $125,000 per year and additional fringe benefits;
o Barry Goldsammler, Hertz's Executive Vice President and a member of
the Board of Directors, will enter into a one-year employment
agreement with the combined company under which he will receive an
annual salary at least $125,000 (approximately his present salary)
and additional fringe benefits;
o I. Marilyn Hertz, Hertz's Vice Chairperson, will enter into a
five-year employment agreement with the combined company under which
she will receive an annual salary at least $95,000 and additional
fringe benefits;
o Hertz's Board of Directors has authorized the vesting of presently
outstanding options held by some of Hertz's officers, directors and
key employees in the discretion of Mr. Hertz.; and
o Hertz's directors and executive officers have customary rights to
indemnification against specified liabilities.
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The merger will be completed when all of the conditions to closing the merger
are satisfied or waived, including approval and adoption of the merger agreement
and approval of the merger by the Return Assured shareholders and approval of
the proposal to issue shares of Hertz common stock in the merger and to adopt
Hertz's amended and restated certificate of incorporation by the Hertz
stockholders. The merger will become effective upon the filing of articles of
merger with the State of Nevada.
Structure of the merger
Hertz Acquisition Corporation, a newly-formed and wholly-owned subsidiary of
Hertz, will be merged with and into Return Assured. As a result of the merger,
the separate corporate existence of Hertz Acquisition will cease and Return
Assured will survive the merger as a wholly-owned subsidiary of Hertz. At the
effective time of the merger, the corporate name of Hertz will be changed to
"Return Assured, Inc." and the name of the subsidiary will be changed.
Conversion of Return Assured common stock
When the merger becomes effective, each outstanding share of Return Assured
common stock, other than shares held by dissenting Return Assured shareholders
who have complied with and established right to payment under Nevada law and
have not withdrawn demand for payment, will be converted into the right to
receive 1 share of fully paid and nonassessable Hertz common stock. The number
of shares of Hertz common stock issuable in the merger will be proportionately
adjusted for any stock split, stock dividend or similar event with respect to
Return Assured common stock or Hertz common stock effected between the date of
the merger agreement and the closing of the merger. Hertz will not issue any
fractional shares of Hertz common stock in connection with the merger. Each
Return Assured shareholder who would otherwise be entitled to receive a
fractional share of 0.5 or greater will receive a whole share, and each Return
Assured shareholder who would otherwise be entitled to receive a fractional
share of less than 0.5 will not receive an additional Hertz share.
Exchange of Return Assured stock certificates for stock certificates in the
combined company
When the merger is completed, Hertz's exchange agent will mail to Return Assured
shareholders a letter of transmittal and instructions for use in surrendering
Return Assured stock certificates in exchange for Hertz stock certificates. The
Hertz stock certificates will evidence ownership in the combined company after
the merger.
Return Assured shareholders are not entitled to receive any dividends or other
distributions on Hertz common stock until the merger is completed and they have
surrendered their Return Assured stock certificates in exchange for Hertz stock
certificates.
Material United States federal income tax consequences of the merger
The following general discussion summarizes the material United States federal
income tax consequences of the merger. This discussion is based on the Internal
Revenue Code, the related regulations promulgated, existing administrative
interpretations and court decisions, all of which are subject to change,
possibly with retroactive effect.
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Based on discussions with its independent public accountants, Hertz's management
believes that the tax status of shares held by shareholders of Hertz will not be
affected by the merger and that Hertz, including its merger subsidiary, should
not recognize gain or loss for United States federal income tax purposes as a
result of the merger. Hertz has not sought a tax ruling from the IRS or obtained
a legal opinion confirming the information below. These opinions will not bind
the IRS and will not preclude the IRS from adopting a contrary position, and no
assurance can be given that contrary positions will not be successfully asserted
by the IRS or adopted by a court if the issues are litigated. Neither Hertz nor
Return Assured intends to obtain a ruling from the IRS as to the tax
consequences of the merger.
This discussion is only intended to provide you with a general summary, and it
is not intended to be a complete analysis, advice or description of all
potential United States federal income tax consequences or any other
consequences of the merger. In addition, this discussion does not address tax
consequences which may vary with, or are contingent on, your individual
circumstances. Moreover, this discussion does not address any non-income tax or
any foreign, state or local tax consequences of the merger. Accordingly, you are
strongly urged to consult with your tax advisor to determine the particular
United States federal, state, local or foreign income or other tax consequences
to you of the merger.
Accounting treatment of the merger
We intend to account for the merger as a purchase for financial reporting and
accounting purposes, in accordance with generally accepted accounting
principles. After the merger, the tangible assets of Hertz before the merger
will be reflected on the combined company's balance sheet and their fair market
value as of the time of closing and the excess of the market price of the Hertz
shares being issued in the merger over the fair market value of those assets
will be carried on the combined company's balance sheet as goodwill, which will
be written off to earnings over a period of 15 years.
Restrictions on sales of shares of Hertz common stock issued in the merger
All shares of Hertz common stock received by Return Assured shareholders in the
merger will be issued in reliance on exemptions from registration as either a
private offering or an offering to non-U.S. persons. As a result, those shares
will be "restricted securities" under the Securities Act of 1933. An aggregate
of 400,000 shares of Hertz common stock sold by Hertz or Eli E. Hertz to several
investors (including an affiliate of the law firm representing Return Assured)
before or at the time of signing the merger agreement are also restricted
securities, but Hertz has agreed to register the sale of the securities under
the Securities Act of 1933 before the merger becomes effective. Accordingly
those shares will be freely salable subject to the prospectus delivery
requirements of the Securities Act.
Return Assured holders may not sell their shares of Hertz common stock acquired
in the merger except pursuant to
o an effective registration statement under the Securities Act
covering the resale of those shares, or
o any other applicable exemption under the Securities Act.
We have agreed to register the resale of those shares.
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Regulatory Approvals
No federal or state regulatory requirements or approvals are needed in
connection with the merger transaction other than filing of certificates of
merger with the appropriate state officials of Delaware and Nevada.
Listing on the Nasdaq Small Cap Market of shares of Hertz common stock to be
issued in the merger
It is a condition to the closing of the merger that the shares of Hertz common
stock to be issued in the merger must be approved for quotation on the Nasdaq
Small Cap Market, subject to official notice of issuance.
Operations of the combined company after the merger
Following the merger, the combined company will operate under the name "Return
Assured.com, Inc." The combined company will be headquartered in New York, New
York The common stock of the combined company will trade on the Nasdaq Small Cap
Market under the symbol "RTRN"
The shareholders of Return Assured will become stockholders of the combined
company, and their rights as stockholders will be governed by Hertz's amended
and restated certificate of incorporation, Hertz's amended and restated bylaws
and the laws of the State of Delaware.
The Merger Agreement
This section of the document describes the merger agreement. While we believe
that the description covers the material terms of the merger agreement, this
summary may not contain all of the information that is important to you. The
merger agreement is attached to this document as Annex A and we urge you to
carefully read this document in its entirety.
Representations and warranties
Hertz and Return Assured each made substantially similar representations and
warranties in the merger agreement regarding aspects of our businesses,
financial condition, structure and other facts pertinent to the merger,
including representations and warranties by each company as to:
o its corporate organization, good standing and qualification to do
business;
o authority to enter into the merger agreement and related agreements;
o the effect of the merger on its outstanding obligations;
o its capitalization and stock ownership;
o in the case of Hertz, listing status on NASDAQ;
o in the case of Return Assured, the enforceability of the preferred
stock purchase agreement with GEM;
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o information each company is to furnish for disclosure to
stockholders of Hertz and Return Assured
o in the case of Hertz, truth of filings and reports with the
Securities and Exchange Commission, and, in the case of Return
Assured, accuracy of its business plan and the reasonableness of
assumptions for the financial projections in the business plan;
o its financial statements;
o its taxes;
o its title to the properties it owns and leases;
o in the case of Hertz, its subsidiaries and ownership interests in
other entities;
o litigation to which it is a party;
o environmental liabilities;
o required consents, waivers and approvals;
o its agreements, contracts and commitments;
o its labor relations;
o its employee benefit plans;
o its intellectual property, intellectual property that it uses and
infringement of other intellectual property;
o changes in its business since August 31, 1999;
o the accuracy and completeness of its charter, bylaws and minute
book;
o brokers' and finders' fees that it owes in connection with the
merger;
o in the case of Return Assured, its receipt of at least $1 million in
financing since August 31, 1999; and
o in the case of Hertz, ownership and absence of prior activities of
the merger subsidiary.
The representations and warranties in the merger agreement are complicated and
are not easily summarized. We urge you to read the articles of the merger
agreement entitled "Representations and warranties of Hertz" and
"Representations and warranties of A Sure" carefully.
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Registration Rights
Each of the Return Assured U.S. stockholders will agree that he is acquiring the
shares of the combined company being issued to the stockholder in the merger or
investment and not with a view to distribution except in compliance with the
Securities Act. Non-U.S. holders will also receive restricted securities in the
merger. The combined company is to file a registration statement at its own
expense covering the resale of those shares within 90 days after the merger is
completed and to keep that registration statement effective for two years or
until the stockholders are able to sell their shares without registration under
the SEC's Rule 144(k).
No other negotiations
Until the merger is completed or the merger agreement is terminated, Hertz and
Return Assured have each have agreed not to directly or indirectly:
o facilitate knowingly any proposal which could reasonably be expected
to lead to an acquisition proposal (as defined below);
o engage in any discussion relating to an acquisition proposal; or
o accept any acquisition proposal
unless before the other party's stockholders has voted to approve the merger
agreement and without any encouragement from the receiving party
o the third party has initiated the discussion;
o the receiving party determines after consulting with its financial
and legal advisors that the proposal is financially superior to the
proposed merger;
o the third party has demonstrated that it will have the funds
available to complete its proposal; and
o the receiving party's board of directors determines that the
discussion, etc. is required because of its fiduciary duties under
applicable law
Before furnishing information or entering into discussions or negotiations with
the third party, the receiving party is required to
o notify the other party;
o receive a signed confidentiality agreement from the third party;
The receiving party is also required to
o keep the other party informed of the status and details of
discussions; and
o give the other party at least two days notice of any agreement to be
entered into with the third party.
An "acquisition proposal" is a proposal for a tender or exchange offer, merger,
consolidation or other business combination or a proposal to acquire a
substantial interest in or a substantial amount of assets of, the receiving
party.
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Public disclosure
The parties are to try to develop a joint communications plan and insure that
all press releases and other public statements about the proposed merger will be
consistent with that plan, and each is to consult with the other before issuing
any press release or otherwise making public statements about the proposed
merger except as required by law. Each party is entitled to disclose all
information about the proposed merger required by the SEC or rules and
regulations of NASDAQ.
Actions affecting tax status
Neither of the parties is to take any action that would jeopardize qualification
of the merger as a tax-free reorganization under the Internal Revenue Code.
Expenses
Each of Hertz, Return Assured, and Eli E. Hertz is to pay its or his own expense
as except that:
o Return Assured is to pay $75,000 for Hertz's professional fees;
o Return Assured is to pay the incremental costs of the financial
printer for a registration statement if the registration statement
may not be filed on Form S-3;
o Return Assured is to pay one-half (but not more than $25,000) of
Hertz's accounting fees for the transaction; and
o Return Assured is to pay the costs of obtaining a fairness opinion
on the transaction from an investment banking firm.
Hertz is to reimburse Return Assured for these amounts if
o Return Assured terminates the merger agreement because of Hertz's
default or because Hertz's Board of Directors withdraws its
recommendation of the agreement, or
o Hertz terminates the merger agreement because it stockholders have
not approve the agreement or because it has decided to accept a
superior offer.
Operation of the business
Each of Hertz and Return Assured has agreed that pending completion of the
merger it will conduct its operations only in the ordinary course of business
consistent with sound financial, operational and regulatory practice. The
following actions are specifically prohibited without the prior written consent
of the other party
o amendment of charter documents or bylaws,
o authorizing the issuance of additional options or shares other than
those specifically identified in the agreement,
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o recapitalizations, stock splits, etc.,
o taking on debt for borrowed money, guaranteeing the obligations or
others or making loans or investments in anyone other than a
wholly-owned subsidiary,
o amending any benefit plan, increasing employee or director
compensation outside the ordinary course of business, paying
bonuses, severance pay or other employee benefits other than under
existing plans, or amending employment, consulting, etc. agreements
with directors, officers or employees,
o entering into contracts outside the ordinary course of business,
o liquidating or dissolving, acquiring material assets or securities,
and disposing of material amounts of assets or securities, mergers
or changes in capitalization,
o changing material accounting or tax procedures,
o doing anything that would make the representations and warranties
made in the agreement untrue, or
o compromising, settling or modifying claims or litigation.
Other actions
Each of Hertz and Return Assured has agreed
o to maintain its assets consistent with past practice,
o to try to keep available the services of its current employees and
maintain its relations with suppliers, customers, etc.,
o to pay its own expenses in connection with the transaction has
except as otherwise provided,
o to continue filing its tax returns and paying required taxes,
o in the case of Hertz, to try to maintain its listing of its common
stock on the NASDAQ Small Cap Market, and
o to try to obtain any necessary consents or approvals necessary to
avoid state anti-takeover laws.
Directors of merged company
Return Assured is entitled to designate the size of the Board of Directors of
the merged company after the merger becomes effective and to designate those who
will serve as directors after that time.
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Conditions of all parties to closing the merger
The obligations of each of the parties to complete the merger and the other
transactions contemplated by the merger agreement are subject to the following
conditions before closing the merger:
o All required governmental approvals must have been obtained,
o Hertz must have received a satisfactory opinion from an investment
banking firm as to the fairness of the transactions as a whole from
a financial point of view to Hertz's stockholders,
o the merger agreement must have been approved by the stockholders of
both Hertz and Return Assured,
o Return Assured much must have purchased $1,025,000 of Hertz common
stock from Eli E. Hertz and Marilyn I. Hertz provided in the stock
redemption agreement described elsewhere in this proxy statement,
o GEM Global Yield Fund Limited must have purchased $5 million in
preferred stock simultaneously with the closing as required by the
preferred stock purchase agreement,
o Eli E. Hertz and Marilyn I. Hertz must have signed employment
agreements with Hertz's Hergo subsidiary as described elsewhere in
this proxy statement,
o Barry Goldsammler and Hertz must have signed an employment agreement
with Hertz as described elsewhere in this proxy statement,
o Eli E. Hertz and Hertz must have signed the consulting agreement
described elsewhere in this proxy statement.
Conditions to Return Assured's Obligations
The obligations of Return Assured to complete the merger and the other
transactions contemplated by the merger agreement are subject to the following
additional conditions before closing the merger:
o Hertz's representations and warranties must be true.
o Hertz must have performed its other agreements in the merger
agreement in all material respects.
o Hertz must have obtained all required consents from third parties.
o There shall not have been a material adverse change in Hertz's
business.
o Hertz must have signed the other transaction documents it is to
signed under the merger agreement.
o Hertz's Board of Directors must have approved the merger agreement
and other transactions can have recommended approval to Hertz's
stockholders.
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o Each of Hertz's present directors must have delivered his
resignation, a release of any employment or consulting agreement, a
release of any other obligations of Hertz to the director except for
designated stock options and indemnity agreements.
o Return Assured must have received an opinion from Hertz's attorneys
as to Hertz's corporate status, qualification to do business,
authority to sign the merger agreement, authorization of the merger
agreement, absence of preemptive rights, options, warrants, etc.,
receipt of necessary consents, exemption of the issuance of the
Hertz common stock from a registration under the Securities Act,
compliance of the merger agreement with Hertz's corporate documents
and applicable law and no violation of other Hertz contracts.
o Return Assured must have received releases of all employment
agreements with Hertz or with a subsidiary if guaranteed by Hertz.
Conditions to Hertz's obligations
The obligations of Hertz to complete the merger and the other transactions
contemplated by the merger agreement are subject to the following additional
conditions before closing the merger:
o Return Assured's representations and warranties must be true.
o Return Assured must have performed its other agreements in the
merger agreement in all material respects.
o Return Assured must have obtained all required consents from third
parties.
o There shall not have been a material adverse change in Return
Assured business.
o Return Assured must have signed the other transaction documents it
is to sign under the merger agreement.
o Return Assured's Board of Directors must have approved the merger
agreement and other transactions and have recommended approval to
Return Assured stockholders.
o Return Assured must have received an opinion from Hertz's attorneys
as to Hertz's corporate status, qualification to do business,
authority to sign the merger agreement, authorization of the merger
agreement, absence of preemptive rights, options, warrants, etc.,
receipt of necessary consents, compliance of the merger agreement
with Hertz's corporate documents and applicable law, no violation of
other Hertz contracts, and absence of rescission rights on the part
of Return Assured's stockholders.
o Return Assured must have done the following:
o executed a definitive agreement for insurance from Lloyd's Of
London by Hiscox Syndicate for catastrophic losses with
respect to professional liability and cyber liability;
o launched Asure's web site and demonstrated its ability to
substantially carry out the function as described in the
Return Assured Business Plan;
o entered into a contract with a substantial client with
multiple merchants;
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o executed a definitive agreement with IBM to design the
computer system necessary to operate a high volume of the
proposed business;
o presented a thorough articulation of the functional
requirements and a systems architecture to support Return
Assured web enabled application that will feature the
necessary application logic to support Return Assured proposed
services (such as the online purchase of services);
o appointed two or more of the following permanent management
positions and demonstrated the appointee's ability and
experience commensurate with the respective assignment in a
public company: CEO, CFO, VP Sales/Marketing and CIO; and
o provided marketing and sales literature regarding Return
Assured's business including a marketing brochure.
Termination of the merger agreement
The Merger Agreement may be terminated at any time before the merger is
completed:
o By mutual written consent of Hertz and Return Assured;
o By either party if the merger is not completed by November 10, 2000,
unless the party seeking to terminate has caused the merger not to
be completed by that date;
o By either party if a court issues and order preventing the merger;
o By either party if the other party has breached the merger agreement
or the other party's representations are not true and as a result
the conditions to the merger will not be satisfied;
o By either party if the other party's stockholders do not approve the
merger; or
o By either party if its board of directors determines that its
fiduciary responsibilities require it to accept an acquisition
proposal from a third party.
o By either party if its board of directors withdraws its
recommendation of the merger to its stockholders.
Termination fee
If the merger agreement is terminated by mutual consent, for failure to complete
the merger by November 10, 2000 or because a court has issued and order
preventing the merger, neither party will have any liability to the other under
the agreement.
If the merger agreement is terminated by Hertz
o because Return Assured has breached the agreement or its
representations are not true;
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o because Return Assured' s stockholders have not approved the merger;
o because Hertz has determined to accept an acquisition proposal; or
o because Return Assured's board of directors has withdrawn its
recommendation
then Return Assured would be required to pay Hertz $500,000 as liquidated
damages.
If the merger agreement is terminated by Return Assured
o because Hertz has breached the agreement or its representations are
not true;
o because Hertz's stockholders have not approved the merger;
o because Return Assured has determined to accept an acquisition
proposal; or
o because Hertz's board of directors has withdrawn its recommendation.
then Hertz would be required to pay Return Assured $500,000 as liquidated
damages.
In addition, if the agreement is terminated by either party because the other
party decided to accept an alternate acquisition proposal, because the other
party's board has withdrawn its recommendation or because the other party has
done something purposefully or in bad faith to prevent the merger, then that
other party would be required to pay the party terminating the agreement an
additional $500,000 as liquidated damages.
Amendment of the merger agreement
We may amend the merger agreement before closing the merger by execution of a
written instrument signed by each of us,
FINANCING ARRANGEMENTS--SALE OF PREFERRED SHARES
GEM Global Yield Fund Limited, a private investment fund, has agreed to purchase
on completion of the merger Series A Preferred Stock in the amount of $5,000,000
and warrants to purchase a number of shares of common stock determined by
dividing $1,000,000 by the average per share market value of Hertz' common stock
for the five trading days before the closing.
The preferred shares will be issued to the investor only when the SEC declares
effective a registration statement covering sale of the shares of common stock
underlying the preferred shares and the shares of common stock issuable upon
exercise of the warrant.
The Series A Preferred Stock will accrue dividends at a rate of 1% per annum. It
is convertible into common stock. The number of shares of common stock to be
issed upon conversion of each share of preferred stock is determined by dividing
$1,000, the stated value of the share, plus accrued dividends, by the conversion
price at the time of conversion. The maximum conversion price is the lesser of
$3.00 per share or 130% of the average closing bid price of Hertz's common stock
for the five trading days immediately prior to the closing. However, if the
market price of Hertz's stock at the time of conversion is below the maximum
conversion price the conversion price is reduced to the average of the three
lowest closing bid prices for the common stock during the 45 days before the
date of conversion.
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The common stock purchase warrant entitles GEM to purchase a number of shares of
Hertz common stock determined by dividing $1 million by the average per share
market value of Hertz's common stock for the five trading days prior to closing.
The exercise price per shares will be $3.00 or 130% of the average closing bid
prices for Hertz's common stock for the five trading days before the closing of
the sale of the Series A Preferred stock.
As of August 21, 2000, conversion of all of the Series A preferred shares and
would yield 1,666,667 shares of common stock and exercise of the warrants would
yield 384,615 shares of common stock at an exercise price of $3.00 per share.
We have agreed to register with the SEC four times the number of shares of
common stock we are required to issue upon the conversion of the preferred
stock. A registration statement must be filed with the SEC and become effective
by December 10, 2000. If we do not meet this deadline or keep the registration
statement effective we will have to issue additional shares. The preferred
shares will not be issued, and we will not receive any of the $5,000,000
proceeds, until the shares become registered with the SEC.
If the merger is completed, 6,945,278 shares of our common stock will be issued
and outstanding, excluding shares issuable upon the exercise of currently
outstanding Return Assured and Hertz options and warrants.
In addition, there will be 1,666,667 shares issued upon conversion of the Series
A preferred shares and common stock purchase warrant based on the conversion
price that would apply on August 21, 2000. Therefore, upon conversion of the
preferred shares, there could be approximately 8,611,945 shares of our common
stock issued and outstanding. Because the actual number of shares of common
stock that could be issued on conversion of the preferred shares may fluctuate,
this number may change.
Related Agreements
This section of the document describes agreements related to the merger
agreement including employment and consulting agreements. While we believe that
these descriptions cover the material terms of these agreements, these summaries
may not contain all of the information that is important to you.
Agreement with KGL Investments Ltd.
To induce Hertz to sign the merger agreement, Return Assured agreed to buy
100,000 shares of common stock at $1.75 per share. The proceeds of this sale
were intended to pay the costs we expected to incur in completing the merger.
Return Assured was not able to raise the funds for this purchase, and KGL
Investments Ltd., a corporation owned by principals of the law firm representing
Return Assured in this transaction, purchased those shares. We agreed to
register the resale of the shares with the SEC on a "shelf" registration
statement, which must be filed within 30 days after the closing of the merger
or, if the merger is terminated, within 30 days after the date of termination or
abandonment. If we do not meet this deadline, we are required to issue an
additional 25,000 shares of our common stock for each thirty-day period the
registration statement is not filed up to a maximum of 100,000 shares. In
addition, until the shares acquired
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by KGL Investments are registered, Hertz is not allowed to file any registration
statement with the SEC.
Proxy in favor of the proposal
Eli Hertz and Marilyn Hertz have delivered a proxy to J.A. Carter, Return
Assured's Chairman of the Board, to vote 702,203 shares of our common stock,
representing 31.2 percent of the outstanding common stock, in favor of the
proposed merger.
Stock Redemption Agreement with Eli E. Hertz and I. Marilyn Hertz
When the merger agreement was signed, Return Assured signed an agreement with
Eli E. Hertz and I. Marilyn Hertz to buy $1,025,000 in common stock from Mr. and
Mrs. Hertz when the merger is completed. The number of shares to be bought is
determined by dividing $1,025,000 by the greater of $3.25 or 90% of the average
closing bid price for the ten trading days prior to closing of the merger.
Return Assured is entitled to transfer its rights to buy these shares to one or
more third parties. If it does not transfer its rights, then when the merger is
completed, the obligation to buy these shares will become an obligation of
Hertz, so that Hertz will actually buy the shares from Mr. and Mrs. Hertz.
Completion of this purchase is a condition to the merger.
Employment Agreement with Eli E. Hertz
When the merger is completed, Hertz's Hergo Ergonomic Support Systems, Inc.
subsidiary will sign an employment agreement with Eli E. Hertz, our President.
Under the agreement, Hergo will employ Mr. Hertz as Chief Executive Officer of
Hergo at an annual salary of not less than $250,000 (approximately his present
compensation) plus a bonus of 25 percent of the total gross profits from sales
of products and services by that subsidiary. Mr. Hertz will also be entitled to
participate in employee benefit plans maintained by the Company for its
executives, and to other fringe benefits including life insurance of at least $2
million. Under the agreement, options presently held by Mr. Hertz on 891,667
shares of Hertz common stock will vest immediately and will remain exercisable
until expiration regardless of whether Mr. Hertz remains employed by the
subsidiary. Mr. Hertz is to have overall and complete authority over the conduct
of the subsidiary with a minimum of interference from the Board of Directors,
and the subsidiary is to be kept as a separate operating entity substantially
as constituted when the merger became effective. The agreement is to have a term
of five years. It may not be terminated by Hergo except for disability or for
cause or if Hergo's tangible net worth falls below $100,000 for reasons other
than those related to interference by Hertz with Mr. Hertz's management of the
subsidiary. If the agreement is terminated before the end of its term for
reasons other than disability, reduction of the subsidiary's net worth or for
cause, the subsidiary is required to pay Mr. Hertz a lump sum equal to the
amount of base compensation he would have received if his employment had not
been terminated. If Hertz surrenders its lease at 75 Varick Street to the
landlord for cash or other consideration, Hergo will receive 50 percent of the
total proceeds or $150,000 and Hertz will receive the remainder.
Consulting Agreement with Eli E. Hertz
When the merger is completed, Hertz will sign a consulting agreement with Eli E.
Hertz. Under that agreement, Mr. Hertz will provide counsel and advice in
connection with the transition in the change of control resulting from the
merger. For these services, Mr. Hertz will be entitled to $125,000 per year
payable in advance of each contract year. In addition, Hertz is to provide Mr.
Hertz with two luxury automobiles and related expenses and coverage for himself
and his wife
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under all health insurance plans made available by Hertz to its employees. If
Hertz sells or disposes of the stock or assets of its Hertz Computer Corporate,
Edutec Computer Education, Inc. or RemoteIT.com, Inc. subsidiaries during the
term of the agreement or within two years after its termination, Hertz will pay
Mr. Hertz, in addition, 15%, or in the case of Remote, 35% of the consideration
received from the sale or disposition. Hertz is also to furnish Mr. Hertz with
four furnished offices plus 7000 square feet of space at Hertz's offices at 75
Varick Street for the balance of Hertz's current lease of those premises.
Employment Agreement with Barry Goldsammler
When the merger is completed, Hertz will sign an employment agreement with Barry
Goldsammler, our Chief Financial Officer. Under that agreement, Hertz will
employ Mr. Goldsammler as Chief Financial Officer at an annual salary of not
less than $125,000, which is substantially the same as his present salary. Mr.
Goldsammler will also be entitled to participate in employee benefit plans
maintained by the Company for its executives, and to other fringe benefits.
Under the agreement, options presently held by Mr. Goldsammler on 156,667 shares
of Hertz common stock will vest immediately and will remain exercisable until
expiration regardless of whether Mr. Goldsammler remains employed by Hertz. The
agreement is to have a term of one year. It may not be terminated by Hertz
except for cause. If the agreement is terminated before the end of its term for
reasons other than disability or for cause, Hertz is required to pay Mr.
Goldsammler a lump sum equal to the amount of base compensation he would have
received if his employment had not been terminated.
Employment Agreement with I. Marilyn Hertz
When the merger is completed, Hertz's Hergo Ergonomic Support Systems, Inc.
subsidiary will sign an employment agreement with I. Marilyn Hertz, our Vice
President. Under that agreement, Hertz will employ Mrs. Hertz as a part time
senior executive at an annual salary of not less than $95,000. Mrs. Hertz will
also be entitled to participate in employee benefit plans maintained by the
Company for its executives, and to other fringe benefits, including life
insurance of not less than $1 million. Under the agreement, options presently
held by Mrs. Hertz on 208,333 shares of Hertz common stock will vest immediately
and will remain exercisable until expiration regardless of whether Mrs. Hertz
remains employed by Hertz. The agreement is to have a term of two years. It may
not be terminated by Hergo except for disability or for cause or if Hergo's
tangible net worth falls below $100,000 for reasons other than those resulting
from interference by Hertz's Board of Directors in the management of the
subsidiary. If the agreement is terminated before the end of its term for
reasons other than disability, reduction of the subsidiary's net worth or for
cause, the subsidiary is too required to pay Mrs. Hertz a lump sum equal to the
amount of base compensation she would have received if her employment had not
been terminated.
Per Share Market Price Data
Hertz common stock has been traded on the Nasdaq Small Cap Market under the
symbol HERZ since November, 1996. Return Assured common stock is not publicly
traded.
The following table sets forth, for the fiscal quarters indicated, the high and
low sale prices per share of Hertz common stock as reported on the Nasdaq Small
Cap Market.
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Year Ended August 31, 1998 High Low
First Quarter 3.66 2.94
Second Quarter 2.49 3.19
Third Quarter 2.11 3.28
Fourth Quarter 1.92 1.78
Year Ended August 31, 1999
First Quarter 1.66 0.75
Second Quarter 2.02 0.75
Third Quarter 9.75 1.97
Fourth Quarter 8.03 3.13
Year Ending August 31, 2000
First Quarter 4.25 1.88
Second Quarter 2.02 0.75
Third Quarter (through September ___, 2000) 6.68 2.13
Fourth Quarter (through August 21) 4.75 2.50
The closing prices per share of Hertz common stock as reported on the Nasdaq
Small Cap Market on (1) July 19, 2000, the business day preceding public
announcement that Hertz and Return Assured had entered into the merger agreement
was $3.50. On August 21, 2000, the last full trading day for which closing
prices were available at the time of the printing of this document the closing
price of the Hertz common stock was $2.53.
Hertz and Return Assured have never paid cash dividends on their respective
shares of capital stock. Under the merger agreement, each of Hertz and Return
Assured has agreed not to pay cash dividends before the closing of the merger
without the written consent of the other. If the merger is not completed, Return
Assured presently intends that it would retain future earnings, if any, for use
in its business and would not pay any cash dividends in the foreseeable future.
Hertz presently intends to retain future earnings, if any, for use in its
business and has no present intention to pay cash dividends before or after the
merger.
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STOCKHOLDER PROPOSALS
Under Rule 14a-8 of the Exchange Act, a Hertz stockholder may present one
proposal for inclusion in Hertz's proxy statement and for consideration at a
special meeting of the Hertz stockholders if the stockholder is eligible under
Rule 14a-8 and if that stockholder complies with the procedural requirements of
Rule 14a-8. Generally, to be eligible, a stockholder must have held at least
$2,000 in market value of Hertz common stock for at least one year before the
date the stockholder submits the proposal and must establish proof of ownership
of these securities. The proposal must clearly state the proposed course of
action the stockholder believes Hertz should adopt, but may not exceed 500 words
in length. The proposal must be submitted to Hertz a reasonable time before
Hertz begins to print and mail its proxy materials.
The preceding paragraphs merely summarize portions of Rule 14a-8. If you are
considering submitting a stockholder proposal at the Hertz stockholders' meeting
or a shareholder proposal at the Return Assured shareholders' meeting, you
should refer to Rule 14a-8.
FORMS 10-K AND 10-Q FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION
Copies of our annual report on Form 10-KSB for the year ended August 31, 1999,
and our quarterly reports on Form 10-Q for the quarters ended November 30, 1999,
February 29, 2000 and May 31, 2000, as filed with the Securities and Exchange
Commission and any amendments thereto, are available to stockholders free of
charge by writing to:
HERTZ TECHNOLOGY GROUP, INC.
75 Varick Street, 11th Floor
New York, New York 10013
Attn: Barry Goldsammler
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This document and the documents incorporated in this document by reference
contain forward-looking statements within the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995
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with respect to our financial condition, results of operations and business, and
on the expected impact of the merger on Hertz's financial performance. Words
such as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to certain risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements. Forward-looking statements are based on our current expectations and
involve a number of uncertainties, including those described in the "Other
Factors to be Considered" section above, elsewhere in this document and in
documents incorporated into this document by reference. Actual results could
differ materially from what is expected.
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HERTZ TECHNOLOGY GROUP, INC.
This proxy solicited by the Board of Directors for the
Special Meeting on September __, 2000
The undersigned hereby appoints I. Marilyn Hertz and Barry J. Goldsammler, and
each of them, with full power of substitution, the attorneys and proxies of the
undersigned to attend the Special Meeting of Stockholders of Hertz Technology
Group, Inc. to be held September __, 2000 at 10:00 A.M., and at any adjournment
or adjournments thereof, hereby revoking any proxies heretofore given, to vote
all shares of stock of Hertz Technology Group, Inc. held or owned by the
undersigned as indicated on the proposals as more fully set forth in the Proxy
Statement, and in their discretion upon such other matters as may come before
the meeting.
The Board of Directors recommends a vote FOR all three proposals
1. Proposal to approve the issuance of shares of Hertz Technology Group, Inc.
common stock in connection with our proposed merger with Return Assured.com,
Inc., including this issuance of the shares that may be issued on conversion of
the proposed Series A Convertible Preferred Stock.
FOR |_| AGAINST |_| ABSTAIN |_|
2. Proposal to adopt Hertz Technology Group, Inc.'s amended and restated
certificate of incorporation, which will:
o change the name of the corporation from Hertz Technology Group, Inc.
to Return Assured.com, Inc.;
o increase the authorized number of shares of common stock to
50,000,000
o create a new class of 1,000,000 shares of "blank check" preferred
stock and empower the Board of Directors to authorize the issuance
of one or more classes of that preferred stock, or one or more
series of any such class, and to fix the preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof for each such class or series
FOR |_| AGAINST |_| ABSTAIN |_|
3. Proposal to increase the number of shares of common stock that may be issued
under Hertz's incentive stock option plan by 1,500,000 shares to 2,250,000.
FOR |_| AGAINST |_| ABSTAIN |_|
The Board of Directors recommends a vote FOR all three proposals
The shares represented by this proxy will be voted as directed or if no
direction is indicated, will be voted FOR all three proposals. As to any other
matter, said proxies shall vote in accordance with their best judgment.
The undersigned hereby acknowledges receipt of the Notice of and Proxy Statement
for the aforesaid Special Meeting.
Date and sign exactly as name appears
hereon. Each Joint Tenant must sign.
When signed as Attorney, Executor,
Trustee, etc. give full title. If
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signer is corporation, sign in full
corporate name by authorized officer.
-------------------------------------
(Date)
-------------------------------------
(Signature of Stockholder)
-------------------------------------
(Signature of Stockholder)
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Annex A
AGREEMENT AND PLAN OF MERGER
among
A SURE eCOMMERCE, INC.
a Nevada corporation,
HERTZ TECHNOLOGY GROUP, INC.
a Delaware corporation,
ASURE ACQUISITION CORPORATION
a Delaware corporation,
ELI E. HERTZ
and
J.A. CARTER
--------------------------
JULY 13, 2000
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I DEFINITIONS ................................................... 1
ARTICLE II PLAN OF MERGER ................................................ 11
2.1. The Merger .................................................... 11
2.2. Effective Time ................................................ 12
2.3. Certificate of Incorporation and Bylaws ....................... 12
2.4. Directors and Officers ........................................ 12
2.5. Conversion or Cancellation of Asure Shares .................... 12
2.6. Exchange of Merged Company Shares ............................. 12
2.7. Options and Warrants .......................................... 14
2.8. Adjustments ................................................... 15
2.9. Merger Subsidiary Capital Stock ............................... 15
2.10. No Further Transfer of Shares ................................. 15
2.11. Dissenting Shares ............................................. 15
ARTICLE III OTHER AGREEMENTS .............................................. 15
3.1. Stock Redemption Agreement .................................... 15
3.2. Preferred Stock Purchase Agreement ............................ 16
3.3. Controlling Stockholder Employment Agreement .................. 16
3.4. Goldsammler Employment Agreement .............................. 16
3.5 Controlling Stockholder Consulting Agreement .................. 16
3.6 Marilyn Hertz Employment Agreement ............................ 16
ARTICLE IV THE CLOSING ................................................... 16
4.1. Location, Date ................................................ 16
4.2. Deliveries .................................................... 16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF HERZ ........................ 17
5.1. Corporate ..................................................... 17
5.2. Authorization ................................................. 17
5.3. Validity of Contemplated Transactions ......................... 17
5.4. Capitalization and Stock Ownership ............................ 18
5.5. Listing ....................................................... 18
5.6. Disclosure Document/Proxy Statement ........................... 18
5.7. HERZ SEC Reports; Financial Statements ........................ 18
5.8. Taxes ......................................................... 19
5.9. Title to Assets and Related Matters ........................... 20
5.10. Real Property ................................................. 20
5.11. Subsidiaries .................................................. 20
5.12. Legal Proceedings; Compliance with Law; Governmental Permits .. 20
5.13. Contracts and Commitments ..................................... 21
5.14. Employee Relations ............................................ 22
5.15. ERISA ......................................................... 22
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5.16. Patents, Trademarks, etc. ..................................... 23
5.17. Absence of Certain Changes .................................... 23
5.18. Corporate Records ............................................. 25
5.19. Finder's Fees ................................................. 25
5.20. Ownership of Merger Subsidiary; No Prior Activities ........... 25
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF ASURE ....................... 25
6.1. Corporate ..................................................... 25
6.2. Authorization ................................................. 25
6.3. Validity of Contemplated Transactions ......................... 26
6.4. Capitalization and Stock Ownership ............................ 26
6.5. Enforceability of Preferred Stock Purchase Agreement........... 26
6.6. Disclosure Documents/Proxy Statement .......................... 26
6.7. Asure Financial Statements .................................... 27
6.8. Taxes ......................................................... 27
6.9. Title to Assets and Related Matters ........................... 28
6.10. Real Property ................................................. 28
6.11. [Reserved] .................................................... 28
6.12. Legal Proceedings; Compliance with Law; Governmental Permits .. 28
6.13. Contracts and Commitments ..................................... 29
6.14. Employee Relations ............................................ 29
6.15. ERISA ......................................................... 30
6.16. Patents, Trademarks, etc. ..................................... 31
6.17. Absence of Certain Changes .................................... 31
6.18. Corporate Records ............................................. 32
6.19. Finder's Fees ................................................. 32
6.20. Financing ..................................................... 32
ARTICLE VII REGISTRATION RIGHTS ........................................... 33
7.1. Investment Intent ............................................. 33
7.2. Shelf Registration ............................................ 33
7.3. Registration Procedures ....................................... 33
7.4. [Reserved] .................................................... 37
7.5. Registration Expenses ......................................... 37
7.6. Indemnification ............................................... 38
7.7. Rule 144 ...................................................... 41
ARTICLE VIII COVENANTS OF THE PARTIES ...................................... 41
8.1. Proxy and Disclosure Document ................................. 41
8.2. No Solicitation ............................................... 41
8.3. Notification of Certain Matters ............................... 43
8.4. Access to Information ......................................... 44
8.5. Public Announcements .......................................... 44
8.6. Cooperation ................................................... 45
8.7. Reorganization ................................................ 45
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8.8. Expenses ...................................................... 45
ARTICLE IX COVENANTS OF HERZ ............................................. 46
9.1. Operation of the Business ..................................... 46
9.2. HERZ Stockholder Meeting ...................................... 47
9.3. Maintenance of the Assets ..................................... 48
9.4. Employees and Business Relations .............................. 48
9.5. Expenses ...................................................... 48
9.6. Certain Tax Matters ........................................... 48
9.7. Maintenance of Listing ........................................ 48
9.8. State Anti-Takeover Law ....................................... 48
ARTICLE X COVENANTS OF ASURE ............................................ 49
10.1. Operation of the Business ..................................... 49
10.2. Asure Shareholder Meeting ..................................... 50
10.3. Maintenance of the Assets ..................................... 50
10.4. Employees and Business Relations .............................. 50
10.5. Expenses ...................................................... 51
10.6. Certain Tax Matters ........................................... 51
10.7. State Anti-Takeover Law ....................................... 51
ARTICLE XI POST-CLOSING COVENANTS ........................................ 51
11.1. Appointment to the Board of Directors of the Merged Company ... 51
11.2. [Reserved] .................................................... 51
11.3. Indemnification, Directors' and Officers' Insurance ........... 51
ARTICLE XII CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES ............ 51
12.1. Legality ...................................................... 52
12.2. Fairness Opinion .............................................. 52
12.3. Approval by Asure Shareholders and HERZ Stockholders .......... 52
ARTICLE XIII CONDITIONS CONCURRENT TO OBLIGATIONS OF ALL PARTIES ........... 52
13.1. Stock Redemption Agreement..................................... 52
13.2. Preferred Stock Purchase Agreement ............................ 52
13.3. Controlling Stockholder Employment Agreement .................. 53
13.4. Goldsammler Employment Agreement .............................. 53
13.5 Controlling Stockholder Consulting Agreement .................. 53
13.6 Marilyn Hertz Employment Agreement ............................ 53
ARTICLE XIV CONDITIONS PRECEDENT TO OBLIGATIONS OF ASURE .................. 53
14.1. Representations and Warranties ................................ 53
14.2. Agreements, Conditions and Covenants .......................... 53
14.3. Certificates .................................................. 53
14.4. Required Consents ............................................. 53
14.5. Material Adverse Effect ....................................... 53
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14.6. Ancillary Documents ........................................... 54
14.7. Board Recommendation .......................................... 54
14.8. Releases from HERZ Board ...................................... 54
14.9. Legal Opinion ................................................. 54
14.10 Employment Agreement .......................................... 55
ARTICLE XV CONDITIONS PRECEDENT TO OBLIGATIONS OF THE HERZ PARTIES ....... 56
15.1. Representations and Warranties ................................ 56
15.2. Agreements, Conditions and Covenants .......................... 56
15.3. Certificates .................................................. 56
15.4. Required Consents ............................................. 56
15.5. Material Adverse Effect ....................................... 56
15.6. Ancillary Documents ........................................... 56
15.7. Board Recommendation .......................................... 56
15.8. Legal Opinion ................................................. 56
15.9. Business Operations ........................................... 58
ARTICLE XVI INDEMNIFICATION ............................................... 58
16.1. Survival of Representations and Warranties .................... 58
16.2. Indemnification of Asure Indemnified Parties .................. 59
16.3. Indemnification of HERZ Stockholders. ......................... 60
16.4. Conditions of Indemnification ................................. 60
16.5. Remedies Not Exclusive ........................................ 62
16.6. Limitations on Indemnification ................................ 62
ARTICLE XVII TERMINATION ................................................... 63
17.1. Grounds for Termination ....................................... 63
17.2. Effect of Termination ......................................... 65
ARTICLE XVII GENERAL MATTERS ............................................... 66
18.1. [Reserved] .................................................... 66
18.2. Contents of Agreement ......................................... 66
18.3. Amendment, Parties in Interest, Assignment, Etc. .............. 66
18.4. Interpretation ................................................ 66
18.5. Notices ....................................................... 67
18.6. Governing Law and Venue ....................................... 67
18.7. Counterparts .................................................. 68
18.8. Waivers ....................................................... 68
18.9. Modification .................................................. 68
18.10. Enforcement of Agreement ...................................... 68
18.11. Waiver of Jury Trial .......................................... 68
18.12. Severability .................................................. 68
SIGNATURE PAGE ............................................................. 69
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EXHIBITS
Exhibit A Stock Redemption Agreement
Exhibit B Preferred Stock Purchase Agreement
Exhibit C Employment Agreement with Eli E. Hertz
Exhibit D Employment Agreement with Barry Goldsammler
Exhibit E Consulting Agreement with Eli E. Hertz
Exhibit F Employment Agreement I. Marilyn Hertz
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of July 13, 2000 by and among
Hertz Technology Group, Inc. a Delaware corporation ("HERZ"), Asure Acquisition
Corporation, a Delaware Corporation, (the "Merger Subsidiary" and together with
HERZ, the "HERZ Parties"), A Sure eCommerce, Inc., a Nevada corporation
("Asure"), Eli E. Hertz ("Controlling Stockholder") and J.A. Carter ("Carter").
HERZ, the Merger Subsidiary, Asure and Controlling Stockholder are individually
referred to as a "Party" and collectively referred to herein as the "Parties".
Certain other terms are used herein as defined below in Article I or elsewhere
in this Agreement.
BACKGROUND
This Agreement sets forth the terms and conditions under which (i) the
Merger Subsidiary, which is a Wholly-Owned Subsidiary of HERZ, will merge with
and into Asure (the "Merger"). The Parties intend that upon completion of the
Merger, Asure will be a Wholly-Owned Subsidiary of HERZ. Immediately at the
Effective Time and thereafter, HERZ shall be referred to herein as the "Merged
Company".
The Merger Subsidiary is a Wholly-Owned Subsidiary of HERZ and has been
formed solely to facilitate the Merger and has conducted and will conduct no
business or activity other than in connection with the Merger.
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the Parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
For convenience, certain terms used in more than one part of this
Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"Acquisition Proposal" is defined in Section 8.2(a).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" means this Agreement and Plan of Merger and the Exhibits and
Disclosure Schedules hereto.
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"Assets" means, with respect to HERZ, the Merger Subsidiary or Asure, as
shown by the context in which used, all of the assets, properties, goodwill and
rights of every kind and description, real and personal, tangible and
intangible, wherever situated and whether or not reflected in such Party's most
recent financial statements, that are owned or possessed by such Party and its
Subsidiaries, taken as a whole.
"Assumed Asure Option" is defined in Section 2.7(a).
"Asure" is defined in the Preamble.
"Asure Assets" means the Assets of Asure.
"Asure Balance Sheet" is defined in Section 6.7.
"Asure Balance Sheet Date" is defined in Section 6.7.
"Asure Benefit Plan" is defined in Section 6.16(a).
"Asure Business" means the Business of Asure.
"Asure Business Plan" means the Business Plan of Asure dated 2000.
"Asure Common Stock" means the common stock, par value $0.001 per share,
of Asure.
"Asure Disclosure Schedule" means the Disclosure Schedule containing
information relating to Asure pursuant to Article VI and other provisions hereof
that has been provided to the other Parties on the date hereof.
"Asure Financial Statements" is defined in Section 6.7.
"Asure Indemnified Loss" is defined in Section 16.2(a).
"Asure Indemnified Party" means Asure and its Affiliates and each of their
respective officers, directors, employees, agents and counsel; provided,
however, that no Person who indemnifies Asure Indemnified Parties in this
Agreement in his capacity as a Stockholder will be an Asure Indemnified Party
for purposes of this Agreement, notwithstanding that the Person is an Asure
Indemnified Party for purposes of one or more of the other Agreements.
"Asure's knowledge" or "knowledge of Asure" with reference to any item
means that which an executive officer of Asure actually knows.
"Asure Required Consents" is defined in Section 15.4.
"Asure Shareholder" means a recordholder, as of the Effective Time of an
outstanding certificate or certificates that immediately prior to the Effective
Time represented Asure Shares.
"Asure Shares" is defined in Section 2.5(a).
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"Asure Shareholder Meeting" is defined in Section 10.2.
"Asure Subsidiary" means any Subsidiary of Asure.
"Asure Warrants" means any warrants to purchase Asure Common Stock that
are outstanding immediately prior to the Closing.
"Asure Welfare Plan" is defined in Section 6.15(f).
"Benefit Plan" means all employee benefit, health, welfare, supplemental
unemployment benefit, bonus, pension, profit sharing, deferred compensation,
severance, incentive, stock compensation, stock purchase, retirement,
hospitalization insurance, medical, dental, legal, disability, fringe benefit
and similar plans, programs, arrangements or practices, including, without
limitation, each "employee benefit plan" as defined in Section 3(3) of ERISA.
"Business" means with respect to HERZ the entire business and operations
of HERZ and its Subsidiaries, taken as a whole. "Business" means with respect to
Asure the business of Asure as contemplated by the Asure Business Plan.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.
"Carter" is defined in the Preamble.
"Carter Market Value" means $900,000.
"Certificate" is defined in Section 2.6(a).
"Certificate of Merger" is defined in Section 2.2.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Claim" is defined in Section 16.4(b).
"Closing" is defined in Section 4.1.
"Closing Date" is defined in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended. All citations
to provisions of the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments thereto and any substitute or successor
provisions thereto.
"Confidentiality Agreement" is defined in Section 8.4(b).
"Contract" means any written or oral contract, agreement, letter of
intent, agreement in
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principle, lease, instrument or other commitment that is binding on any Person
or its property under applicable Law.
"Controlling Stockholder" is defined in the Preamble hereto.
"Controlling Stockholder Consulting Agreement" is defined in Section 3.5.
"Controlling Stockholder Employment Agreement" is defined in Section 3.3.
"Controlling Stockholder Market Value" means $900,000.
"Conversion Number" is defined in Section 2.5(a).
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority, or any arbitrator that is binding on any Person or its property under
applicable Law.
"Damages" shall have the same meaning as Losses.
"Default" means (i) a breach, default or violation, (ii) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (iii) with respect to
any Contract, the occurrence of an event that with or without the passage of
time or the giving of notice, or both, would give rise to a right of
termination, renegotiation or acceleration or a right to receive damages or a
payment of penalties.
"Disclosure Document" is defined in Section 8.1.
"Dissenting Shares" of Asure are defined in Sections 2.11.
"DGCL" means the Delaware General Corporation Law, as amended. "Effective
Time" shall mean the time that the Certificate of Merger is filed with the
Nevada Secretary of State.
"$" means United States dollars.
"Effectiveness Period" shall have the meaning set forth in Section 7.2(a).
"Election Period" is defined in Section 16.4(b).
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on
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any property or property interest.
"Environmental Condition" means any condition or circumstance, including
the presence of Hazardous Substances which does or would (i) require assessment,
investigation, abatement, correction, removal or remediation under any
Environmental Law, (ii) give rise to any civil or criminal Liability under any
Environmental Law, (iii) create or constitute a public or private nuisance or
(iv) constitute a violation of or non-compliance with any Environmental Law.
"Environmental Law" means all Laws, Court Orders, principles of common
law, and permits, licenses, registrations, approvals or other authorizations of
any Governmental Authority relating to Hazardous Substances, pollution,
protection of the environment or human health.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" is defined in Section 2.6(a).
"Execution Date" means July 13, 2000.
"Existing Asure Option" is defined in Section 2.7(a).
"Filing Date" means, with respect to a Registration Statement, the 90th
day following the closing of the Merger.
"GAAP" means United States generally accepted accounting principles
including those set forth: (a) in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, (b) in the statements and pronouncements of the Financial
Accounting Standards Board, (c) in such other statements by such other entity as
approved by a significant segment of the accounting profession, and (d) the
rules and regulations of the SEC governing the inclusion of financial statements
(including pro forma financial statements) in periodic reports required to be
filed pursuant to Section 13 of the Exchange Act, including opinions and
pronouncements in staff accounting bulletins and similar written statements from
the accounting staff of the SEC.
"Goldsammler Consulting Agreement" is defined in Section 3.4.
"Governmental Authority" means any federal, state, local, municipal or
foreign or other government or governmental agency or body.
"Governmental Permit" is defined in Section 5.12(c).
"Hazardous Substances" means any material, waste or substance (including,
without limitation, any product) that may or could pose a hazard to the
environment or human health or safety including, without limitation, (i) any
"hazardous substances" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.9601 et
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seq. and its implementing regulations, (ii) any "extremely hazardous substance,"
"hazardous chemical" or "toxic chemical" as those terms are defined by the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. ss.11001 et seq.
and its implementing regulations, (iii) any "hazardous waste," as defined under
the Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act, 42 U.S.C. ss.6901 et seq. and its implementing regulations (iv)
any "pollutant," as defined under the Water Pollution Control Act, 33 U.S.C.
ss.1251 et seq. and its implementing regulations as any of such Laws in clauses
(i) through (iv) may be amended from time to time, and (v) any material,
substance or waste regulated under any Laws or Court Orders that currently exist
or that may be enacted, promulgated or issued in the future by any Governmental
Authority concerning protection of the environment, pollution, health or safety
or the public welfare.
"HERZ" is defined above in the Preamble.
"HERZ Assets" means the Assets of HERZ.
"HERZ Balance Sheet" is defined in Section 5.7.
"HERZ Balance Sheet Date" is defined in Section 5.7.
"HERZ Benefit Plan" is defined in Section 5.15(a).
"HERZ Business" means the Business of HERZ.
"HERZ Common Stock" means the common stock, par value $0.001 per share, of
HERZ.
"HERZ Companies" means HERZ and any HERZ Subsidiaries.
"HERZ Disclosure Schedule" means the Disclosure Schedule containing
information relating to HERZ pursuant to Article V and other provisions hereof
that has been provided to the other Parties on the date hereof.
"HERZ's knowledge" or "knowledge of HERZ" with reference to any item means
that which Controlling Stockholder or Barry Goldsammler actually knows.
"HERZ Parties" is defined in the Preamble.
"HERZ Required Consents" is defined in Section 14.4.
"HERZ SEC Reports" is defined in Section 5.7.
"HERZ Stockholder Indemnified Party" means (a) each holder of HERZ Common
Stock immediately prior to the Effective Time and (b) prior to the Closing, the
Company and each of its officers, directors, employees, agents and counsel who
are not Stockholder Indemnified
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Parties within the meaning of clause (a) of this definition.
"HERZ Stockholder Loss" is defined in Section 16.3.
"HERZ Stockholder Meeting" is defined in Section 9.2.
"HERZ Subsidiary" means any Subsidiary of HERZ.
"HERZ 10-KSB" is defined in Section 5.9.
"HERZ Welfare Plan" is defined in Section 5.15(f).
"Holder" or "Holders" means each Person who was an Asure Shareholder at
the Effective Time that did not elect Dissenter's Rights under Section 2.11, or
such other holder or holders, as the case may be, from time to time of
Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 16.4(b).
"Indemnifying Party" shall have the meaning set forth in Section 16.4(b).
"Indemnity Notice" is defined in Section 16.4(e).
"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology, licenses, trade secrets, computer software and other intellectual
property.
"knowledge" of any Person with reference to any item means that which such
Person actually knows.
"Law" means any statute, law, ordinance, regulation, order, rule, common
law principles or consent agreements of any Governmental Authority, including,
without limitation, those covering environmental, energy, safety, health,
transportation, bribery, record keeping, zoning, antidiscrimination, antitrust,
wage and hour, and price and wage control matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Losses" shall have the meaning set forth in Section 7.6(a).
"Majority Holders" means the persons holding more than fifty percent of
the Registrable Securities.
"Marilyn Hertz Consulting Agreement" is defined in Section 3.6.
"Material Adverse Effect", as to HERZ, means a fact or event which has had
or is reasonably likely to have a material adverse effect on the Assets,
Business, financial condition or results of operations of HERZ, either as a
corporate entity or with its Subsidiaries taken as a whole, as indicated by the
context in which used, and when used with respect to representations,
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warranties, conditions, covenants or other provisions hereof means the
individual effect of the situation to which it relates and also the aggregate
effect of all similar situations unless the context indicates otherwise.
"Material Adverse Effect", as to Asure, means a fact or event which has had or
is reasonably likely to have a material adverse effect on the Assets, Business,
financial condition or results of operations of Asure, and when used with
respect to representations, warranties, conditions, covenants or other
provisions hereof means the individual effect of the situation to which it
relates and also the aggregate effect of all similar situations unless the
context indicates otherwise.
"Merged Company" is defined in the Preamble hereto.
"Merged Company Common Stock" is defined in Section 2.5(a).
"Merged Company Shares" is defined in Section 2.5(a).
"Merger" is defined in Section 2.1.
"Merger Consideration" is defined in Section 2.5(c).
"Merger Subsidiary" is defined above in the Preamble.
"NGLC" means the Nevada General Corporation Law, as amended.
"Parties" is defined above in the Preamble.
"Party Representatives" is defined in Section 8.4(b).
"Patents" means patents, patent applications, reissue patents, patents of
addition, divisions, renewals, continuations, continuations-in-part,
substitutions, additions and extensions of any of the foregoing.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Post-Signing Returns" is defined in Section 9.6.
"Preferred Stock Purchase Agreement" is defined in Section 3.2.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
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"Prospectus" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Proxy Statement" is defined in Section 8.1.
"Registrable Securities" means (1) the Merged Company Shares to be
delivered in connection with the Closing, (2) the Merged Company Shares issuable
upon exercise of the Assumed Asure Options and the Merged Company Warrants
issued pursuant to Section 2.7 herein, and (3) any Common Stock of the Merged
Company issued as (or issuable upon the conversion or exercise of any warrant,
right, or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such Shares, for each
holder of the foregoing as designated by Asure, excluding in all cases, however,
any Registrable Securities sold by a Person in a transaction in which such
Person's rights under Section 7 are not assigned.
"Registration Indemnified Party" is defined in Section 7.6(c).
"Registration Indemnifying Party" is defined in Section 7.6(c).
"Registration Statement" means the registration statement, contemplated by
Section 7.2(a), including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.
"Regulation" means any federal, state, local or foreign rule or
regulation.
"Rule 144" means Rule 144 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC having substantially the same
effect as such Rule.
"Rule 158" means Rule 158 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC having substantially the same
effect as such Rule.
"Rule 415" means Rule 415 promulgated by the SEC pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC having substantially the same
effect as such Rule.
"SEC" means the United States Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
"Stock Redemption Agreement" is defined in Section 3.1.
"Subsidiary" means any corporation or other legal entity of which HERZ or
Asure, as the case may be (either above or through or together with any other
Subsidiary) owns, directly or indirectly, more than 50% of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of directors or other governing body of such corporation or other
entity.
"Surviving Corporation" is defined in Section 2.1.
"Taxes" means any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions, levies and
liabilities, including, without limitation, taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, gains, franchise, withholding, payroll, recapture,
employment, excise, unemployment, insurance, social security, business license,
occupation, business organization, stamp, environmental and property taxes,
together with all interest, penalties and additions imposed with respect to such
amounts. For purposes of this Agreement, "Taxes" also includes any obligations
under any agreements or arrangements with any Person with respect to the
liability for, or sharing of, Taxes (including pursuant to Treas. Reg. Section
1.1502-6 or comparable provisions of state, local or foreign Tax Law) and
including any liability for Taxes as a transferee or successor, by Contract or
otherwise.
"Tax Return" means any report, return, election, notice, estimate,
declaration, information statement and other forms and documents (including all
schedules, exhibits and other attachments thereto) relating to and filed or
required to be filed with a taxing authority in connection with any Taxes
(including, without limitation, estimated Taxes).
"Termination Date" means November 10, 2000.
"Third Party Claim" is defined in Section 16.4(b).
"Threshold Amount" means US$200,000.
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement, the Preferred Stock Purchase
Agreement, and the Controlling Stockholder Employment Agreement, and the
Goldsammler Employment Agreement.
"Transactions" means the Merger, the exchange of the Asure Shares for the
Merged Company Shares, the assumption by the Merged Company of the Existing
Asure Options, the exchange of the Asure Warrants for the Merged Company
Warrants, and the other transactions contemplated by the Transaction Documents.
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"Wholly-Owned Subsidiary" of any Person means any Subsidiary in which all
of the stock or other equity interests is owned, directly or indirectly, by such
Person.
ARTICLE II
PLAN OF MERGER
2.1. THE MERGER. Upon the terms and subject to the conditions hereof, and
in accordance with the relevant provisions of the DGCL and NGCL, the Merger
Subsidiary shall be merged with and into Asure (the "Merger"). Following the
Merger, Asure shall continue as the surviving corporation (the "Surviving
Corporation") and shall continue its existence under the Laws of the State of
Nevada, and the separate corporate existence of the Merger Subsidiary shall
cease.
2.2. EFFECTIVE TIME. As soon as practicable, but in any event within one
Business Day after the satisfaction or waiver of all conditions to the Merger,
the Parties shall file with the Secretary of State of the State of Nevada a
certificate of merger (the "Certificate of Merger") in such form as is required
by the NGCL, and shall file with the Secretary of State of the State of Delaware
a certificate of merger in such form as is required by the DGCL. The Merger
shall become effective at the Effective Time.
2.3. CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of Asure as in effect immediately prior to the Effective Time
shall be the initial Certificate of Incorporation of the Surviving Corporation.
The bylaws of Asure as in effect immediately prior to the Effective Time shall
be the initial bylaws of the Surviving Corporation.
2.4. DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be such persons as Asure designates prior to the Effective
Time. The initial chief executive officer of the Surviving Corporation shall be
such person as Asure designates prior to the Effective Time. Such persons shall
hold such positions as directors and executive officers until their successors
are elected or appointed in accordance with the Certificate of Incorporation and
the bylaws of the Surviving Corporation.
2.5. CONVERSION OR CANCELLATION OF ASURE SHARES.
(a) Each share of Asure Common Stock (an "Asure Share") outstanding
immediately prior to the Effective Time shall by virtue of the Merger and
without any action on the part of the Asure Shareholder thereof, be converted
into the right to receive one (1.000) (the "Conversion Number") share (the
"Merged Company Shares") of the Merged Company common stock, $0.001 par value
per share (the "Merged Company Common Stock"). Each Asure Share that,
immediately prior to the Effective Time, is held by Asure as treasury stock
shall be canceled, and no consideration shall be delivered with respect thereto.
(b) No fractional Merged Company Shares shall be issued in the
Merger. Each Asure Shareholder who would otherwise be entitled to receive a
fractional share of 0.5 or
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greater shall receive a whole Merged Company Share and each Asure Shareholder
who would otherwise be entitled to receive a fractional share of less than 0.5
shall not receive an additional whole Merged Company Share.
(c) The consideration to be received by the Asure Shareholders in
respect of each Asure Share pursuant to this Section 2.5 is hereinafter referred
to as the "Merger Consideration."
2.6. EXCHANGE OF MERGED COMPANY SHARES.
(a) Prior to the Effective Time, Asure shall appoint an agent (the
"Exchange Agent") for the purpose of exchanging certificates that immediately
prior to the Effective Time represented Asure Shares (the "Certificates") for
the Merger Consideration. Promptly after the Effective Time, the Merged Company
will send, or will cause the Exchange Agent to send, to each Asure Shareholder
(other than Asure and any Subsidiary of Asure) a letter of transmittal for use
in such exchange. The Merged Company will deposit with the Exchange Agent in
trust for the Asure Shareholder the aggregate Merger Consideration to be paid in
respect of the Asure Shares.
(b) Each Asure Shareholder, upon surrender to the Exchange Agent of
a Certificate or Certificates together with a properly completed letter of
transmittal covering such Certificates, will be entitled to receive the Merger
Consideration payable in respect of the Asure Shares formerly represented
thereby, after giving effect to any required withholding Tax. Until so
surrendered, each Certificate shall, after the Effective Time, represent for all
purposes, only the right to receive such Merger Consideration. In no event will
an Asure Shareholder be entitled to interest on the Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the registered holder of the Asure Shares formerly represented
by the Certificate or Certificates surrendered in exchange for the Merger
Consideration, it shall be a condition to such payment that the Certificate or
Certificates so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the Person requesting such payment shall pay to the
Exchange Agent any transfer or other Taxes required as a result of such payment
to a Person other than the registered holder of such Asure Shares or establish
to the satisfaction of the Exchange Agent that such Tax has been paid or is not
payable.
(d) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to this Section 2.6 that remains unclaimed by the Asure
Shareholders thirty (30) days after the Effective Time shall be returned to the
Merged Company, upon demand, and any such Person who has not exchanged his
Certificate or Certificates for the Merger Consideration in accordance with this
Article II prior to that time shall thereafter look only to the Merged Company
for payment of the Merger Consideration. Notwithstanding the foregoing, the
Merged Company shall not be liable to any Person for any amount paid to a public
official pursuant to applicable abandoned property Laws. Any amounts remaining
unclaimed under this Article II two years after the Effective Time (or such
earlier date immediately prior to such time as such
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amounts would otherwise escheat to or become property of any governmental
entity) shall, to the extent permitted by applicable Law, become the property of
the Merged Company free and clear of any claims or interest of any Person
previously entitled thereto.
(e) No dividends or other distributions with respect to securities
of the Merged Company constituting part of the Merger Consideration shall be
paid to the Asure Shareholder of any unsurrendered Certificates until such
Certificates are surrendered as provided in this Article II. Upon such
surrender, there shall be paid, without interest, to the Person in whose name
the Certificates representing the securities of the Merged Company into which
such Asure Shares were converted are registered, all dividends and other
distributions payable in respect of such securities on a date subsequent to, and
in respect of a record date after, the Effective Time, less the amount of
withholding Taxes which may be required thereon.
(f) If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Merged
Company, the posting by such person of a bond in such reasonable amount as the
Merged Company may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificate the consideration
provided for, and in accordance with the procedures set forth, in this Article
II and, if applicable, any unpaid dividends and distributions with respect to
securities of the Merged Company constituting part of the Merger Consideration
deliverable with respect thereof pursuant to this Agreement.
2.7. OPTIONS AND WARRANTS.
(a) At the Effective Time, the Merged Company shall assume Asure's
rights and obligations under each of the outstanding stock options previously
granted by Asure to certain of its employees, directors and consultants that are
outstanding immediately prior to the Effective Time (each such stock option
existing immediately prior to the Effective Time is referred to herein as an
"Existing Asure Option" and each such assumed stock option existing immediately
after the Effective Time is referred to herein as an "Assumed Asure Option").
Under each Assumed Asure Option, the optionee shall have the right to receive
from the Merged Company, in accordance with the terms and subject to the
conditions of the Existing Asure Option, the Merger Consideration that such
optionee would have been entitled to receive had the optionee exercised his or
her Existing Asure Option immediately prior to the Effective Time, but only in
accordance with the terms and conditions of the Existing Asure Option (including
payment of the aggregate exercise price thereof). Except as provided in this
Section 2.7(a), the Assumed Asure Option shall not give the optionee any
additional benefits that the holder thereof did not have under the Existing
Asure Option; provided, however, that the terms of such Existing Asure Options
shall govern the vesting thereof, including, if applicable, any vesting of
Existing Asure Options as a result of the Merger. Each Assumed Asure Option
shall constitute a continuation of the Existing Asure Option, substituting the
Merged Company for Asure.
(b) Each Asure Warrant that is outstanding immediately prior to the
Effective Time and that does not expire at the Effective Time by the terms
thereof shall, by virtue of the
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Merger and pursuant to the terms of the Asure Warrant or with the consent of the
majority of the holders thereof, be converted into and exchanged for a Merged
Company Warrant exercisable for the Conversion Number of Merged Company Shares
for each share of Merged Company Common Stock for which the Asure Warrant is
exercisable immediately prior to the Effective Time, at an exercise price per
Merged Company Share that has been adjusted in accordance with the terms of the
Asure Warrant converted hereunder as a result of the Merger. The Merged Company
Warrants shall have the terms and conditions of the Asure Warrants converted
hereunder. At the Effective Time, the Merged Company shall make available to any
holders of Asure Warrants converted hereunder a new warrant evidencing the
Merged Company Warrant.
2.8. ADJUSTMENTS. If at any time during the period between the date of
this Agreement and the Effective Time, any change in the outstanding shares of
capital stock of HERZ or Asure shall occur by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon with a record date during such period or
any similar event, this Article II shall be appropriately adjusted.
2.9. MERGER SUBSIDIARY CAPITAL STOCK. Each share of capital stock of the
Merger Subsidiary issued and outstanding immediately prior to the Effective Time
shall be converted, by virtue of the Merger, into one share of common stock of
the Surviving Corporation.
2.10. NO FURTHER TRANSFER OF SHARES. After the Effective Time, there shall
be no transfers of Asure Shares that were outstanding immediately prior to the
Effective Time on the stock transfer books of the Surviving Corporation. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for transfer, they shall be canceled and exchanged for the Merger
Consideration as provided in this Article II.
2.11. DISSENTING SHARES. Notwithstanding Section 2.5, the shares of Asure
Common Stock that are issued and outstanding immediately prior to the Effective
Time and that are held by Asure Shareholders who did not vote in favor of the
Merger and who comply with all of the relevant provisions of Section 92A.42D of
the NGCL (the "Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration, unless and until such Asure Shareholders shall
have waived in writing or failed to perfect or shall have effectively withdrawn
or lost their rights to appraisal under the NGCL; and any such Asure Shareholder
shall have only such rights in respect of the Dissenting Shares owned by them as
are provided by Section 92A.46D of the NGCL. If any such Asure Shareholder shall
have waived in writing or failed to perfect or shall have effectively withdrawn
or lost such right, such Asure Shareholder's Dissenting Shares shall thereupon
be deemed to have been converted into and to have become exchangeable, as of the
Effective Time, for the right to receive the Merger Consideration without any
interest thereon, pursuant to the terms of Section 2.5. Prior to the Effective
Time, Asure will not, except with the prior written consent of HERZ, voluntarily
make any payment with respect to, or settle or offer to settle, any claim made
by the stockholders owning the Dissenting Shares.
ARTICLE III
OTHER AGREEMENTS
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3.1. STOCK REDEMPTION AGREEMENT. On or prior to the execution of this
Agreement, Asure, Controlling Stockholder, and I. Marilyn Hertz shall enter into
the Stock Redemption Agreement annexed hereto as Exhibit A (the "Stock
Redemption Agreement"). The closing of the Stock Redemption Agreement shall be a
condition concurrent to, and shall be simultaneous with, the Closing. At the
Effective Time, Asure may, at its election, assign all or part, of the rights,
and the Merged Company shall assume the obligations, of Asure under the Stock
Redemption Agreement.
3.2. PREFERRED STOCK PURCHASE AGREEMENT. On or prior to the execution of
this Agreement, Asure shall enter into the Series A Preferred Stock Purchase
Agreement annexed hereto as Exhibit B (the "Preferred Stock Purchase Agreement")
The closing of the Preferred Stock Purchase Agreement shall be a condition
concurrent to, and shall be simultaneous with, the Closing.
3.3. CONTROLLING STOCKHOLDER EMPLOYMENT AGREEMENT. Simultaneous with the
Closing, Hergo Ergonomic Support System, Inc. and Controlling Stockholder shall
enter into the employment agreement annexed hereto as Exhibit C (the
"Controlling Stockholder Employment Agreement").
3.4. GOLDSAMMLER EMPLOYMENT AGREEMENT. Simultaneous with the Closing, the
Merged Company and Barry Goldsammler shall enter into the employment agreement
annexed hereto as Exhibit D (the "Goldsammler Consulting Agreement").
3.5. CONTROLLING STOCKHOLDER CONSULTING AGREEMENT. Simultaneous with the
Closing, the Merged Company and Controlling Stockholder shall enter into the
consulting agreement annexed hereto as Exhibit E (the "Controlling Stockholder
Consulting Agreement").
3.6. MARILYN HERTZ EMPLOYMENT AGREEMENT. Simultaneous with the Closing,
Hergo Ergonomic Support System, Inc. and I. Marilyn Hertz shall enter into the
employment agreement annexed hereto as Exhibit F (the "Marilyn Hertz Consulting
Agreement").
ARTICLE IV
THE CLOSING
4.1. LOCATION, DATE. The closing for the Transactions (the "Closing")
shall be held at the offices of Kaplan Gottbetter & Levenson, LLP in New York,
New York at 10:00 a.m. (local time) as promptly as practicable (and in any event
within one Business Day) after satisfaction or waiver of the conditions to the
consummation of the Transactions set forth in Articles XII, XIII, XIV and XV.
The date on which the Closing occurs is referred to herein as the "Closing
Date."
4.2. DELIVERIES. At the Closing,
(a) the Merger Subsidiary and HERZ shall deliver or cause to be
delivered to the Secretary of State of the State of Nevada a duly executed
Certificate of Merger as required under the NGCL and to the Secretary of State
of the State of Delaware a duly executed certificate of merger as required under
the DGCL and the Parties shall take all such other and further actions as may be
required by the NGCL and DGCL and any other applicable Law to make the Merger
effective upon the terms and subject to the conditions hereof; and
(b) the Parties shall also deliver to each other the respective
agreements and other documents and instruments specified with respect to them in
Articles XII, XIII, XIV and XV.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HERZ
HERZ hereby represents and warrants to Asure as follows, except as
otherwise set forth
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in the HERZ Disclosure Schedule (items disclosed in one Section of such Schedule
shall apply to all other Sections unless specified otherwise):
5.1. CORPORATE. Each HERZ Company is a corporation duly organized, validly
existing and in good standing under the Laws under which it was incorporated.
Each HERZ Company is qualified to do business as a foreign corporation in any
jurisdiction where it is required to be so qualified, except where the failure
to so qualify would not have a Material Adverse Effect. The Charter Documents
and bylaws of each HERZ Company (all of which have been delivered or made
available to Asure) have been duly adopted and are current, correct and
complete. Each HERZ Company has all necessary corporate power and authority to
own, lease and operate its part of the HERZ Assets and to carry on its part of
the HERZ Business as it is now being conducted.
5.2. AUTHORIZATION. Each HERZ Company has the requisite corporate power
and authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions to be performed by it. Such execution,
delivery and performance by each HERZ Company has been duly authorized by all
necessary corporate action, other than the approval of this Agreement and
consummation of the Merger is subject to the approval of the holders of a
majority of the outstanding HERZ Common Stock, which are the only consents or
approvals of holders of HERZ capital stock required for the consummation of the
Transactions. Each Transaction Document executed and delivered by each HERZ
Company as of the date hereof has been duly executed and delivered by such HERZ
Company and constitutes a valid and binding obligation of such HERZ Company
enforceable against such HERZ Company in accordance with its terms, and any
Transaction Document executed and delivered by each HERZ Company after the date
hereof will be duly executed and delivered by such HERZ Company and will
constitute a valid and binding obligation of such HERZ Company, enforceable
against such HERZ Company in accordance with its terms, except as otherwise
limited by bankruptcy, insolvency, reorganization and other laws affecting
creditors rights generally, and except that the remedy of specific performance
or other equitable relief is available only at the discretion of the court
before which enforcement is sought.
5.3. VALIDITY OF CONTEMPLATED TRANSACTIONS. Except for compliance with (i)
the Securities Act and the Exchange Act and (ii) the filing of the Certificate
of Merger with the Secretary of State of the State of Nevada, neither the
execution and delivery by each HERZ Company of the respective Transaction
Documents to which it is or will be a party, nor the performance of the
Transactions to be performed by it, will require any filing, consent or approval
under or constitute a Default, or result in a loss of material benefit under,
(a) to HERZ knowledge, any Law or Court Order to which any HERZ Company is
subject, (b) the Charter Documents or bylaws of any HERZ Company, or (c) any
Contracts to which any HERZ Company is a party or by which any of the HERZ
Assets may be subject, except for Defaults which would not have a Material
Adverse Effect.
5.4. CAPITALIZATION AND STOCK OWNERSHIP. The total authorized capital
stock of HERZ consists of (a) 6,000,000 shares of HERZ Common Stock, and (b) 0
shares of preferred stock. Of such authorized capital stock, the only issued and
outstanding shares on the
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date hereof are 2,249,593 shares of HERZ Common Stock. There are no existing
options, warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition of any
issued or unissued capital stock or other securities of HERZ. The HERZ
Disclosure Schedule sets forth, as of the date hereof, as to each option or
warrant, the holder, date of grant, exercise price and number of shares subject
thereto. All of the issued and outstanding shares of HERZ Common Stock are
validly issued fully paid and non-assessable. No options, warrants, calls,
commitments or other rights of any character (including conversion or preemptive
rights) will entitle any Person to acquire any securities of the Merger
Subsidiary or any subsidiary thereof.
5.5. LISTING. The HERZ Common Stock is listed for quotation on the Nasdaq
SmallCap Market under the symbol "HERZ". HERZ is in full compliance with the
Nasdaq SmallCap Market listing maintenance requirements. Since listing the HERZ
Common Stock on the Nasdaq SmallCap Market, HERZ has not received any notice
from the Nasdaq Stock Market Inc. that (i) HERZ is not in full compliance with
the Nasdaq SmallCap Market listing maintenance requirements or (ii) that HERZ
Common Stock may be delisted from the Nasdaq SmallCap Market.
5.6. DISCLOSURE DOCUMENT/PROXY STATEMENT. None of the information supplied
or to be supplied by or on behalf of any HERZ Company specifically for inclusion
in the Disclosure Document will (except to the extent revised or superseded by
amendments or supplements contemplated hereby), at the time of distribution to
the Asure Shareholders, 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, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by or
on behalf of any HERZ Company specifically for inclusion or incorporation by
reference in the Proxy Statement will (except to the extent revised or
superseded by amendments or supplements contemplated hereby), at the date it (or
any such amendment or supplement) is mailed to the stockholders of HERZ and at
the time of the HERZ Stockholder Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Disclosure Document
and the Proxy Statement (except for information relating solely to Asure) will
comply in all material respects with the requirements of the Securities Act and
the Exchange Act and the Regulations promulgated thereunder.
5.7. HERZ SEC REPORTS; FINANCIAL STATEMENTS. HERZ has filed all required
forms, reports, statements, schedules and other documents with the SEC since
January 1, 1997, including (a) its Annual Reports on Form 10-KSB for the fiscal
years ended August 31, 1999, 1998 and 1997, (b) all proxy and information
statements relating to HERZ's meetings of stockholders (whether annual or
special) held since January 1, 1997, (c) its Quarterly Reports on Form 10-QSB
for the quarter ended November 30, 1999 and February 29, 2000, and (d) all other
reports or registration statements filed by HERZ with the SEC since January 1,
1997 (collectively, the "HERZ SEC Reports"). Each of such HERZ SEC Reports, at
the time it was filed, complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, and with the forms and
Regulations of the SEC promulgated thereunder, and
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did not contain at the time filed any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The financial statements, including all related
notes and schedules, contained in the HERZ SEC Reports (or incorporated by
reference therein) fairly present the consolidated financial position of HERZ as
at the respective dates thereof and the consolidated results of operations and
cash flows of HERZ for the periods indicated in accordance with GAAP applied on
a consistent basis throughout the periods involved (except for changes in
accounting principles disclosed in the notes thereto) and subject in the case of
interim financial statements to normal year-end adjustments and the absence of
notes. For purposes of this Agreement, the balance sheet of HERZ as of August
31, 1999 is referred to as the "HERZ Balance Sheet" and the date thereof is
referred to as the "HERZ Balance Sheet Date."
5.8. TAXES.
(a) Each HERZ Company has (i) filed (or, in the case of Tax Returns
not yet due, will file) with the appropriate governmental agencies all material
Tax Returns required to be filed on or before the Effective Time and all such
Tax Returns filed were true, correct and complete in all material respects, and
(ii) paid (or, in the case of Taxes not yet due, will pay), all Taxes shown on
such Tax Returns.
(b) Each HERZ Company has (i) duly paid or caused to be paid all
material Taxes and all Taxes shown on Tax Returns that are or were due, except
to the extent that a sufficient reserve for Taxes has been reflected on the HERZ
Balance Sheet and (ii) provided a sufficient reserve on the HERZ Balance Sheet
for the payment of all Taxes not yet due and payable.
(c) No deficiency in respect of any Taxes which has been assessed
against a HERZ Company remains unpaid, except for Taxes being contested in good
faith, and HERZ has no knowledge of any unassessed Tax deficiencies or of any
audits or investigations pending or threatened against an HERZ Company with
respect to any Taxes.
(d) No HERZ Company has extended or waived the application of any
applicable statute of limitations of any jurisdiction regarding the assessment
or collection of any Tax or any Tax Return.
(e) There are no liens for Taxes upon any assets of any HERZ Company
except for liens for current Taxes not yet due.
(f) Each HERZ Company has to its knowledge (i) complied with all
material provisions of the Code relating to the withholding and payment of Taxes
and (ii) has made all deposits required by applicable Law to be made with
respect to employees' withholding and other payroll, employment or other
withholding or related Taxes.
(g) No HERZ Company is a party to any contract, agreement, plan or
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arrangement that, individually or in the aggregate, or when taken together with
any payment that may be made under this Agreement or any agreements contemplated
hereby, could give rise to the payment of any "excess parachute payment" within
the meaning of Section 280G of the Code.
(h) No HERZ Company is a party to any agreement relating to the
allocating or sharing of the payment of, or liability for, Taxes for any period
(or portion thereof).
(i) To HERZ's knowledge, except for the group of which HERZ is
presently the ultimate parent, no HERZ Company has ever been a member of an
affiliated group of corporations (within the meaning of Section 1504 of the
Code).
5.9. TITLE TO ASSETS AND RELATED MATTERS. Each HERZ Company has good and
marketable title to its part of the HERZ Assets, free from any Encumbrances
except (a) items described in any notes to the consolidated financial statements
of HERZ contained in HERZ's Annual Report on Form 10-KSB for the fiscal year
ended August 31, 1999 (the "HERZ 10-KSB") included in the HERZ SEC Reports, (b)
minor matters that would not have a Material Adverse Effect, and (c)
constitutional and statutory liens arising from the obligation to pay for the
provision of materials or services not yet in Default and Taxes not yet due.
5.10. REAL PROPERTY. All material real estate leased by any HERZ Company
as of the date hereof and used in the operation of the HERZ Business are
disclosed in the HERZ SEC Reports. As of the date hereof, none of the HERZ
Companies owns any real property.
5.11. SUBSIDIARIES. As of the date hereof none of the HERZ Companies owns,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, partnership, limited liability company, business trust, joint
venture or other legal entity. HERZ owns all of the issued and outstanding
shares of capital stock of each HERZ Subsidiary. There are no existing options,
warrants, calls, commitments or other rights of any character (including
conversion or preemptive rights) relating to the acquisition or voting of any
issued or unissued capital stock or other securities of any HERZ Subsidiary. All
of the shares of capital stock of each HERZ Subsidiary are duly and validly
authorized and issued, fully paid and non-assessable.
5.12. LEGAL PROCEEDINGS; COMPLIANCE WITH LAW; GOVERNMENTAL PERMITS.
(a) There is no Litigation that is pending or, to HERZ's knowledge,
threatened against any HERZ Company that would have a Material Adverse Effect.
To HERZ's knowledge, HERZ is and has been in compliance with all applicable
Laws, including Environmental Law and applicable securities laws, except where
the failure to be in compliance would not have a Material Adverse Effect. There
has been no Default under any Laws applicable to any HERZ Company, including
Environmental Laws, except for any Defaults that would not have a Material
Adverse Effect. There has been no Default with respect to any Court Order
applicable to any HERZ Company. No HERZ Company has received any written notice
and, to the knowledge of any HERZ Company, no other communication has been
received to the effect that
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it is not in compliance with any applicable Laws, and HERZ has no reason to
believe that any presently existing circumstances are likely to result in
violations of any applicable Laws, except to the extent that such failures to
comply or violations would not have a Material Adverse Effect.
(b) To HERZ's knowledge, there is no Environmental Condition at any
property presently or formerly owned or leased by an HERZ Company which is
reasonably likely to have a Material Adverse Effect.
(c) The HERZ Companies have all material consents, permits,
franchises, licenses, concessions, registrations, certificates of occupancy,
approvals and other authorizations of Governmental Authorities (collectively,
the "Governmental Permits") required in connection with the operation of their
respective businesses as now being conducted, all of which are in full force and
effect, except where the failure to obtain any such Governmental Permit or of
any such Governmental Permit to be in full force and effect, would not have a
Material Adverse Effect. Each HERZ Company has complied, in all material
respects, with all of its Governmental Permits, except where the failure to so
comply would not have a Material Adverse Effect.
5.13. CONTRACTS AND COMMITMENTS. The HERZ Disclosure Schedule describes:
(a) Contracts (excluding letters of intent and agreements in
principle) involving any HERZ Company in amounts in excess of $100,000.
(b) All employment, consulting, management, severance or agency
Contracts providing for annual payments of at least $100,000 (y) with any
executive officers or directors of HERZ, or (z) allowing the other party to
terminate and receive payment based on the execution of this Agreement and
consummation of the Transactions.
(c) Any employment agreements with any Person to whom any HERZ
Company makes annual salary payments in excess of $100,000.
(d) All Contracts limiting the freedom of any HERZ Company to
compete in any line of business, or with any Person, or in any geographic area
or market.
Each Contract providing for payments in excess of $100,000 to which any HERZ
Company is a party (i) is legal, valid, binding and enforceable against HERZ or
the applicable Subsidiary except as otherwise limited by bankruptcy, insolvency,
reorganization and other laws affecting creditors' rights generally, and except
that the remedy of specific performance or other equitable relief is available
only at the discretion of the court before which enforcement is sought, and (ii)
neither HERZ nor the applicable Subsidiary, nor to HERZ's knowledge, any other
party, is in Default under any such Contract, other than in the case of (i) and
(ii) above where the failure to be so would not have a Material Adverse Effect.
5.14. EMPLOYEE RELATIONS. No HERZ Company is (a) a party to, involved in
or, to HERZ's knowledge, threatened by, any labor dispute or unfair labor
practice charge, or (b)
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currently negotiating any collective bargaining agreement, and no HERZ Company
has experienced any work stoppage during the last three years.
5.15. ERISA.
(a) The HERZ Disclosure Schedule contains a complete list of all
Benefit Plans sponsored or maintained by any HERZ Company or under which any
HERZ Company may be obligated for its employees, directors or independent
contractors ("HERZ Benefit Plans"). HERZ has delivered or made available to
Asure (i) accurate and complete copies of all HERZ Benefit Plan documents and of
any summary plan descriptions, summary annual reports and insurance contracts
relating thereto, (ii) accurate and complete detailed summaries of all unwritten
HERZ Benefit Plans, (iii) accurate and complete copies of the most recent
financial statements and actuarial reports with respect to all HERZ Benefit
Plans for which financial statements or actuarial reports are required or have
been prepared and (iv) accurate and complete copies of all annual reports for
all HERZ Benefit Plans (for which annual reports are required) prepared within
the last two years.
(b) All HERZ Benefit Plans conform in all material respects to, and
are being administered and operated in material compliance with, the
requirements of ERISA, the Code and all other applicable Laws, including
applicable Laws of foreign jurisdictions. There have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or Section
406 of ERISA involving any of the HERZ Benefit Plans, that could subject any
HERZ Company to any material penalty or tax imposed under the Code or ERISA.
(c) Any HERZ Benefit Plan that is intended to be qualified under
Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code
has been determined by the Internal Revenue Service to be so qualified, and such
determination remains in effect and has not been revoked. Nothing has occurred
since the date of any such determination that is reasonably likely to affect
adversely such qualification or exemption, or result in the imposition of excise
taxes or income taxes on unrelated business income under the Code or ERISA with
respect to any HERZ Benefit Plan.
(d) No HERZ Company has a current or contingent obligation to
contribute to any multiemployer plan (as defined in Section 3(37) of ERISA) and
(ii) no HERZ Company, nor any entity that has been treated as a single employer
with any HERZ Company under Sections 414(b), (c), (m) or (o) of the Code, has
any liability, contingent or otherwise, under Title IV of ERISA or Section 412
of the Code.
(e) There are no pending or, to the knowledge of HERZ, threatened
claims by or on behalf of any HERZ Benefit Plans, or by or on behalf of any
individual participants or beneficiaries of any HERZ Benefit Plans, alleging any
breach of fiduciary duty on the part of any HERZ Company or any of the officers,
directors or employees of any HERZ Company under ERISA or any other applicable
Regulations, or claiming benefit payments other than those made in the ordinary
operation of such plans, or alleging any violation of any other applicable Laws.
To HERZ's knowledge, the HERZ Benefit Plans are not the subject of any
investigation,
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audit or action by the Internal Revenue Service, the Department of Labor or the
PBGC. Each HERZ Company has made all required contributions under the HERZ
Benefit Plans including the payment of any premiums payable to the PBGC and
other insurance premiums.
(f) With respect to any HERZ Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (an "HERZ
Welfare Plan"), (i) each HERZ Welfare Plan for which contributions are claimed
as deductions under any provision of the Code is in material compliance with all
applicable requirements pertaining to such deduction, (ii) with respect to any
welfare benefit fund (within the meaning of Section 419 of the Code) related to
an HERZ Welfare Plan, there is no disqualified benefit (within the meaning of
Section 4976(b) of the Code) that would result in the imposition of a tax under
Section 4976(a) of the Code, and (iii) any HERZ Benefit Plan that is a group
health plan (within the meaning of Section 4980B(g)(2) of the Code) complies,
and in each and every case has complied, with all of the material requirements
of Section 4980B of the Code, ERISA, Title XXII of the Public Health Service Act
and the applicable provisions of the Social Security Act.
(g) The execution of this Agreement and the performance of the
Transactions will not (either alone or in combination with the occurrence of any
additional or subsequent events) constitute an event under any HERZ Benefit Plan
that will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any current or former
employee, director or consultant of any HERZ Company.
5.16. PATENTS, TRADEMARKS, ETC. To HERZ's knowledge, no HERZ Company
infringes upon or unlawfully or wrongfully uses any Intellectual Property owned
or claimed by another Person and no Person infringes on or wrongfully uses any
Intellectual Property owned or claimed by HERZ, except for those situations that
would not have a Material Adverse Effect. To HERZ's knowledge, the HERZ
Companies own or have valid rights to use all Intellectual Property used in the
conduct of their business except where the failure to have valid rights to use
such Intellectual Property will not have a Material Adverse Effect, free and
clear of all Encumbrances, other than Encumbrances which would not have a
Material Adverse Effect.
5.17. ABSENCE OF CERTAIN CHANGES. Since the HERZ Balance Sheet Date, the
HERZ Companies have conducted the HERZ Business in the ordinary course and, as
of the date hereof, there has not been:
(a) any Material Adverse Effect on the HERZ Business;
(b) any distribution or payment declared or made in respect of
HERZ's capital stock by way of dividends, purchase or redemption of shares or
otherwise;
(c) any increase in the compensation payable or to become payable to
any current director or officer of any HERZ Company, except for merit and
seniority increases for employees made in the ordinary course of business, nor
any material change in any existing employment, severance, consulting
arrangements or any HERZ Benefit Plan;
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(d) any sale, assignment or transfer of any HERZ Assets, or any
additions to or transactions involving any HERZ Assets, other than those made in
the ordinary course of business or those solely involving the HERZ Companies;
(e) other than in the ordinary course of business, any waiver or
release of any material claim or right or cancellation of any material debt held
by any HERZ Company;
(f) any change in practice with respect to Taxes, or any election,
change of any election, or revocation of any election with respect to Taxes, or
any settlement or compromise of any dispute involving a Tax liability;
(g) (i) any creation, or assumption of, any long-term debt or any
short-term debt for borrowed money other than under existing notes payable,
lines of credit or other credit facility or in the ordinary course of business
or with respect to its Wholly-Owned Subsidiaries; (ii) any assumption, granting
of guarantees, endorsements or otherwise becoming liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other Person
except its Wholly-Owned Subsidiaries; or (iii) any loans, advances or capital
contributions to, or investments in, any other Person except its Wholly-Owned
Subsidiaries;
(h) any material agreement, commitment or contract, except
agreements, commitments or contracts for the purchase, sale or lease of goods or
services in the ordinary course of business;
(i) other than in the ordinary course of business, any
authorization, recommendation, proposal or announcement of an intention to
authorize, recommend or propose, or enter into any Contract with respect to, any
(i) plan of liquidation or dissolution, (ii) acquisition of a material amount of
assets or securities, (iii) disposition or Encumbrance of a material amount of
assets or securities, (iv) merger or consolidation or (v) material change in its
capitalization; or
(j) any change in accounting procedure or practice.
5.18. CORPORATE RECORDS. The minute books of each HERZ Company contain
accurate, complete and current copies of all Charter Documents and of all
minutes of meetings, resolutions and other proceedings of its Board of Directors
and stockholders.
5.19. FINDER'S FEES. No Person is or will be entitled to any commission,
finder's fee or other payment in connection with the Transactions based on
arrangements made by or on behalf of HERZ.
5.20. OWNERSHIP OF MERGER SUBSIDIARY; NO PRIOR ACTIVITIES. The Merger
Subsidiary is a Wholly-Owned Subsidiary of HERZ created solely for the purpose
of effecting the Merger. As of the date hereof and the Effective Time, except
for Liabilities incurred in connection with its incorporation or organization
and the Transactions and except for
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this Agreement and the other Transaction Documents, the Merger Subsidiary has
not, nor will not, through the Effective Time, directly or indirectly, through
any Subsidiary or Affiliate of HERZ, have any material Liabilities, engage in
any material business activities of any type or kind whatsoever or enter into
any agreements or arrangements with any Person.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF ASURE
Asure hereby represents and warrants to HERZ as follows, except as
otherwise set forth in the Asure Disclosure Schedule (items disclosed in one
Section of such Schedule shall apply to all other Sections unless specified
otherwise):
6.1. CORPORATE. Asure is a corporation duly organized, validly existing
and in good standing under the Laws under which it was incorporated. Asure is
qualified to do business as a foreign corporation in any jurisdiction where it
is required to be so qualified, except where the failure to so qualify would not
have a Material Adverse Effect. The Charter Documents and bylaws of Asure (all
of which have been delivered or made available to HERZ) have been duly adopted
and are current, correct and complete. Asure has all necessary corporate power
and authority to own, lease and operate the Asure Assets and to carry on the
Asure Business as it is now being conducted. Asure has no Subsidiaries. Asure
has no Subsidiaries. Asure has heretofore delivered to HERZ the Asure Business
Plan. The Asure Business Plan does not contain any misstatement of material fact
or omit to state a material fact necessary to make the statements therein not
misleading, in each case taking due account of the forward-looking nature of the
Asure Business Plan. To Asure's knowledge, there are no facts which would
indicate that the assumptions underlying the financial projections in the Asure
Business Plan are not reasonable.
6.2. AUTHORIZATION. Asure has the requisite corporate power and authority
to execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it. Such execution, delivery and
performance by Asure have been duly authorized by all necessary corporate
action, other than the approval of this Agreement and consummation of the Merger
is subject to the approval of the holders of a majority of the outstanding
shares of Asure Common Stock, which are the only consents or approvals of
holders of Asure capital stock required for the consummation of the
Transactions. Each Transaction Document executed and delivered by Asure as of
the date hereof has been duly executed and delivered by Asure and constitutes a
valid and binding obligation of Asure, enforceable against Asure in accordance
with its terms, and any Transaction Document executed and delivered by Asure
after the date hereof will be duly executed and delivered by Asure and will
constitute a valid and binding obligation of Asure, enforceable against Asure in
accordance with its terms, except as otherwise limited by bankruptcy, insolvency
reorganization and other laws affecting creditors rights generally, and except
that the remedy of specified performance or other equitable relief is available
only at the discretion of the court before which enforcement is sought.
6.3. VALIDITY OF CONTEMPLATED TRANSACTIONS. Except for compliance with (i)
the Securities Act and the Exchange Act and (ii) the filing of the Certificate
of Merger with the Secretary of State of the State of Nevada, neither the
execution and delivery by Asure of the respective Transaction Documents to which
it is or will be a party, nor the performance of the Transactions to be
performed by it, will require any filing, consent or approval under or
constitute a Default, or result in a loss of material benefit under, (a) to
Asure's knowledge, any Law or Court Order to which Asure is subject, (b) the
Charter Documents or bylaws of Asure, (c) any other Contracts to which Asure is
a party or by which any of the Asure Assets may be
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subject, except for Defaults which would not have a Material Adverse Effect.
6.4. CAPITALIZATION AND STOCK OWNERSHIP. The total authorized capital
stock of Asure consists of 100,000,000 shares of Asure Common Stock. Of such
authorized capital stock, the only issued and outstanding shares on the date
hereof are 3,955,685 shares of Asure Common Stock. There are no existing
options, warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition of any
issued or unissued capital stock or other securities of Asure. The Asure
Disclosure Schedule sets forth, as of the date hereof, as to each option or
warrant, the holder, date of grant, exercise price and number of shares subject
thereto. All of the issued and outstanding shares of Asure Common Stock are
validly issued, fully paid and non-assessable.
6.5. ENFORCEABILITY OF PREFERRED STOCK PURCHASE AGREEMENT. The Preferred
Stock Purchase Agreement constitutes a binding obligation of the Purchaser (as
such term is defined in the Preferred Stock Purchase Agreement), enforceable
against the Purchaser in accordance with the terms of the Preferred Stock
Purchase Agreement, except as otherwise limited by bankruptcy, insolvency
reorganization and other laws affecting creditors rights generally, and except
that the remedy of specified performance or other equitable relief is available
only at the discretion of the court before which enforcement is sought.
6.6. DISCLOSURE DOCUMENT/PROXY STATEMENT. None of the information supplied
or to be supplied by or on behalf of Asure specifically for inclusion in the
Disclosure Document will (except to the extent revised or superseded by
amendments or supplements contemplated hereby), at the time of distribution to
the Asure Shareholders, 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, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by or
on behalf of Asure specifically for inclusion or incorporation by reference in
the Proxy Statement will (except to the extent revised or superseded by
amendments or supplements contemplated hereby), at the date it (or any such
amendment or supplement) is mailed to the stockholders of HERZ and at the time
of the HERZ Stockholder Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
6.7. ASURE FINANCIAL STATEMENTS. The audited balance sheet as of August
31, 1999 and related statements of income, cash flows, and stockholder's equity
for the period ending August 31, 1999, and the unaudited balance sheet as of
February 29, 2000 and the related statements of income, cash flows, and
stockholder's equity for the six months ended February 29, 2000, including all
related notes and schedules (the "Asure Financial Statements") delivered to HERZ
fairly present the consolidated financial position of Asure as at the respective
dates thereof and the consolidated results of operations and cash flows of Asure
for the periods indicated in accordance with GAAP applied on a consistent basis
throughout the periods involved (except for changes in accounting principles
disclosed in the notes thereto) and subject in the case of interim financial
statements to normal year-end adjustments and the absence of notes. For purposes
of this Agreement, the balance sheet of Asure as of August 31, 1999 is referred
to as the "Asure Balance Sheet" and the date thereof is referred to as the
"Asure Balance Sheet Date."
6.8. TAXES.
(a) Asure (i) has filed (or, in the case of Tax Returns not yet due,
will file)
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with the appropriate governmental agencies all material Tax Returns required to
be filed on or before the Effective Time and all such Tax Returns filed were
true, correct and complete in all material respects, and (ii) has paid (or, in
the case of Taxes not yet due, will pay), all Taxes shown on such Tax Returns.
(b) Asure has (i) duly paid or caused to be paid all material Taxes
and all Taxes shown on Tax Returns that are or were due, except to the extent
that a sufficient reserve for Taxes has been reflected on the Asure Balance
Sheet and (ii) provided a sufficient reserve on the Asure Balance Sheet for the
payment of all Taxes not yet due and payable.
(c) No deficiency in respect of any Taxes which has been assessed
against Asure remains unpaid, except for Taxes being contested in good faith,
and Asure has no knowledge of any unassessed Tax deficiencies or of any audits
or investigations pending or threatened against Asure with respect to any Taxes.
(d) Asure has not extended or waived the application of any
applicable statute of limitations of any jurisdiction regarding the assessment
or collection of any Tax or any Tax Return.
(e) There are no liens for Taxes upon any assets of Asure except for
liens for current Taxes not yet due.
(f) Asure has to its knowledge (i) complied with all material
provisions of the Code relating to the withholding and payment of Taxes and (ii)
has made all deposits required by applicable Law to be made with respect to
employees' withholding and other payroll, employment or other withholding or
related Taxes.
(g) Asure is not a party to any contract, agreement, plan or
arrangement that, individually or in the aggregate, or when taken together with
any payment that may be made under this Agreement or any agreements contemplated
hereby, could give rise to the payment of any "excess parachute payment" within
the meaning of Section 280G of the Code.
(h) Asure is not a party to any agreement relating to the allocating
or sharing of the payment of, or liability for, Taxes for any period (or portion
thereof).
(i) To Asure's knowledge, Asure has never been a member of an
affiliated group of corporations (within the meaning of Section 1504 of the
Code).
6.9. TITLE TO ASSETS AND RELATED MATTERS. Asure has good and marketable
title to its part of the Asure Assets, free from any Encumbrances except (a) any
Encumbrance in favor of Asure, (b) items described in any notes to the
consolidated financial statements of Asure contained in Asure's Financial
Statements, (c) minor matters that would not have a Material Adverse Effect, and
(d) constitutional and statutory liens arising from the obligation to pay for
the provision of materials or services not yet in Default and Taxes not yet due.
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6.10. REAL PROPERTY. All material real estate leased by Asure as of the
date hereof and used in the operation of the Asure Business are disclosed in the
Asure Financial Statements. As of the date hereof, Asure does not own any real
property.
6.11. [Reserved]
6.12. LEGAL PROCEEDINGS; COMPLIANCE WITH LAW; GOVERNMENTAL PERMITS.
(a) There is no Litigation that is pending or, to Asure's knowledge,
threatened against Asure that would have a Material Adverse Effect. To Asure's
knowledge, Asure is and has been in compliance with all applicable Laws,
including Environmental Laws and applicable securities laws, except where the
failure to be in compliance would not have a Material Adverse Effect. There has
been no Default under any Laws applicable to Asure, including Environmental
Laws, except for any Defaults that would not have a Material Adverse Effect.
There has been no Default with respect to any Court Order applicable to Asure.
Asure has not received any written notice and, to the knowledge of Asure, no
other communication has been received to the effect that it is not in compliance
with any applicable Laws, and Asure has no reason to believe that any presently
existing circumstances are likely to result in violations of any applicable
Laws, except to the extent that such failures to comply or violations would not
have a Material Adverse Effect.
(b) To Asure's knowledge, there is no Environmental Condition at any
property presently or formerly owned or leased by Asure which is reasonably
likely to have a Material Adverse Effect.
(c) Asure has all Governmental Permits required in connection with
the operation of its Business, all of which are in full force and effect, except
where the failure to obtain any such Governmental Permit or of any such
Governmental Permit to be in full force and effect, would not have a Material
Adverse Effect. Asure has complied, in all material respects, with all of its
Governmental Permits, except where the failure to so comply would not have a
Material Adverse Effect.
6.13. CONTRACTS AND COMMITMENTS. The Asure Disclosure Schedule describes:
(a) Contracts (excluding letters of intent and agreements in
principle) involving Asure in amounts in excess of $100,000.
(b) All employment, consulting, management, severance or agency
Contracts providing for annual payments of at least $100,000 (y) with any
executive officers or directors of Asure, or (z) allowing the other party to
terminate and receive payment based on the execution of this Agreement and
consummation of the Transactions, and (ii) any employment agreements with any
Person to whom Asure makes annual salary payments in excess of $100,000.
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(c) All Contracts limiting the freedom of Asure to compete in any
line of business, or with any Person, or in any geographic area or market.
Each Contract providing for payments in excess of $100,000 to which Asure is a
party (i) is legal, valid, binding and enforceable against Asure except as
otherwise limited by bankruptcy, insolvency, reorganization and other laws
affecting creditors' rights generally, and except that the remedy of specific
performance or other equitable relief is available only at the discretion of the
court before which enforcement is sought, and (ii) Asure, and to Asure's
knowledge, any other party, is not in Default under any such Contract, other
than in the case of (i) and (ii) above where the failure to be so would not have
a Material Adverse Effect.
6.14. EMPLOYEE RELATIONS. Asure is not (a) a party to, involved in or, to
Asure's knowledge, threatened by, any labor dispute or unfair labor practice
charge, or (b) currently negotiating any collective bargaining agreement, and
Asure has not experienced any work stoppage during the last three years.
6.15. ERISA.
(a) The Asure Disclosure Schedule contains a complete list of all
Benefit Plans sponsored or maintained by Asure or under which Asure may be
obligated for its employees, directors or independent contractors ("Asure
Benefit Plans"). Asure has delivered or made available to HERZ (i) accurate and
complete copies of all Asure Benefit Plan documents and of any summary plan
descriptions, summary annual reports and insurance contracts relating thereto,
(ii) accurate and complete detailed summaries of all unwritten Asure Benefit
Plans, (iii) accurate and complete copies of the most recent financial
statements and actuarial reports with respect to all Asure Benefit Plans for
which financial statements or actuarial reports are required or have been
prepared and (iv) accurate and complete copies of all annual reports for all
Asure Benefit Plans (for which annual reports are required) prepared within the
last two years.
(b) All Asure Benefit Plans conform in all material respects to, and
are being administered and operated in material compliance with, the
requirements of ERISA, the Code and all other applicable Laws, including
applicable Laws of foreign jurisdictions. There have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or Section
406 of ERISA involving any of the Asure Benefit Plans, that could subject Asure
to any material penalty or tax imposed under the Code or ERISA.
(c) Any Asure Benefit Plan that is intended to be qualified under
Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code
has been determined by the Internal Revenue Service to be so qualified, and such
determination remains in effect and has not been revoked. Nothing has occurred
since the date of any such determination that is reasonably likely to affect
adversely such qualification or exemption, or result in the imposition of excise
taxes or income taxes on unrelated business income under the Code or ERISA with
respect to any Asure Benefit Plan.
(d) (i) Asure has no current or contingent obligation to contribute
to any
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multiemployer plan (as defined in Section 3(37) of ERISA) and (ii) neither Asure
nor any entity that has been treated as a single employer with Asure under
Sections 414(b), (c), (m) or (o) of the Code, has any liability, contingent or
otherwise, under Title IV of ERISA or Section 412 of the Code.
(e) There are no pending or, to the knowledge of Asure, threatened
claims by or on behalf of any Asure Benefit Plans, or by or on behalf of any
individual participants or beneficiaries of any Asure Benefit Plans, alleging
any breach of fiduciary duty on the part of Asure or any of the officers,
directors or employees of Asure under ERISA or any other applicable Regulations,
or claiming benefit payments other than those made in the ordinary operation of
such plans, or alleging any violation of any other applicable Laws. To Asure's
knowledge, the Asure Benefit Plans are not the subject of any investigation,
audit or action by the Internal Revenue Service, the Department of Labor or the
PBGC. Asure has made all required contributions under the Asure Benefit Plans
including the payment of any premiums payable to the PBGC and other insurance
premiums.
(f) With respect to any Asure Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (an "Asure
Welfare Plan"), (i) each Asure Welfare Plan for which contributions are claimed
as deductions under any provision of the Code is in material compliance with all
applicable requirements pertaining to such deduction, (ii) with respect to any
welfare benefit fund (within the meaning of Section 419 of the Code) related to
an Asure Welfare Plan, there is no disqualified benefit (within the meaning of
Section 4976(b) of the Code) that would result in the imposition of a tax under
Section 4976(a) of the Code, and (iii) any Asure Benefit Plan that is a group
health plan (within the meaning of Section 4980B(g)(2) of the Code) complies,
and in each and every case has complied, with all of the material requirements
of Section 4980B of the Code, ERISA, Title XXII of the Public Health Service Act
and the applicable provisions of the Social Security Act.
(g) The execution of this Agreement and the performance of the
Transactions will not (either alone or in combination with the occurrence of any
additional or subsequent events) constitute an event under any Asure Benefit
Plan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any current
or former employee, director or consultant of Asure.
6.16. PATENTS, TRADEMARKS, ETC. To Asure's knowledge, Asure does not
infringe upon or unlawfully or wrongfully use any Intellectual Property owned or
claimed by another Person and no Person infringes on or wrongfully uses any
Intellectual Property owned or claimed by Asure, except for those situations
that would not have a Material Adverse Effect. To Asure's knowledge, Asure owns
or has valid rights to use all Intellectual Property used in the conduct of its
business, or proposed to be used in its business as proposed to be conducted,
except where the failure to have valid rights to use such Intellectual Property
will not have a Material Adverse Effect, free and clear of all Encumbrances,
other than Encumbrances which would not have a Material Adverse Effect.
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6.17. ABSENCE OF CERTAIN CHANGES. Since the Asure Balance Sheet Date,
Asure has conducted the Asure Business in the ordinary course, and, as of the
date hereof, there has not been:
(a) any Material Adverse Effect on the Asure Business;
(b) any distribution or payment declared or made in respect of
Asure's capital stock by way of dividends, purchase or redemption of shares or
otherwise;
(c) any increase in the compensation payable or to become payable to
any current director or officer of Asure, except for merit and seniority
increases for employees made in the ordinary course of business, nor any
material change in any existing employment, severance, consulting arrangements
or any Asure Benefit Plan;
(d) any sale, assignment or transfer of any Asure Assets, or any
additions to or transactions involving any Asure Assets, other than those made
in the ordinary course of business or those solely involving Asure;
(e) other than in the ordinary course of business, any waiver or
release of any material claim or right or cancellation of any material debt held
by Asure;
(f) any change in practice with respect to Taxes, or any election,
change of any election, or revocation of any election with respect to Taxes, or
any settlement or compromise of any dispute involving a Tax liability;
(g) (i) any creation, or assumption of, any long-term debt or any
short-term debt for borrowed money other than under existing notes payable,
lines of credit or other credit facility or in the ordinary course of business
(ii) any assumption, granting of guarantees, endorsements or otherwise becoming
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person or (iii) any loans, advances or capital
contributions to, or investments in, any other Person except its Wholly-Owned
Subsidiaries;
(h) any material agreement, commitment or contract, except
agreements, commitments or contracts for the purchase, sale or lease of goods or
services in the ordinary course of business;
(i) other than in the ordinary course of business, any
authorization, recommendation, proposal or announcement of an intention to
authorize, recommend or propose, or enter into any Contract with respect to, any
(i) plan of liquidation or dissolution, (ii) acquisition of a material amount of
assets or securities, (iii) disposition or Encumbrance of a material amount of
assets or securities, (iv) merger or consolidation or (v) material change in its
capitalization; or
(j) any change in accounting procedure or practice.
6.18. CORPORATE RECORDS. The minute books of Asure contain accurate,
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complete and current copies of all Charter Documents and of all minutes of
meetings, resolutions and other proceedings of its Board of Directors and
stockholders.
6.19. FINDER'S FEES. No Person is or will be entitled to any commission,
finder's fee or other payment in connection with the Transactions based on
arrangements made by or on behalf of Asure.
6.20. FINANCING. Asure has received gross proceeds of at least $1,000,000
from the sale of equity or debt securities subsequent to the Asure Balance Sheet
Date.
ARTICLE VII
REGISTRATION RIGHTS
7.1. INVESTMENT INTENT. In connection with the Closing, each Asure
Shareholder shall execute and deliver to the Merged Company a letter, the form
of which is reasonably acceptable to HERZ, which will state that the person
acquiring the Merged Company Shares in the Merger is acquiring the Merged
Company Shares for investment and not with a view for the distribution of the
Merged Company Shares except in compliance with Section 5 of the Securities Act,
and such other representations as is reasonably necessary for the issuance of
the Merged Company Shares to comply with Rule 506 and Regulation S under the
Securities Act.
7.2. SHELF REGISTRATION. On or prior to the Filing Date, time being of the
essence, the Merged Company shall diligently prepare and file with the SEC a
"Shelf" Registration Statement covering the resale of all Registrable Securities
for an offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement shall be on Form S-3 or, if Form S-3 is not then
available, another appropriate form permitting registration of Registrable
Securities for resale by the Holders. The Merged Company shall use its best
efforts to cause the Registration Statement to be declared effective under the
Securities Act as promptly as possible after the filing thereof, and to keep
such Registration Statement continuously effective under the Securities Act
until the date which is two (2) years after the date of this Agreement or such
earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold pursuant to Rule 144(k) as determined by
the counsel to the Merged Company pursuant to a written opinion letter,
addressed to the Holders, to such effect (the "Effectiveness Period"); provided,
however, that the Merged Company shall not be deemed to have used its best
efforts to keep the Registration Statement effective during the Effectiveness
Period if it voluntarily or negligently takes any action (or fails to take any
action) to suspend, delay or withdraw the effectiveness of the Registration
Statement under the Securities Act during the Effectiveness Period, unless such
action is required under applicable law or the Merged Company has filed a
post-effective amendment to the Registration Statement and the SEC has not
declared it effective.
7.3. REGISTRATION PROCEDURES. In connection with the Merged Company's
registration obligations hereunder, the Merged Company shall:
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(a) Prepare and file with the SEC within the time period set forth
in Section 7.2 a Registration Statement on Form S-3 or, if Form S-3 is not
available, another appropriate form permitting registration of Registrable
Securities for resale by each Holder in accordance with the method or methods of
distribution thereof, and use its best efforts to cause the Registration
Statement to become effective and remain effective as provided herein; provided,
however that, subject only to such Holder providing to the Merged Company in
writing information relating to such Holder as required by law, not less than
ten (10) days prior to the filing of the Registration Statement or any related
Prospectus or any amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by reference), the
Merged Company shall (i) furnish to the Holders copies of all such documents
proposed to be filed, which documents (other than those incorporated or deemed
to be incorporated by reference) will be subject to the review of the Majority
Holders, and (ii) cause its officers and directors, counsel and independent
certified public accountants to respond to such inquiries as shall be necessary,
in the opinion of the Majority Holders, to conduct a reasonable investigation
within the meaning of the Securities Act. The Majority Holders shall have five
days after receipt of the Registration Statement or any related Prospectus or
any amendment or supplement thereto to comment on or object to the filing of
such documents.
(b) (i) Prepare and file with the SEC such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective for the applicable time
period; (ii) cause the related Prospectus to be amended or supplemented by any
required Prospectus supplement, and as so supplemented or amended to be filed
pursuant to Rule 424 (or any similar provisions then in force) promulgated under
the Securities Act; (iii) respond as promptly as practicable to any comments
received from the SEC with respect to the Registration Statement or any
amendment thereto; and (iv) comply with the provisions of the Securities Act and
the Exchange Act with respect to the registration of all Registrable Securities
covered by the Registration Statement during the applicable period in accordance
with the intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold as soon
as practicable when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed; and with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (i) of any request by the SEC or any other federal or
state governmental authority for amendments or supplements to the Registration
Statement or Prospectus or for additional information; (ii) of the issuance by
the SEC of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iii) if at any time the Registration
Statement becomes stale and is no longer effective; (iv) of the receipt by the
Merged Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (v) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material
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respect or that requires any revisions to the Registration Statement, Prospectus
or other documents so that, in the case of the Registration Statement or the
Prospectus, as the case may be, it will not 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, in light of the circumstances under
which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by the Majority Holders (i) promptly incorporate in
a Prospectus supplement or post-effective amendment to the Registration
Statement such information as the Majority Holders reasonably request should be
included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Merged Company has received notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment; provided, however, that
the Merged Company shall not be required to take any action pursuant to this
Section 7.3(e) unless in the opinion of counsel for the Merged Company such
action is required by applicable law.
(f) Furnish to each Holder, upon such Holder's written request,
without charge, at least one complete copy of each Registration Statement and
each amendment thereto, including financial statements and schedules, all
documents incorporated or deemed to be incorporated therein by reference, and
all exhibits to the extent requested, in writing, by such Holder (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the SEC.
(g) Promptly deliver to each Holder, without charge, as many copies
of the Prospectus or Prospectuses (including each form of prospectus forming
part of the effective Registration Statement) and each amendment or supplement
thereto as such Persons may reasonably request.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the Majority Holders in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for resale under
the securities or Blue Sky laws of such jurisdictions within the United States
as the Majority Holders request in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Merged Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Merged Company to any tax in any such jurisdiction where it is not then so
subject.
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(i) Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold,
which certificates shall be free of all restrictive legends, except as required
by applicable law, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Holders may request at
least three (3) Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
7.3(c)(v), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed or quoted on the securities
exchange, market or over-the-counter bulletin board, if any, on which similar
securities issued by the Merged Company are then listed or quoted to the extent
required by the rules of such exchange, market or other quotation system.
(l) Make available for inspection by the majority Holders and any
representative of the majority Holders, and any attorney or accountant retained
by the majority Holders, at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
and properties of the Merged Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Merged Company and its
subsidiaries to supply all information in each case requested by the majority
Holders, representative, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Merged Company in writing to be of a
confidential nature at the time of delivery of such information shall be kept
confidential by such Persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities; (ii) disclosure of such information, in the
opinion of counsel to such Person, is required by law; (iii) such information
becomes generally available to the public other than as a result of a disclosure
or failure to safeguard by such Person; or (iv) such information becomes
available to such Person from a source other than the Merged Company and such
source is not known by such Person to be bound by a confidentiality agreement
with the Merged Company.
(m) Comply with all applicable rules and regulations of the SEC and
make generally available to its security holders earning statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 not later
than forty-five (45) days after the end of any 12-month period (or ninety (90)
days after the end of any 12-month period if such period is a fiscal year)
commencing on the first (1st) day of the first (1st) fiscal quarter of the
Merged Company after the effective date of the Registration Statement.
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(n) At such time as the Registration Statement has been declared
effective by the SEC covering the resale of any Registrable Securities, the
Merged Company shall cause its legal counsel to deliver to the Transfer Agent an
opinion, subject to the holders of any Registrable Securities making such
representations and warranties to the merged Company counsel as it may require,
certifying that such Registrable Securities may be sold by the Holders pursuant
to such Registration Statement with the purchasers thereof receiving share
certificates without restrictive legend, which opinion shall remain effective so
long as such Registration Statement remains in full force and effect. In the
event that, at any time, such Registration Statement ceases to be effective, the
Merged Company shall immediately deliver written notice thereof to the Transfer
Agent and the Holders stating that the opinion of the Merged Company's legal
counsel may no longer be relied upon by the Transfer Agent (unless and until an
additional or amended, as applicable, Registration Statement is so declared
effective (with respect to the resale of such Registrable Securities)).
Each Holder covenants and agrees that (i) it will not offer or sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 7.3(g) and notice from the Merged Company that such Registration
Statement and any post-effective amendments thereto have become effective and
(ii) each Holder and its officers, directors or Affiliates, if any, will comply
with the prospectus delivery requirements of the Securities Act as applicable to
them in connection with sales of Registrable Securities pursuant to the
Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities that,
upon receipt of a written notice from the Merged Company of the occurrence of
any event of the kind described in Section 7.3(c)(i) through (v), inclusive,
such Holder will forthwith discontinue disposition of such Registrable
Securities until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Section 7.3(j),
or until it is advised in writing by the Merged Company that the use of the
applicable Prospectus may be resumed, and, in either case, has received copies
of any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.
7.4. [Reserved]
7.5. REGISTRATION EXPENSES.
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Merged Company shall be borne by the
Merged Company whether or not the Registration Statement is filed or becomes
effective and whether or not any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the Nasdaq Stock Market and (B) in compliance with
state securities or Blue Sky laws (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities and of
printing prospectuses if the printing of prospectuses is requested by the
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Majority Holders) (iii) messenger, telephone and delivery expenses, (iv) fees
and disbursements of counsel for the Merged Company and, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 7.3(a)(ii), (vi) Securities Act liability insurance, if the Merged
Company so desires such insurance, and (vii) fees and expenses of all other
Persons retained by the Merged Company in connection with the consummation of
the transactions contemplated by this Article VII. In addition, the Merged
Company shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit and, the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange or market on
which similar securities issued by the Merged Company are then listed.
(b) Notwithstanding anything to the contrary herein, each Holder
shall be responsible for the cost of the fees and expenses of its attorneys and
accountants and underwriters' discounts, if any.
7.6. INDEMNIFICATION.
(a) The Merged Company shall indemnify and hold harmless each
Holder, the officers, directors, agents, brokers, investment advisors and
employees of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' and expert fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any breach
of any warranty or representation contained therein, any untrue or alleged
untrue statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except solely to the extent that (i) such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Merged Company by or on behalf of such Holder
expressly for use therein, which information was relied on by the Merged Company
for use therein or (ii) such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was furnished in
writing to the Merged Company by or on behalf of such Holder expressly for use
therein. The Merged Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Merged Company
is aware in connection with the transactions contemplated by this Agreement.
(b) In connection with the Registration Statement, each Holder shall
furnish to the Merged Company, and it shall be a condition to the Merged
Company's obligation to include such Holder's Registrable Securities in the
Registration Statement, in writing such
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information as the Merged Company reasonably requests for use in connection with
the Registration Statement or any Prospectus and agrees to indemnify and hold
harmless the Merged Company, its directors, officers, agents and employees, each
Person who controls the Merged Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling Persons, to the fullest extent permitted
by applicable law, from and against all Losses (as determined by a court of
competent jurisdiction in a final judgment not subject to appeal or review)
arising solely out of or based solely upon any untrue statement of a material
fact contained in the information provided to the Merged Company as provided for
hereinabove, and only to the extent, that (i) such untrue statement or omission
is contained in any information furnished in writing by such Holder to the
Merged Company specifically for inclusion in the Registration Statement or such
Prospectus and such information was relied upon by the Merged Company for use in
the Registration Statement or such Prospectus, or (ii) such information relates
to such Holder or such Holder's proposed method of distribution of Registrable
Securities and was furnished in writing by or on behalf of such Holder to the
Merged Company specifically for inclusion in the Registration Statement or such
Prospectus and such information was relied upon by the Merged Company for use in
the Registration Statement or such Prospectus.
(c) If any Proceeding shall be brought or asserted against any
Person entitled to indemnity hereunder (a "Registration Indemnified Party"),
such Registration Indemnified Party promptly shall notify the Person from whom
indemnity is sought (the "Registration Indemnifying Party") in writing, and the
Registration Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Registration Indemnified
Party and the payment of all fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Registration Indemnified
Party to give such notice shall not relieve the Registration Indemnifying Party
of its obligations or liabilities pursuant to this Article VII, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced the
Registration Indemnifying Party.
A Registration Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Registration Indemnified Party or Parties unless: (1) the Registration
Indemnifying Party has agreed to pay such fees and expenses; or (2) the
Registration Indemnifying Party shall have failed promptly to assume the defense
of such Proceeding and to employ counsel reasonably satisfactory to such
Registration Indemnified Party in any such Proceeding; or (3) the named parties
to any such Proceeding (including any impleaded parties) include both such
Registration Indemnified Party and the Registration Indemnifying Party, and such
Registration Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
such Registration Indemnified Party and the Registration Indemnifying Party (in
which case, if such Registration Indemnified Party notifies the Registration
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Registration Indemnifying Party, the Registration Indemnifying
Party shall not have the right to assume the defense thereof and such counsel
shall
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be at the expense of the Registration Indemnifying Party). The Registration
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Registration Indemnifying Party shall, without the prior written
consent of the Registration Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Registration Indemnified Party is a
party, unless such settlement includes an unconditional release of such
Registration Indemnified Party from all liability on claims that are the subject
matter of such Proceeding.
All fees and expenses of the Registration Indemnified Party to which the
Registration Indemnified Party is entitled hereunder (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Registration Indemnified Party, as incurred,
within ten (10) Business Days of written notice thereof to the Registration
Indemnifying Party.
(d) If a claim for indemnification under Section 7.6(a) or 7.6(b) is
unavailable to a Registration Indemnified Party or is insufficient to hold such
Registration Indemnified Party harmless for any Losses in respect of which this
would apply by its terms (other than by reason of exceptions provided in this
Section 7.6(d), then each Registration Indemnifying Party, in lieu of
indemnifying such Registration Indemnified Party, shall contribute to the amount
paid or payable by such Registration Indemnified Party as a result of such
Losses, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Registration Indemnifying Party on the one hand and the
Registration Indemnified Party on the other from the distribution of the
Registrable Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Registration Indemnifying Party and Registration
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Registration Indemnifying Party and Registration
Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Registration
Indemnifying Party or Registration Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 7.6(c), any attorneys' or other fees or expenses incurred by
such party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for
in this Section was available to such party.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.6(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
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(e) No Holder shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the proceeds actually received by such
Holder from the sale of the Registrable Securities subject to the Proceeding
exceeds the amount of any damages that any person has otherwise been required to
pay by reason of such Holder's untrue or alleged untrue statement or omission or
alleged omission.
(f) The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
7.7. RULE 144. The Merged Company shall file the reports required to be
filed by it under the Securities Act and the Exchange Act in a timely manner
and, if at any time the Merged Company is not required to file such reports,
they will, upon the request of any Holder, make publicly available other
information so long as necessary to permit sales of its securities pursuant to
Rule 144. The Merged Company further covenants that it will take such further
action as any Holder may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144. Upon the request of any Holder, the Merged Company shall
deliver to such Holder a written certification of a duly authorized officer as
to whether it has complied with such requirements.
ARTICLE VIII
COVENANTS OF THE PARTIES
8.1. PROXY AND DISCLOSURE DOCUMENT. HERZ will prepare and file with the
SEC as soon as reasonably practicable after the date hereof a proxy statement to
be filed under the Exchange Act by HERZ and to be distributed by HERZ in
connection with the HERZ Stockholder Meeting (the "Proxy Statement"). HERZ will
prepare as soon as reasonably practicable after the date hereof a disclosure
document to be distributed to Asure Shareholders in compliance with Rule 506
promulgated under the Securities Act and applicable Canadian securities laws
(the "Disclosure Document"). HERZ shall allow Asure the opportunity to review
and comment on the Proxy and Disclosure Document prior to distribution and, as
to the Proxy, filing with the SEC. Each Party will furnish to the other Party
all information concerning itself and its Subsidiaries as the other Party or its
counsel may reasonably request and that is required or customary for inclusion
in the Proxy and Disclosure Document.
8.2. NO SOLICITATION.
(a) From and after the date hereof until earlier of the Effective
Date or the date this Agreement is terminated under Article XVII, HERZ, without
the prior written consent of Asure, will not, and will not authorize or permit
any of its Subsidiaries or its Party Representatives to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) or
take any other action to facilitate knowingly any inquiries or the making of any
proposal which constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined below) from any Person, or engage in any
discussion or negotiations relating thereto or accept any Acquisition Proposal;
provided, however, that notwithstanding any other provision hereof, HERZ may at
any time prior to the time HERZ's
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stockholders shall have voted to approve this Agreement, engage in discussions
or negotiations with a third party who (without any solicitation, initiation,
encouragement, discussion or negotiation, directly or indirectly, by or with any
HERZ Company or its Party Representatives after the date hereof) seeks to
initiate such discussions or negotiations and may furnish such third party
information concerning HERZ and its Business and Assets if, and only to the
extent that, (i)(x) the third party has first made an Acquisition Proposal that
is (as determined in good faith by the HERZ Board of Directors after
consultation with its legal and financial advisor) financially superior to the
Transactions and has demonstrated that the funds necessary for the Acquisition
Proposal are reasonably likely to be available and the Acquisition Proposal is
reasonably capable of consummation in accordance with its terms (as determined
in good faith in each case by HERZ's Board of Directors after consultation with
its legal and financial advisors) and (y) HERZ's Board of Directors shall
conclude in good faith, after considering applicable provisions of applicable
Law, on the basis of advice of its counsel, that such action is necessary for
the Board of Directors to act in a manner consistent with its fiduciary duties
under applicable Law and (ii) prior to furnishing such information to or
entering into discussions or negotiations with such Person, HERZ (x) provides
prompt notice to Asure to the effect that it is furnishing information to or
entering into discussions or negotiations with such Person and (y) receives from
such Person an executed confidentiality agreement in reasonably customary form.
HERZ shall immediately cease and terminate any existing solicitation,
initiation, encouragement, activity, discussion or negotiation with any Persons
conducted heretofore by HERZ or its Party Representatives with respect to the
foregoing. HERZ shall not release any third party from, or waive any provision
of, any standstill agreement to which it is a party or any confidentiality
agreement between it and another Person who has made an Acquisition Proposal,
unless such Person has made an Acquisition Proposal meeting the criteria set
forth in clause (a)(i)(x) above and HERZ's Board of Directors shall conclude in
good faith, after considering applicable provisions of applicable Law, on the
basis of advice of its counsel, that such action is necessary for the Board of
Directors to act in a manner consistent with its fiduciary duties under
applicable Law. HERZ shall immediately notify Asure orally (with a prompt
written confirmation) of any such inquiries, offers or proposals (including the
terms and conditions of any such proposal and the identity of the Person making
it and shall provide copies of any such written inquiries, offers or proposals),
shall keep Asure informed of the status and details of any such inquiry, offer
or proposal (and agrees that any material modification of the terms of an
inquiry or proposal shall constitute a new inquiry or proposal), and shall give
Asure two (2) Business Days' advance notice of any agreement to be entered into
with, or any information to be supplied to, any Person making such inquiry,
offer or proposal (no such agreement, other than a confidentiality agreement as
set forth in this Section, to be executed or agreed prior to the termination of
this Agreement in accordance with its terms). As used herein, "Acquisition
Proposal" shall mean a bona fide proposal or offer (other than by Asure) for a
tender or exchange offer, merger, consolidation or other business combination
involving HERZ or any Subsidiary thereof, of any proposal to acquire in any
manner a substantial equity interest in, or a substantial amount of the assets
of, HERZ or any such Subsidiary.
(b) From and after the date hereof until earlier of the Effective
Date or the date this Agreement is terminated under Article XVII, Asure, without
the prior written consent of HERZ, will not, and will not authorize or permit
any of its Subsidiaries or its Party
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Representatives to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) or take any other action to
facilitate knowingly any inquiries or the making of any proposal which
constitutes or may reasonably be expected to lead to an Acquisition Proposal (as
defined above) from any Person, or engage in any discussion or negotiations
relating thereto or accept any Acquisition Proposal; provided, however, that
notwithstanding any other provision hereof, Asure may at any time prior to the
time the Shareholders shall have voted to approve this Agreement, engage in
discussions or negotiations with a third party who (without any solicitation,
initiation, encouragement, discussion or negotiation, directly or indirectly, by
or with Asure or its Party Representatives after the date hereof) seeks to
initiate such discussions or negotiations and may furnish such third party
information concerning Asure and its Business and Assets if, and only to the
extent that, (i)(x) the third party has first made an Acquisition Proposal that
is (as determined in good faith by the Asure Board of Directors after
consultation with its legal and financial advisor) financially superior to the
Transactions and has demonstrated that the funds necessary for the Acquisition
Proposal are reasonably likely to be available and the Acquisition Proposal is
reasonably capable of consummation in accordance with its terms (as determined
in good faith in each case by Asure's Board of Directors after consultation with
its legal and financial advisors) and (y) Asure's Board of Directors shall
conclude in good faith, after considering applicable provisions of applicable
Law, on the basis of advice of its counsel, that such action is necessary for
the Board of Directors to act in a manner consistent with its fiduciary duties
under applicable Law and (ii) prior to furnishing such information to or
entering into discussions or negotiations with such Person, Asure (x) provides
prompt notice to HERZ to the effect that it is furnishing information to or
entering into discussions or negotiations with such Person and (y) receives from
such Person an executed confidentiality agreement in reasonably customary form.
Asure shall immediately cease and terminate any existing solicitation,
initiation, encouragement, activity, discussion or negotiation with any Persons
conducted heretofore by Asure or its Party Representatives with respect to the
foregoing. Asure shall not release any third party from, or waive any provision
of, any standstill agreement to which it is a party or any confidentiality
agreement between it and another Person who has made an Acquisition Proposal,
unless such Person has made an Acquisition Proposal meeting the criteria set
forth in clause (a)(i)(x) above and Asure's Board of Directors shall conclude in
good faith, after considering applicable provisions of applicable Law, on the
basis of advice of its counsel, that such action is necessary for the Board of
Directors to act in a manner consistent with its fiduciary duties under
applicable Law. Asure shall immediately notify HERZ orally (with a prompt
written confirmation) of any such inquiries, offers or proposals (including the
terms and conditions of any such proposal and the identity of the Person making
it and shall provide copies of any such written inquiries, offers or proposals),
shall keep HERZ informed of the status and details of any such inquiry, offer or
proposal (and agrees that any material modification of the terms of an inquiry
or proposal shall constitute a new inquiry or proposal) , and shall give HERZ
two (2) Business Days' advance notice of any agreement to be entered into with,
or any information to be supplied to, any Person making such inquiry, offer or
proposal (no such agreement, other than a confidentiality agreement as set forth
in this Section, to be executed or agreed prior to the termination of this
Agreement in accordance with its terms).
8.3. NOTIFICATION OF CERTAIN MATTERS. Each of HERZ and Asure shall
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give prompt notice to each other of the following:
(a) the occurrence or nonoccurrence of any event whose occurrence or
nonoccurrence would be likely to cause either (i) any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Effective Time, or (ii) directly or
indirectly, any Material Adverse Effect;
(b) any material failure of such Party, or any officer, director,
employee or agent of any thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder; and
(c) any facts relating to such Party which would make it necessary
or advisable to amend the Proxy Statement or the Disclosure Document in order to
make the statements therein not misleading or to comply with applicable Law;
provided, however, that the delivery of any notice pursuant to this Section 8.3
shall not limit or otherwise affect the remedies available hereunder to the
Party receiving such notice.
8.4. ACCESS TO INFORMATION.
(a) From the date hereof to the Effective Time, HERZ and Asure
shall, and shall cause its respective Subsidiaries, and its officers, directors,
employees, auditors, counsel and agents to afford the officers, employees,
auditors, counsel, financial advisors and agents of the other Party complete
access at all reasonable times to such Party's and its Subsidiaries' officers,
employees, auditors, counsel, agents, properties, offices and other facilities
and to all of their respective books and records, and shall furnish the other
with all financial, operating and other data and information as such other Party
may reasonably request.
(b) All information so received from the other Party shall be deemed
received pursuant to the confidentiality agreement provisions in the letter of
Intent dated May 22, 2000 heretofore executed and delivered by Asure and HERZ
(the "Confidentiality Agreement"), and each such Party shall, and shall cause
its Subsidiaries and each of its and their respective officers, directors,
employees, auditors, counsel, financial advisors and agents ("Party
Representatives"), to comply with the provisions of the Confidentiality
Agreement with respect to such information. The provisions of the
Confidentiality Agreement are hereby incorporated herein by reference with the
same effect as if fully set forth herein.
8.5. PUBLIC ANNOUNCEMENTS. HERZ and Asure (a) shall use all reasonable
efforts to develop a joint communications plan and each Party shall use all
reasonable efforts to ensure that all press releases and other public statements
with respect to the Transactions shall be consistent with such joint
communications plan or, to the extent inconsistent therewith, shall have
received the prior written approval of the other and (b) before issuing any
press release or otherwise making any public statements with respect to the
Transactions, will consult with each other as to its form and substance and
shall not issue any such press release or make any such public statement prior
to such consultation, except for each of (a) and (b) above as may be required by
Law (it being agreed that the Parties hereto are entitled to disclose all
requisite
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information concerning the Transactions in any filings required with the SEC) or
the rules and regulations of the Nasdaq Stock Market, Inc.
8.6. COOPERATION. Upon the terms and subject to the conditions hereof,
each of the Parties shall use its commercially reasonable efforts to take or
cause to be taken all actions and to do or cause to be done all things
necessary, proper or advisable to consummate as promptly as practicable the
Transactions and shall use its commercially reasonable efforts to obtain all
HERZ Required Consents and Asure Required Consents, and to effect all necessary
filings under the Securities Act and the Exchange Act. Without limiting the
generality of the foregoing, each Party shall use all commercially reasonable
efforts to take, or cause to be taken, all other actions and to do, or cause to
be done, all other things necessary, proper or advisable to fulfill the
conditions herein to the extent that the fulfillment thereof is within a Party's
control.
8.7. REORGANIZATION. From and after the date hereof and until the
Effective Time, neither HERZ or Asure, nor any of their respective Subsidiaries
shall knowingly take any action, or knowingly fail to take any action, that
would jeopardize qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
8.8. EXPENSES.
(a) Except as otherwise provided in Section 8.8(b), (i) HERZ shall
pay all of the legal, accounting and other expenses incurred by any HERZ Company
in connection with the Transactions, including fees of HERZ's transfer agent,
fees of the Exchange Agent and SEC filing fees and printing and mailing costs
payable with respect to the Proxy Statement and the Disclosure Document, (ii)
Asure shall pay all of the legal, accounting and other expenses incurred by
Asure in connection with the Transactions, and (iii) Controlling Stockholder
shall pay all of the legal, accounting and other expenses incurred by
Controlling Stockholder in connection with the Transactions.
(b) To cover a portion of HERZ's expenses of this transaction, Asure
shall pay HERZ (i) $75,000 for HERZ's professional fees for the cost of the
Transactions, payable as follows: $25,000 on the Execution Date and $50,000 on
the earlier of (X) the date HERZ files with the SEC amendments and responses to
the first round of SEC's comments to the registration statement (to be filed in
accordance with the Preferred Stock Purchase Agreement) and the Proxy Statement
or (Y) notice from the SEC that such registration statement and Proxy Statement
will not be reviewed, (ii) the incremental costs of the financial printer for
the costs of a registration statement in the event that the registration
statement to be filed with the SEC in accordance with the Preferred Stock
Purchase Agreement may not be filed on SEC Form S-3, payable to the financial
printer when due, (iii) one-half (but not more than $25,000) of the costs of
Goldstein, Golub & Kessler for their accounting services for this Transaction,
and (iv) the cost of the fairness opinion under Section 12.2. If this Agreement
is terminated by Asure pursuant to Section 17.1(d) or (k) or by HERZ pursuant to
Section 17.1(f) or (h), then HERZ shall pay Asure, in addition to any liquidated
damages under Section 17.2, the amount paid by Asure under this Section 8.8(b)
within thirty (30) days of the termination of the Merger Agreement.
ARTICLE IX
COVENANTS OF HERZ
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9.1. OPERATION OF THE BUSINESS. Except as contemplated by this Agreement
or as expressly agreed to in writing by Asure, during the period from the date
of this Agreement to the Effective Time, HERZ and its Subsidiaries will conduct
their operations only in the ordinary course of business consistent with sound
financial, operational and regulatory practice, and will take no action which
would materially adversely affect their ability to consummate the Transactions.
Without limiting the generality of the foregoing, except as otherwise expressly
provided in this Agreement or except as disclosed in the HERZ Disclosure
Schedule, prior to the Effective Time, neither HERZ nor any of its Subsidiaries
will, without the prior written consent of Asure:
(a) amend its Charter Documents or bylaws (or similar organizational
documents);
(b) authorize for issuance, issue, sell, deliver, grant any options
for, or otherwise agree or commit to issue, sell or deliver any shares of its
capital stock or any other securities, other than pursuant to and in accordance
with the terms of any existing HERZ options or warrants listed on the HERZ
Disclosure Schedule;
(c) recapitalize, split, combine or reclassify any shares of its
capital stock; declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock; or purchase, redeem or otherwise acquire any of its or its
Subsidiaries' securities or modify any of the terms of any such securities;
(d) (i) create, incur, assume or permit to exist any long-term debt
or any short-term debt for borrowed money other than under existing notes
payable, lines of credit or other credit facilities or in the ordinary course of
business, or with respect to its Wholly-Owned Subsidiaries in the ordinary
course of business; (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the obligations
of any other Person except its Wholly-Owned Subsidiaries in the ordinary course
of business or as otherwise may be contractually required and disclosed in the
HERZ Disclosure Schedule; or (iii) make any loans, advances or capital
contributions to, or investments in, any other Person except its Wholly-Owned
Subsidiaries;
(e) (i) amend any HERZ Benefit Plan or (ii) except in the ordinary
course of business consistent with usual practice or established policy (a)
increase in any manner the rate of compensation of any of its directors,
officers or other employees everywhere, except for increases in the ordinary
course of business; (b) pay or agree to pay any bonus, pension, retirement
allowance, severance or other employee benefit except as required under
currently existing HERZ Benefit Plans disclosed in the HERZ Disclosure Schedule
or in the ordinary course of business; or (c) amend, terminate or enter into any
employment, consulting, severance, change in control or similar agreements or
arrangements with any of its directors, officers or other employees;
(f) enter into any material agreement, commitment or contract,
except agreements, commitments or contracts for the purchase, sale or lease of
goods or services in the
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ordinary course of business;
(g) other than in the ordinary course of business, authorize,
recommend, propose or announce an intention to authorize, recommend or propose,
or enter into any Contract with respect to, any (i) plan of liquidation or
dissolution, (ii) acquisition of a material amount of assets or securities,
(iii) disposition or Encumbrance of a material amount of assets or securities,
(iv) merger or consolidation or (v) material change in its capitalization;
(h) change any material accounting or Tax procedure or practice;
(i) take any action the taking of which, or knowingly omit to take
any action the omission of which, would cause any of the representations and
warranties herein to fail to be true and correct in all material respects as of
the date of such action or omission as though made at and as of the date of such
action or omission;
(j) compromise, settle or otherwise modify any material claim or
litigation not identified in the HERZ Disclosure Schedule; or
(k) commit or agree to do any of the foregoing.
9.2. HERZ STOCKHOLDER MEETING. HERZ shall cause a meeting of its
stockholders (the "HERZ Stockholder Meeting") to be duly called and held as soon
as reasonably practicable for the purpose of voting on (a) the issuance of the
Merged Company Shares and the change in control as provided by this Agreement
and the other Transactions as required under the rules of the Nasdaq SmallCap
Market, (b) the amendment to HERZ's Charter Documents to (X) effectuate the
change of HERZ's name to such name as designated by Asure effective at the
Effective Time as required by the DGCL, (Y) adopt blank check preferred stock
sufficient to comply with the Preferred Stock Purchase Agreement, and (Z)
increase the authorized HERZ Common Stock to 50,000,000 shares, and (c) the
adoption of a stock option plan reasonably acceptable to HERZ and Asure, or
increase the number of shares of HERZ Common Stock reserved under HERZ's
current stock option plan by 1,500,000 shares. Subject to their fiduciary
duties, the directors of HERZ shall recommend such adoption of this Agreement
and the Merger by HERZ's stockholders and the other matters to be voted upon. In
connection with such meeting, HERZ (a) will mail to its stockholders as promptly
as practicable the Proxy Statement and all other proxy materials for such
meeting, (b) will use all reasonable efforts to obtain the necessary approvals
by its stockholders of this Agreement and the Transactions, and (c) will
otherwise comply with all legal requirements applicable to such meeting. On the
Execution Date, Controlling Stockholder and I. Marilyn Hertz shall deliver to
Carter irrevocable proxies to vote all voting shares held by them of record or
by agreement with respect to the proposals set forth above.
9.3. MAINTENANCE OF THE ASSETS. HERZ shall, and shall cause each other
HERZ Company to, use its reasonable best efforts to continue to maintain and
service the HERZ Assets consistent with past practice. HERZ shall not, and shall
cause each other HERZ Company not to, directly or indirectly, sell or encumber
all or any part of the HERZ Assets, other than sales in the ordinary course of
business or sales to or Encumbrances in favor of any other HERZ Company, or
initiate or participate in any discussions or negotiations or enter into any
agreement to do any of the foregoing.
9.4. EMPLOYEES AND BUSINESS RELATIONS. HERZ shall, and shall cause
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each other HERZ Company to, use commercially reasonable efforts to keep
available the services of its current employees and agents and to maintain its
relations and goodwill with its suppliers, customers, distributors and any
others having business relations with it.
9.5. EXPENSES. Subject to Section 8.8, HERZ shall pay all of the legal,
accounting and other expenses incurred by any HERZ Company in connection with
the Transactions.
9.6. CERTAIN TAX MATTERS. From the date hereof until the Effective Time,
(a) HERZ and each of its Subsidiaries will prepare and file, in the manner
required by applicable Law, all Tax Returns (the "Post-Signing Returns")
required to be filed under applicable Law; (b) HERZ and each of its Subsidiaries
will timely pay all Taxes shown as due and payable on such Post-Signing Returns
that are so filed; (c) HERZ and each of its Subsidiaries will make provision for
all Taxes payable by HERZ and/or any such Subsidiary under applicable Law for
which no Post-Signing Return is due prior to the Effective Time; and (d) HERZ
will promptly notify Asure in writing of any action, suit, proceeding, claim or
audit pending against or with respect to HERZ or any of its Subsidiaries in
respect of any Tax that is not disclosed on the HERZ Disclosure Schedule.
9.7. MAINTENANCE OF LISTING. HERZ will use its best efforts to maintain
the listing of HERZ Common Stock on the Nasdaq Small Cap Market and to keep
current its filings with the SEC as required under Section 13 of the Exchange
Act. HERZ shall immediately notify Asure of, and provide Asure a copy of, any
notice or correspondence from the Nasdaq Stock Market Inc.
9.8. STATE ANTI-TAKEOVER LAW. If any "business combination,"
"moratorium," "control share," "fair price," "interested shareholder,"
"affiliated transaction" or other anti-takeover statute or regulation under the
DGCL (i) prohibits or restricts HERZ's ability to perform its obligations under
this Agreement or any party's ability to consummate the Merger or the other
transactions contemplated hereby or thereby, or (ii) would have the effect of
invalidating or voiding this Agreement or any provision hereof, then HERZ shall
use its best efforts to obtain any necessary consents or approvals so that the
foregoing shall not apply.
ARTICLE X
COVENANTS OF ASURE
10.1. OPERATION OF THE BUSINESS. Except as contemplated by this Agreement
or as expressly agreed to in writing by HERZ, during the period from the date of
this Agreement to the Effective Time, Asure will conduct its operations only in
the ordinary course of business consistent with the Business Plan and sound
financial, operational and regulatory practice, and will take no action which
would materially adversely affect its ability to consummate the Transactions.
Without limiting the generality of the foregoing, except as otherwise expressly
provided in this Agreement or except as disclosed in the Asure Disclosure
Schedule, prior to the Effective Time, Asure will not, without the prior written
consent of HERZ:
(a) amend its Charter Documents or bylaws (or similar organizational
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documents);
(b) authorize for issuance, issue, sell, deliver, grant any options
for, or otherwise agree or commit to issue, sell or deliver any shares of its
capital stock or any other securities, other than pursuant to and in accordance
with the terms of any Existing Options or Asure Warrants listed on the Asure
Disclosure Schedule;
(c) recapitalize, split, combine or reclassify any shares of its
capital stock; declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock; or purchase, redeem or otherwise acquire any of its
securities or modify any of the terms of any such securities;
(d) (i) create, incur, assume or permit to exist any long-term debt
or any short-term debt for borrowed money other than under existing notes
payable, lines of credit or other credit facilities or in the ordinary course of
business; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other Person or as otherwise may be contractually required and disclosed in
the Asure Disclosure Schedule; or (iii) make any loans, advances or capital
contributions to, or investments in, any other Person;
(e) (i) amend any Asure Benefit Plan or (ii) except in the ordinary
course of business consistent with usual practice or established policy (a)
increase in any manner the rate of compensation of any of its directors,
officers or other employees everywhere, except for increases in the ordinary
course of business; (b) pay or agree to pay any bonus, pension, retirement
allowance, severance or other employee benefit except as required under
currently existing Asure Benefit Plans disclosed in the Asure Disclosure
Schedule or in the ordinary course of business; or (c) amend, terminate or enter
into any employment, consulting, severance, change in control or similar
agreements or arrangements with any of its directors, officers or other
employees;
(f) enter into any material agreement, commitment or contract,
except agreements, commitments or contracts for the purchase, sale or lease of
goods or services in the ordinary course of business;
(g) other than in the ordinary course of business, authorize,
recommend, propose or announce an intention to authorize, recommend or propose,
or enter into any Contract with respect to, any (i) plan of liquidation or
dissolution, (ii) acquisition of a material amount of assets or securities,
(iii) disposition or Encumbrance of a material amount of assets or securities,
(iv) merger or consolidation or (v) material change in its capitalization;
(h) change any material accounting or Tax procedure or practice;
(i) take any action the taking of which, or knowingly omit to take
any action the omission of which, would cause any of the representations and
warranties herein to fail to be true and correct in all material respects as of
the date of such action or omission as though made
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at and as of the date of such action or omission;
(j) compromise, settle or otherwise modify any material claim or
litigation not identified in the Asure Disclosure Schedule; or
(k) commit or agree to do any of the foregoing.
10.2. ASURE SHAREHOLDER MEETING. Asure shall cause a meeting of the Asure
Shareholders (the "Asure Shareholder Meeting") to be duly called and held as
soon as reasonably practicable for the purpose of voting on the adoption of this
Agreement and the Merger as required by the NGCL. Subject to their fiduciary
duties, the directors of Asure shall recommend such adoption of this Agreement
and the Merger by Asure's stockholders. In connection with such meeting, Asure
(a) will mail to its stockholders as promptly as practicable all required
materials for such meeting, (b) will use all reasonable efforts to obtain the
necessary approvals by its stockholders of this Agreement and the Transactions,
and (c) will otherwise comply with all legal requirements applicable to such
meeting.
10.3. MAINTENANCE OF THE ASSETS. Asure shall use its reasonable best
efforts to continue to maintain and service the Asure Assets consistent with
past practice. Asure shall not directly or indirectly, sell or encumber all or
any part of the Asure Assets, other than sales in the ordinary course of
business or initiate or participate in any discussions or negotiations or enter
into any agreement to do any of the foregoing.
10.4. EMPLOYEES AND BUSINESS RELATIONS. Asure shall use commercially
reasonable efforts to keep available the services of its current employees and
agents and to maintain its relations and goodwill with its suppliers, customers,
distributors and any others having business relations with it.
10.5. EXPENSES. Subject to Section 8.8, Asure shall pay all of the legal,
accounting and other expenses incurred by Asure in connection with the
Transactions.
10.6. CERTAIN TAX MATTERS. From the date hereof until the Effective Time,
(a) Asure will prepare and file, in the manner required by applicable Law, all
Post-Signing Returns required to be filed under applicable Law; (b) Asure will
timely pay all Taxes shown as due and payable on such Post-Signing Returns that
are so filed; (c) Asure will make provision for all Taxes payable by Asure under
applicable Law for which no Post-Signing Return is due prior to the Effective
Time; and (d) Asure will promptly notify HERZ in writing of any action, suit,
proceeding, claim or audit pending against or with respect to Asure in respect
of any Tax that is not disclosed on the Asure Disclosure Schedule.
10.7. STATE ANTI-TAKEOVER LAW. If any "business combination,"
"moratorium," "control share," "fair price," "interested shareholder,"
"affiliated transaction" or other anti-takeover statute or regulation under the
NGCL (i) prohibits or restricts Asure's ability to perform its obligations under
this Agreement or any party's ability to consummate the Asure Merger or the
other transactions contemplated hereby or thereby, or (ii) would have the effect
of
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invalidating or voiding this Agreement or any provision hereof or thereof, then
Asure shall use its best efforts to obtain any necessary consents or approvals
so that the foregoing shall not apply.
ARTICLE XI
POST-CLOSING COVENANTS
11.1. APPOINTMENT TO THE BOARD OF DIRECTORS OF THE MERGED
COMPANY. At the Effective Time, the size of the Merged Company Board of
Directors shall be as designated by Asure prior to the Effective Date and the
Merged Company Board of Directors shall be as designated by Asure prior to the
Effective Date.
11.2 [Reserved]
11.3. INDEMNIFICATION, DIRECTORS' AND OFFICERS' INSURANCE. For a period of
two (2) years after the Effective Time, the Merged Company shall (a) maintain in
effect the current provisions regarding indemnification of officers and
directors contained in the Charter Documents and bylaws of HERZ, and (b)
indemnify the directors and officers of HERZ to the fullest extent to which HERZ
is permitted to indemnify such officers and directors under its Charter
Documents and bylaws and applicable Law as in effect immediately prior to the
Effective Time. The Merged Company shall obtain $2,000,000 coverage directors'
and officers' liability insurance and fiduciary liability tail insurance policy
with respect to claims arising from facts or events which occurred on or before
the Effective Time.
ARTICLE XII
CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES
The respective obligations of each Party to consummate the Merger and the
other Transactions shall be subject to the fulfillment at or prior to the
Effective Time of the following conditions:
12.1. LEGALITY. All required governmental approvals shall have been
obtained and any applicable waiting periods, shall have expired. No Law or Court
Order shall have been enacted, entered, promulgated or enforced by any court or
governmental entity that is in effect
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and that has the effect of making the Merger illegal or otherwise prohibiting
the consummation of the Merger and no legal action shall be pending or
threatened which is reasonably likely to have a Material Adverse Effect on
Party.
12.2. FAIRNESS OPINION. An investment banking firm reasonably acceptable
to HERZ will have delivered to HERZ's Board of Directors its opinion reasonably
satisfactory to HERZ's Board of Directors to the effect that on the date of the
opinion the Merger and the other Transactions contemplated herein, as a whole,
is fair from a financial point of view to the HERZ Stockholders.
12.3. APPROVAL BY ASURE SHAREHOLDERS AND HERZ STOCKHOLDERS. This Agreement
shall have been approved and adopted by the stockholders of HERZ in accordance
with the DGCL and its Charter Documents, and by the stockholders of Asure in
accordance with the NGCL and its Charter Documents.
ARTICLE XIII
CONDITIONS CONCURRENT TO OBLIGATIONS OF ALL PARTIES
The respective obligations of each Party to consummate the Merger and the
Transactions shall be subject to the fulfillment, concurrent with the Closing,
of each of the following conditions:
13.1. STOCK REDEMPTION AGREEMENT. The parties to the Stock Redemption
Agreement shall have performed or complied in all material respects with all
agreements, conditions and covenants required by the Stock Redemption Agreement
to be performed or complied with by them on or before the Effective Time and the
closing of the transactions contemplated by the Stock Redemption Agreement shall
be simultaneous with the Closing.
13.2. PREFERRED STOCK PURCHASE AGREEMENT. The parties to the Preferred
Stock Purchase Agreement shall have performed or complied in all material
respects with all agreements, conditions and covenants required by the Preferred
Stock Purchase Agreement to be performed or complied with by them on or before
the Effective Time and the closing of the transactions contemplated by the
Preferred Stock Purchase Agreement shall be simultaneous with the Closing.
13.3. CONTROLLING STOCKHOLDER EMPLOYMENT AGREEMENT. Controlling
Stockholder and Hergo Ergonomic Support System, Inc. shall have entered into the
Controlling Stockholder Employment Agreement as contemplated by Section 3.3.
13.4. GOLDSAMMLER EMPLOYMENT AGREEMENT. Barry Goldsammler and the Merged
Company shall have entered into Goldsammler the Employment Agreement as
contemplated by Section 3.4.
13.5. CONTROLLING STOCKHOLDER CONSULTING AGREEMENT. Controlling
Stockholder and the Merged Company shall have entered into the Controlling
Stockholder Consulting Agreement as contemplated by Section 3.5.
13.6. MARILYN HERTZ EMPLOYMENT AGREEMENT. I. Marilyn Hertz and Hergo
Ergonomic Support System, Inc. shall have entered into the Marilyn Hertz
Employment Agreement as contemplated by Section 3.6.
ARTICLE XIV
CONDITIONS PRECEDENT TO OBLIGATIONS OF ASURE
The obligations of Asure to consummate the Merger and the Transactions
shall be subject to the satisfaction or waiver, on or before the Effective Time,
of each of the following conditions:
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14.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the HERZ Parties contained in this Agreement shall be true and
correct on the date hereof and (except to the extent such representations and
warranties speak as of an earlier date) shall also be true and correct on and as
of the Closing Date, except for changes contemplated by this Agreement, with the
same force and effect as if made on and as of the Closing Date.
14.2. AGREEMENTS, CONDITIONS AND COVENANTS. The HERZ Parties and
Controlling Stockholder shall have performed or complied in all material
respects with all agreements, conditions and covenants required by this
Agreement to be performed or complied with by them on or before the Effective
Time.
14.3. CERTIFICATES. Asure shall have received a certificate of an
executive officer of HERZ to the effect set forth in Sections 14.1, 14.2 and
14.5, respectively.
14.4. REQUIRED CONSENTS. HERZ sure shall have obtained all consents ("HERZ
Required Consents") from third parties the absence of which would result in a
Material Adverse Effect on the HERZ Companies.
14.5. MATERIAL ADVERSE EFFECT. There shall have been no Material Adverse
Effect on HERZ or the HERZ Companies taken as a whole.
14.6. ANCILLARY DOCUMENTS. Each HERZ Party and Controlling Stockholder
shall have tendered executed copies of the respective Transaction Documents to
which it is intended to be a party.
14.7. BOARD RECOMMENDATION. The Board of Directors of HERZ will have (a)
approved and adopted this Agreement, including the Merger and the other
Transactions, and determined that the Merger is fair to the stockholders of
HERZ, and (b) subject to fiduciary obligations of the HERZ Board of Directors,
resolved to recommend approval and adoption of this Agreement, including the
Merger and the other Transactions, by the HERZ Stockholders.
14.8. RELEASES FROM HERZ BOARD. Each of the members of the Board of
Directors of HERZ (including the Controlling Stockholder and I. Marilyn Hertz
whether or not a director at the Closing) shall have delivered to Asure (i) such
director's resignation as a director of HERZ, (ii) such director's resignation
as an officer of HERZ, if applicable, (iii) release of HERZ from any obligation
under any employment or consulting agreement with such director, and (iv)
release of HERZ from any other obligation of HERZ to such director, except (x)
any stock option such director may be granted and listed on the HERZ Disclosure
Schedule, and (y) any rights such director has under Section 11.3.
14.9. LEGAL OPINION. Asure shall have received an opinion of counsel,
reasonably acceptable to Asure, it being understood that Raice Paykin Kreig &
Schrader, LLP and David Thomas, Esq. are acceptable to Asure, that:
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(a) Each of the HERZ Companies is a corporation, duly chartered,
validly existing and in good standing under the laws of it state of
incorporation, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
Each of the HERZ Companies is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not individually or in the aggregate have a Material
Adverse Effect.
(b) Each of the HERZ Companies has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by the
Merger Agreement and to otherwise carry out their respective obligations
thereunder. The execution and delivery of the Merger Agreement by the HERZ
Companies and the consummation by them of the transactions contemplated thereby,
including the issuance of the shares thereunder have been duly authorized by all
necessary action on the part of each of the HERZ Companies, including without
limitation approval by the shareholders of each of the HERZ Companies if
required by applicable Law. The Merger Agreement has been duly executed and
delivered by the HERZ Companies and constitutes the valid and binding obligation
of the HERZ Companies enforceable against the HERZ Companies in accordance with
its terms.
(c) The shares of HERZ to be issued to the shareholders of Asure
pursuant to the Merger, have been duly authorized, and assuming without
independent investigation that the shares of capital stock of Asure outstanding
on the date of effectiveness of the Merger are duly authorized, validly issued,
fully paid and nonassessable, when (a) the Merger has become effective and (b)
the shares of capital stock of Asure have been duly delivered pursuant to the
terms of the Merger Agreement, such shares of HERZ will be validly issued, fully
paid and non-assessable.
(d) No shares of the capital stock of HERZ are entitled to
preemptive or similar rights. There are no outstanding options, warrants, script
rights to subscribe to, registration rights, calls or commitments of any
character whatsoever relating to, or, securities, rights or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire, any shares of capital stock, or contracts,
commitments, understandings, or arrangements by which HERZ is or may become
bound to issue additional shares of capital stock, or securities or rights
convertible or exchangeable into shares of capital stock.
(e) Except for the Certificate of Merger to be filed with the Nevada
and Delaware Secretaries of State, there is no need to obtain any consent,
waiver, authorization or order of, or make any filing or registration with, any
court or other U.S. governmental authority or other person in connection with
the execution, delivery and performance by the HERZ Companies of the Merger
Agreement or the issuance of the shares thereunder.
(f) The issuance and sale of the Merged Company Shares is exempt
from
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registration under Section 5 of the Securities Act pursuant to Rule 506 and Rule
903 promulgated under the Securities Act.
(g) The execution, delivery and performance of and compliance with
the terms of the Merger Agreement do not violate any provision of either HERZ
Company's Charter Documents, their Bylaws or, to our knowledge, any provision of
applicable law. The execution, delivery and performance of and compliance with
the Merger Agreement has not resulted and will not result in any violation of,
or constitute a default under (or an event which with the passage of time or the
giving of notice or both would constitute a default under), any contract,
agreement, instrument, judgment or decree binding upon either of the HERZ
Companies and known to us which, individually or in the aggregate, would have a
material adverse effect on the business or financial condition of the HERZ
Companies. To our knowledge the business of the HERZ Companies is not being
conducted in violation of any law, ordinance or regulation of any governmental
authority the result of which would have a material adverse effect on the
business of the HERZ Companies.
14.10. EMPLOYMENT AGREEMENT RELEASES. Asure shall have received
termination agreements and releases of the Merged Company reasonably acceptable
to Asure from each person who (i) has an employment agreement with HERZ, or (ii)
who has an employment agreement with any HERZ Subsidiary that is guaranteed by
HERZ.
ARTICLE XV
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE HERZ PARTIES
The obligations of the HERZ Parties to consummate the Merger and the
Transactions and the obligations of the HERZ Parties to consummate the Asure
Merger and the Transactions shall be subject to the satisfaction or waiver, on
or before the Effective Time, of each of the following conditions:
15.1. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Asure contained in this Agreement shall be true and correct on the
date hereof and (except to the extent such representations and warranties speak
as of an earlier date) shall also be true and correct on and as of the Closing
Date, except for changes contemplated by this Agreement, with the same force and
effect as if made on and as of the Closing Date.
15.2. AGREEMENTS, CONDITIONS AND COVENANTS. Asure shall have
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by it
on or before the Effective Time. Asure shall provide the written consent of
Asure's independent accountant's reports in the Asure Financial Statements, if
necessary under the Securities Act or Exchange Act.
15.3. CERTIFICATES. HERZ shall have received a certificate of an executive
officer of Asure to the effect set forth in Sections 15.1, 15.2 and 15.5,
respectively.
15.4. REQUIRED CONSENTS. Asure shall have obtained all consents ("Asure
Required Consents") from third parties the absence of which would result in a
Material Adverse Effect on Asure.
15.5. MATERIAL ADVERSE EFFECT. There shall have been no Material Adverse
Effect on Asure.
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15.6. ANCILLARY DOCUMENTS. Asure shall have tendered executed copies of
the Transaction Documents to which it is intended to be a party.
15.7. BOARD RECOMMENDATION. The Board of Directors of Asure will have (a)
approved and adopted this Agreement, including the Merger and the other
Transactions, and determined that the Merger is fair to the shareholders of
Asure and (b) subject to fiduciary obligations of the Asure Board of Directors,
resolved to recommend approval and adoption of this Agreement, including the
Merger and the other Transactions, by the Asure Shareholders.
15.8. LEGAL OPINION. HERZ shall have received an opinion of counsel,
reasonably acceptable to HERZ, it being understood that Kaplan Gottbetter &
Levenson, LLP is acceptable to HERZ (and in rendering the opinion in (f) below,
counsel may rely solely or in part on the opinions of Jeffrey A. Nichols, Esq.,
as to United States Law and John H. Frank, Barrister and Solicitor, as to
Canadian Law, subject to the qualifications, limitations, and exceptions set
forth therein), that:
(a) Asure is a corporation, duly chartered, validly existing and in
good standing under the laws of its state of incorporation, with the requisite
corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Asure is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, would not individually or in the aggregate have a
Material Adverse Effect.
(b) Asure has the requisite corporate power and authority to enter
into and to consummate the transactions contemplated by the Merger Agreement and
to otherwise carry out their respective obligations thereunder. The execution
and delivery of the Merger Agreement by Asure and the consummation by them of
the transactions contemplated thereby, including the issuance of the shares
thereunder have been duly authorized by all necessary action on the part of each
of Asure, including without limitation approval by the shareholders of Asure if
required by applicable Law. The Merger Agreement has been duly executed and
delivered by Asure and constitutes the valid and binding obligation of Asure
enforceable against Asure in accordance with its terms.
(c) No shares of the capital stock of Asure are entitled to
preemptive or similar rights. There are no outstanding options, warrants, script
rights to subscribe to, registration rights, calls or commitments of any
character whatsoever relating to, or, securities, rights or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire, any shares of capital stock, or contracts,
commitments, understandings, or arrangements by which Asure is or may become
bound to issue additional shares of capital stock, or securities or rights
convertible or exchangeable into shares of capital stock.
(d) Except for the Certificate of Merger to be filed with the
Delaware and Nevada Secretaries of State, there is no need to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other U.S. governmental authority or other person in
connection with the execution, delivery and performance by Asure of the
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Merger Agreement or the issuance of the shares thereunder.
(e) The execution, delivery and performance of and compliance with
the terms of the Merger Agreement do not violate any provision of Asure's
Charter Documents, their Bylaws or, to our knowledge, any provision of
applicable law. The execution, delivery and performance of and compliance with
the Merger Agreement has not resulted and will not result in any violation of,
or constitute a default under (or an event which with the passage of time or the
giving of notice or both would constitute a default under), any contract,
agreement, instrument, judgment or decree binding upon either of Asure and known
to us which, individually or in the aggregate, would have a material adverse
effect on the business or financial condition of Asure. To our knowledge the
business of Asure is not being conducted in violation of any law, ordinance or
regulation of any governmental authority the result of which would have a
material adverse effect on the business of Asure.
(f) No Asure Shareholder has a right of rescission under United
States or Canadian Law with respect to such Asure Shareholder's purchase of
Asure Common Stock from Asure.
15.9. BUSINESS OPERATIONS. Asure shall, on or before the Effective Date,
have:
(i) executed a definitive agreement for insurance from Lloyd's Of
London by Hiscox Syndicate for catastrophic losses with respect to professional
liability and cyber liability;
(ii) launched Asure's web site and demonstrated its ability to
substantially carry out the function as described in the Asure Business Plan;
(iii) entered into a contract with a substantial client with
multiple merchants;
(iv) executed a definitive agreement with IBM to design the computer
system necessary to operate a high volume of the proposed business;
(v) presented a thorough articulation of the functional requirements
and a systems architecture to support Asure's web enabled application that will
feature the necessary application logic to support Asure's proposed services
(such as the online purchase of services);
(vi) appoint two or more of the following permanent management
positions and demonstrate the appointee's ability and experience commensurate
with the respective assignment in a public company: CEO, CFO, VP Sales/Marketing
and CIO; and
(vii) provide marketing and sales literature regarding the Asure
Business including a marketing brochure.
ARTICLE XVI
INDEMNIFICATION
16.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All the provisions of
this Agreement will survive the Closing indefinitely notwithstanding any
investigation at any time made by or on behalf of any party hereto provided that
the representations and warranties set forth in Articles V and VI and in any
certificate delivered in connection herewith with respect to any of those
representations and warranties will terminate
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and expire on the date one hundred eighty (180) days after the Effective Date.
After a representation and warranty has terminated and expired, no
indemnification will or may be sought pursuant to this Article XVI on the basis
of that representation and warranty by any Person who would have been entitled
pursuant to this Article XVI to indemnification on the basis of that
representation and warranty prior to its termination and expiration, provided
that, in the case of each representation and warranty that will terminate and
expire as provided in this Section 16.1, no claim presented in writing for
indemnification pursuant to this Article XVI on the basis of that representation
and warranty prior to its termination and expiration will be affected in any way
by that termination and expiration.
16.2. INDEMNIFICATION OF ASURE INDEMNIFIED PARTIES.
(a) HERZ covenants and agrees that it will indemnify each Asure
Indemnified Party against, and hold each Asure Indemnified Party harmless from
and in respect of, all damage claims that arise from, are based on, arise out
of, or are attributable to (i) any breach of the representations and warranties
of the HERZ Companies or in certificates delivered in connection herewith; (ii)
the nonfulfillment of any covenant or agreement on the part of the HERZ
Companies under this Agreement to be performed prior to the Closing or (iii) any
liability under the Securities Act, the Exchange Act or other applicable Law
which arises out of or is based on (A) any untrue statement or alleged untrue
statement of a material fact relating to HERZ and its Subsidiaries, or any of
them, which is provided to Asure or its counsel in writing by the HERZ or (B)
any omission or alleged omission to state therein a material fact relating to
HERZ and its Subsidiaries, or any of them, required to be stated therein or
necessary to make the statements therein not misleading, and not provided to
Asure or its counsel by HERZ after a written request therefor (each damage claim
described in Section 16.2(a) or (b) being an "Asure Indemnified Loss"). Once the
occurrence of a breach of any representations or warranties has been
established, Damages shall be calculated without regard to whether such breach
caused a Material Adverse Effect. This Section 16.2(a) terminates on the
Effective Date.
(b) Controlling Stockholder covenants and agrees that he will
indemnify each Asure Indemnified Party against, and hold each Asure Indemnified
Party harmless from and in respect of, all damage claims that arise from, are
based on, arise out of, or are attributable to (i) any breach of the
representations and warranties of the HERZ Companies or in certificates
delivered in connection herewith; (ii) the nonfulfillment of any covenant or
agreement on the part of the HERZ Companies under this Agreement to be performed
prior to the Closing or (iii) any liability under the Securities Act, the
Exchange Act or other applicable Law which arises out of or is based on (A) any
untrue statement or alleged untrue statement of a material fact relating to HERZ
and its Subsidiaries, or any of them, which is provided to Asure or its counsel
in writing by the HERZ or (B) any omission or alleged omission to state therein
a material fact relating to HERZ and its Subsidiaries, or any of them, required
to be stated therein or necessary to make the statements therein not misleading,
and not provided to Asure or its counsel by HERZ after a
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written request therefor; provided, however, that, indemnification shall be
available under this Section 16.2(b) only to the extent that Controlling
Stockholder had knowledge that such representation or warranty was not true and
correct at the Execution Date or the Closing Date. Once the occurrence of a
breach of any representations or warranties has been established, Damages shall
be calculated without regard to whether such breach caused a Material Adverse
Effect. Controlling Stockholder shall have no right of subrogation against the
Merged Company for any indemnity claim under this Section 16.2(b). This Section
16.2(b) is effective on the Effective Date.
16.3. INDEMNIFICATION OF HERZ STOCKHOLDERS.
(a) Asure covenants and agrees that it will indemnify each HERZ
Shareholder Indemnified Party against, and hold each HERZ Shareholder
Indemnified Party harmless from and in respect of, all claims that arise from,
are based on or are attributable to (i) any breach by Asure of its
representations and warranties set forth herein or in Asure's certificates
delivered to the Company or the Stockholders in connection herewith; or (ii) the
nonfulfillment of any covenant or agreement on the part of Asure under this
Agreement to be performed prior to the Closing (each damage claim described in
Section 16.3(a) or (b) being a "HERZ Stockholder Indemnified Loss"). Once the
occurrence of a breach of any representations or warranties has been
established, Damages shall be calculated without regard to whether such breach
caused a Material Adverse Effect.
(b) Carter covenants and agrees that he will indemnify each HERZ
Shareholder Indemnified Party against, and hold each HERZ Shareholder
Indemnified Party harmless from and in respect of, all damage claims that arise
from, are based on, arise out of, or are attributable to (i) any breach of the
representations and warranties of Asure or in Asure's certificates delivered in
connection herewith; provided, however, that, indemnification shall be available
under this Section 16.3(b) only to the extent that Carter had knowledge that
such representation or warranty was not true and correct at the Execution Date
or the Closing Date; or (ii) the nonfulfillment of any covenant or agreement on
the part of Asure under this Agreement to be performed prior to the Closing.
Once the occurrence of a breach of any representations or warranties has been
established, Damages shall be calculated without regard to whether such breach
caused a Material Adverse Effect. This Section 16.3(b) is effective on the
Effective Date.
16.4. CONDITIONS OF INDEMNIFICATION.
(a) All claims for indemnification under this Agreement (except
Article VII) shall be asserted and resolved as follows in this Section 16.4. The
provisions of Article XVI shall be the sole manner by which the Indemnified
Party shall assert any claim against the Indemnifying Party that does not
involve a Third Party Claim, including without limitation any claim for breach
of this Agreement.
(b) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (i) notify the party from whom
indemnification is sought (the "Indemnifying Party") of any third-party claim or
claims asserted against the Indemnified Party ("Third Party Claim") that could
give rise to a right of indemnification under this Agreement and (ii) transmit
to the Indemnifying Party a written notice ("Claim Notice") describing in
reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to that claim (if any), an estimate of the amount of damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim) and the basis for the
Indemnified Party's request for indemnification under this Agreement. Except as
set forth in Section 16.1, the failure to promptly deliver a Claim Notice shall
not relieve the Indemnifying Party of its obligations to the Indemnified Party
with respect to the related Third Party Claim except to the extent that the
resulting delay is materially prejudicial to the defense of that claim. Within
15 days after receipt of any Claim Notice (the "Election Period"), the
Indemnifying Party shall notify the Indemnified Party (i) whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article XVI with respect to that Third Party Claim and (ii) if the
Indemnifying Party does not dispute its potential liability to the Indemnified
Party with respect to that Third Party Claim, whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against that Third Party Claim.
(c) If the Indemnifying Party does not dispute its potential
liability to the
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Indemnified Party and notifies the Indemnified Party within the Election Period
that the Indemnifying Party elects to assume the defense of the Third Party
Claim, then the Indemnifying Party shall have the right to defend, at its sole
cost and expense, that Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying Party in accordance
with this Section 16.4(c) and the Indemnified Party will furnish the
Indemnifying Party with all information in its possession, subject to a
confidentiality agreement, with respect to that Third Party Claim and otherwise
cooperate with the Indemnifying Party in the defense of that Third Party Claim;
provided, however, that the Indemnifying Party shall not enter into any
settlement with respect to any Third Party Claim that (i) purports to limit the
activities of, or otherwise restrict in any way, any Indemnified Party or any
Affiliate of any Indemnified Party, (ii) involves a guilty plea to any crime or
(iii) involves a fine or penalty, whether or not paid by the Indemnifying Party,
without the prior consent of that Indemnified Party (which consent may be
withheld in the sole discretion of that Indemnified Party). The Indemnified
Party is hereby authorized, at the sole cost and expense of the Indemnifying
Party, to file, during the Election Period, any motion, answer or other
pleadings that the Indemnified Party shall deem necessary or appropriate to
protect its interests or those of the Indemnifying Party. The Indemnified Party
may participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this Section
16.4(c) and will bear its own costs and expenses with respect to that
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party
(provided that such expenses are reasonable), and, on its written notification
of that employment, the Indemnifying Party shall not have the right to assume or
continue the defense of such action on behalf of the Indemnified Party.
(d) If the Indemnifying Party (i) within the Election Period (A)
disputes its potential liability to the Indemnified Party under this Article
XVI, (B) elects not to defend the Indemnified Party pursuant to Section 16.4(c)
or (C) fails to notify the Indemnified Party that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 16.4(c) or (ii) elects to
defend the Indemnified Party pursuant to Section 16.4(c) but fails diligently
and promptly to prosecute or settle the Third Party Claim, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of the
Indemnifying Party (provided that such expenses are reasonable) (if the
Indemnified Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and proceedings.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party under this Article XVI
and if such dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this Section 16.4 or of the Indemnifying
Party's participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all
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reasonable costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 16.4(d), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation.
(e) In the event any Indemnified Party should have a claim against
any Indemnifying Party hereunder that does not involve a Third Party Claim, the
Indemnified Party shall transmit to the Indemnifying Party a written notice (the
"Indemnity Notice") describing in reasonable detail the nature of the claim, an
estimate of the amount of Damages attributable to that claim to the extent
feasible (which estimate shall not be conclusive of the final amount of such
claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the Indemnified
Party within 15 days from its receipt of the Indemnity Notice that the
Indemnifying Party disputes such claim, the claim specified by the Indemnified
Party in the Indemnity Notice shall be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute shall be resolved by proceedings in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within 30 days after notice of a dispute is given.
(f) Payments of all amounts owing by an Indemnifying Party pursuant
to this Article XVI relating to a Third Party Claim shall be made within 30 days
after the latest of (i) the settlement of that Third Party Claim, (ii) the
expiration of the period for appeal of a final adjudication of that Third Party
Claim or (iii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under this
Agreement. Payments of all amounts owing by an Indemnifying Party pursuant to
Section 16.4(e) shall be made within 30 days after the later of (i) the
expiration of the 30-day Indemnity Notice period or (ii) the expiration of the
period for appeal of a final adjudication of the Indemnifying Party's liability
to the Indemnified Party under this Agreement.
16.5. REMEDIES NOT EXCLUSIVE. The remedies provided in this Agreement
shall not be exclusive of any other rights or remedies available to one party
against the other, either at law or in equity.
16.6. LIMITATIONS ON INDEMNIFICATION.
(a) Notwithstanding the provisions of Section 16.2(b), Controlling
Stockholder shall not be required to indemnify or hold harmless any of the Asure
Indemnified Parties on account of any Asure Indemnified Loss under Section
16.2(b) for the first $200,000 of Asure Indemnified Losses under Section
16.2(b); provided, however, that the foregoing $200,000 deductible shall not
apply to any Asure Indemnified Loss for a breach of any representation or
warranty concerning Environmental Laws or Environmental Condition. The aggregate
liability of Controlling Stockholder under this Article XVI shall not exceed the
Controlling Stockholder Market Value For purposes of determining the amount of
Asure Indemnified Losses, no effect will be given to any resulting Tax benefit
to any Asure Indemnified Party.
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(b) Notwithstanding the provisions of Section 16.3(a) or (b),
neither Asure or Carter shall be required to indemnify or hold harmless any of
the HERZ Stockholder Indemnified Parties on account of any HERZ Stockholder
Indemnified Loss under Section 16.3 for the first $200,000 of HERZ Shareholder
Indemnified Losses under Section 16.3; provided, however, that the foregoing
$200,000 deductible shall not apply to any Asure Indemnified Loss for a breach
of any representation or warranty concerning Environmental Laws or Environmental
Condition. The aggregate liability of Carter under this Article XVI shall not
exceed the Carter Market Value. For purposes of determining the amount of HERZ
Stockholder Indemnified Losses, no effect will be given to any resulting Tax
benefit to any HERZ Stockholder Indemnified Party.
(c) Controlling Stockholder may pay any amount otherwise due under
this Article XVI by delivering to the Asure Indemnified Party the number of
shares of Merged Company Common Stock with the market value of Merged Company
Common Stock equal to the amount owed based on the closing bid price on the
trading day immediately prior the payment date.
(d) Carter may pay any amount otherwise due under this Article XVI
by delivering to the HERZ Stockholder Indemnified Party the number of shares of
Merged Company Common Stock with the market value of Merged Company Common Stock
equal to the amount owed based on the closing bid price on the trading day
immediately prior the payment date.
ARTICLE XVII
TERMINATION
17.1. GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time before the Effective Time, in each case as authorized by the respective
Boards of Directors of the Parties:
(a) By mutual written consent of each of HERZ and Asure;
(b) By HERZ or Asure if the Merger shall not have been consummated
on or before the Termination Date; provided, however, that the right to
terminate this Agreement under this Section 17.1(b) shall not be available to
any Party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Effective Time to occur on or
before the Termination Date;
(c) By HERZ or Asure if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a Court Order (which Court Order the Parties shall use commercially
reasonable efforts to lift) that permanently restrains, enjoins or otherwise
prohibits the Transactions, and such Court Order shall have become final and
nonappealable;
(d) By Asure if HERZ shall have breached, or failed to comply with,
in any material respect, any of its obligations under this Agreement or any
representation or warranty made by HERZ shall have been incorrect in any
material respect when made, and such breach, failure or misrepresentation is not
cured within 20 days after notice thereof, and in either case, any such
breaches, failures or misrepresentations, individually or in the aggregate,
results or would reasonably be expected to result in a failure to satisfy a
condition to HERZ's obligations to consummate the transactions contemplated
hereby;
(e) By HERZ if Asure shall have breached, or failed to comply with,
in any material respect, any of its obligations under this Agreement or any
representation or warranty made by it shall have been incorrect in any material
respect when made, and such breach, failure or misrepresentation is not cured
within 20 days after notice thereof, and in either case, any such breaches,
failures or misrepresentations, individually or in the aggregate, results or
would reasonably be expected to result in a failure to satisfy a condition to
Asure's obligations to
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consummate the transactions contemplated hereby;
(f) By HERZ if at the HERZ Stockholder Meeting (including any
adjournment thereof) this Agreement and the Merger shall fail to be approved and
adopted by the affirmative vote of the stockholders of HERZ as required under
the DGCL;
(g) By Asure if at the Asure Shareholder Meeting (including any
adjournment thereof) this Agreement and the Merger shall fail to be approved and
adopted by the affirmative vote of the stockholders of Asure as required under
the NGCL;
(h) By HERZ, prior to the approval of this Agreement by the
stockholders of HERZ, upon five days notice to Asure, if, as a result of an
Acquisition Proposal received by HERZ from a Person other than a Party to this
Agreement or any of its Affiliates, the Board of Directors of HERZ determines in
good faith that its fiduciary obligations under applicable Law require that such
Acquisition Proposal be accepted; provided, however, that (i) immediately
following such termination HERZ executes with such third party a definitive
agreement to implement such Acquisition Proposal, (ii) the Board of Directors of
HERZ shall have concluded in good faith, after considering applicable provisions
of applicable Law and after giving effect to all concessions which may be
offered by Asure pursuant to clause (iii) below, on the basis of advice of
counsel, that such action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties under applicable Law, and (iii)
prior to any such termination, (x) HERZ shall have provided Asure with five
days' notice of the terms of the proposal and otherwise complied with Section
8.2(a) hereof (including making the finding contemplated by Section 8.2(a)(x)
hereof) and (y) HERZ shall, and shall cause its financial and legal advisors to,
negotiate with Asure to make such adjustments in the terms and conditions of
this Agreement as would enable HERZ to proceed with the Transactions;
(i) By Asure, prior to the approval of this Agreement by the
stockholders of Asure, upon five days notice to HERZ, if, as a result of an
Acquisition Proposal received by Asure from a Person other than a Party to this
Agreement or any of its Affiliates, the Board of Directors of Asure determines
in good faith that its fiduciary obligations under applicable Law require that
such Acquisition Proposal be accepted; provided, however, that (i) immediately
following such termination Asure executes with such third party a definitive
agreement to implement such Acquisition Proposal, (ii) the Board of Directors of
Asure shall have concluded in good faith, after considering applicable
provisions of applicable Law and after giving effect to all concessions which
may be offered by HERZ pursuant to clause (iii) below, on the basis of advice of
counsel, that such action is necessary for the Board of Directors to act in a
manner consistent with its fiduciary duties under applicable Law, and (iii)
prior to any such termination, (x) Asure shall have provided HERZ with five
days' notice of the terms of the proposal and otherwise complied with Section
8.2(b) hereof (including making the finding contemplated by Section 8.2(b)(i)(x)
hereof) and (y) Asure shall, and shall cause its financial and legal advisors
to, negotiate with HERZ to make such adjustments in the terms and conditions of
this Agreement as would enable Asure to proceed with the Transactions.
(j) By HERZ if the Board of Directors of Asure shall withdraw,
modify or
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change its recommendation of this Agreement or the Merger or shall have failed
to reaffirm its recommendation within five Business Days of HERZ's request that
it do so or shall have recommended or issued a neutral recommendation (or taken
no position) with respect to any Acquisition Proposal.
(k) By Asure if the Board of Directors of HERZ shall withdraw,
modify or change its recommendation of this Agreement or the Merger or shall
have failed to reaffirm its recommendation within five Business Days of Asure's
request that it do so or shall have recommended or issued a neutral
recommendation (or taken no position) with respect to any Acquisition Proposal.
17.2. EFFECT OF TERMINATION.
(a) If this Agreement is terminated pursuant to Section 17.1(a), (b)
or (c), this Agreement shall be terminated and there shall be no liability on
the part of any of the Parties; notwithstanding the foregoing, nothing herein
shall relieve any Party from liability for any willful breach hereof; provided
that the provisions of Sections 8.4(b), 8.8, 9.5, 10.5 and this Section 17.2
shall survive the termination hereof.
(b) If this Agreement is terminated by Asure pursuant to Section
17.1(d) or (k) or by HERZ pursuant to Section 17.1(f) or (h), then HERZ shall
pay Asure liquidated damages in the amount of $1,000,000.
(c) If this Agreement is terminated by HERZ pursuant to Section
17.1(e) or (j) or by Asure pursuant to Section 17.1(g) or (i), then Asure shall
pay HERZ liquidated damages in the amount of $500,000.
ARTICLE XVIII
GENERAL MATTERS
18.1. [Reserved]
18.2. CONTENTS OF AGREEMENT. This Agreement, together with the other
Transaction Documents, set forth the entire understanding of the Parties hereto
with respect to the Transactions and supersede all prior agreements or
understandings among the Parties regarding those matters.
18.3. AMENDMENT, PARTIES IN INTEREST, ASSIGNMENT, ETC. This Agreement may
be amended, modified or supplemented only by a written instrument duly executed
by each of the Parties hereto. If any provision of this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, legal representatives, successors and permitted assigns of the Parties
hereto. No Party hereto shall assign this Agreement or any right, benefit or
obligation hereunder. Any term
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or provision of this Agreement may be waived at any time by the Party entitled
to the benefit thereof by a written instrument duly executed by such Party. The
Parties hereto shall execute and deliver any and all documents and take any and
all other actions that may be deemed reasonably necessary by their respective
counsel to complete the Transactions. Nothing in this Agreement is intended or
will be construed to confer on any Person other than the Parties hereto any
rights or benefits hereunder.
18.4. INTERPRETATION. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to any gender include
all genders, (c) "or" has the inclusive meaning frequently identified with the
phrase "and/or," (d) "including," "includes" or similar words has the inclusive
meaning frequently identified with the phrase "but not limited to" and (e)
references to "hereunder" or "herein" relate to this Agreement. The section and
other headings contained in this Agreement are for reference purposes only and
shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, Disclosure Schedule
and Exhibit references are to this Agreement unless otherwise specified. The
Exhibits and Schedules referred to in this Agreement will be deemed to be a part
of this Agreement. Each accounting term used herein that is not specifically
defined herein shall have the meaning given to it under GAAP.
18.5. NOTICES. All notices that are required or permitted hereunder shall
be in writing and shall be sufficient if personally delivered or sent by a
nationally recognized overnight courier upon proof of delivery. Any notices
shall be deemed given upon receipt at the address set forth below, unless such
address is changed by notice to the other Party hereto:
If to HERZ: Hertz Technology Group, Inc.
75 Varick Street
New York, NY 10013
Attn: Eli E. Hertz
with a required copy to: David Thomas, Esq.
Raice Paykin Kreig & Schrader, LLP
185 Madison Ave.
New York, NY 10046
If to Controlling Stockholder: Eli E. Hertz
24 Green Way South
Forrest Hills, NY 11375
with a required copy to: Morse Zelnick Rose & Lander, LLP
450 Park Avenue
New York, NY 10022
Attn: Howard Weinreich, Esq.
If to Asure or Carter: A Sure eCommerce, Inc.
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885 West Georgia, Suite 2240
Vancouver, BC Canada V6C 3E8
Attn: J. A. Carter
with a required copy to: Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, NY 10017
Attn: Adam S. Gottbetter, Esq.
18.6. GOVERNING LAW AND VENUE. This Agreement shall be construed and
interpreted in accordance with the Laws of the State of New York without regard
to its provisions concerning conflict of laws. Any dispute or controversy
concerning or relating to this Agreement shall be exclusively resolved in the
federal or state courts located in the city, county and state of New York, USA.
18.7. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
18.8. WAIVERS. Compliance with the provisions of this Agreement may be
waived only by a written instrument specifically referring to this Agreement and
signed by the Party waiving compliance. No course of dealing, nor any failure or
delay in exercising any right, will be construed as a waiver, and no single or
partial exercise of a right will preclude any other or further exercise of that
or any other right.
18.9. MODIFICATION. No supplement, modification or amendment of this
Agreement will be binding unless made in a written instrument that is signed by
all of the Parties hereto and that specifically refers to this Agreement.
18.10. ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction to
prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction, this being in addition
to any other remedy to which they are entitled at law or equity.
18.11. WAIVER OF JURY TRIAL. Each party acknowledges and agrees that any
controversy which may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore each such party hereby
irrevocably and unconditionally waives any right such party may have to a trial
by jury in respect of any litigation directly or indirectly arising out of or
relating to this Agreement, or the Transactions contemplated by this Agreement.
Each party certifies and acknowledges that (i) no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the foregoing
waiver, (ii) each party understands and has considered the
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implications of this waiver, (iii) each party makes this waiver voluntarily, and
(iv) each party has been induced to enter into this Agreement by, among other
things, the mutual waivers and certifications in this Section 18.11.
18.12. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable Law in an acceptable manner to the end that the
Transactions are fulfilled to the extent possible.
[Signatures on following page]
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IN WITNESS WHEREOF, this Agreement has been executed by the Parties hereto
as of the day and year first written above.
A SURE ECOMMERCE, INC.
By:
-----------------------------------------------
J. A. Carter
Chairman of the Board
HERTZ TECHNOLOGY GROUP, INC.
By:
-----------------------------------------------
Eli E. Hertz
President and Chief Executive Officer
ASURE ACQUISITION CORPORATION
By:
------------------------------------------------
Eli E. Hertz
President and Chief Executive Officer
CONTROLLING STOCKHOLDER:
---------------------------------------------------
Eli E. Hertz
CARTER:
---------------------------------------------------
J. A. Carter
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Annex B
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF
HERTZ TECHNOLOGY GROUP, INC.
Hertz technology group, Inc., a Delaware corporation (the "Corporation"), hereby
certifies and sets forth:
1. The Certificate of Incorporation is amended as set forth herein.
2. Article FIRST, which sets forth the name of the Corporation, is amended to
read as follows:
"FIRST: The name of the corporation (hereinafter called the "Corporation")
is Return Assured.com Inc."
3. Article FOURTH, which sets forth the total number of shares of stock which
the Corporation shall have authority to issue is amended to read as follows:
"FOURTH: The total number of shares of capital stock which the Corporation
shall have authority to issue is 51,000,000 shares of which 50,000,000
shares shall be Common Stock, par value $.001 per share, and 1,000,000
shares shall be Preferred Stock.
(a) Common stock.
(i) Voting Rights. The holders of shares of Common Stock shall
be entitled to one vote for each share held by them with respect to all
matters voted on by the stockholders of the Corporation.
(ii) Liquidation Rights. Subject to the prior and superior
rights of the Preferred Stock, upon any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation,
or the merger or consolidation of the Corporation into another
corporation, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among the holders of
Common Stock pro rata based upon the number of shares of Common Stock held
by each.
(iii) Dividends. Subject to the rights of the Preferred Stock,
dividends may be paid on the Common Stock out of any assets legally
available therefor, as and when declared by the Board of Directors.
(iv) Relative Rights of Preferred Stock and Common Stock. All
relative, participating, optional or other special rights of the Common
Stock are expressly made subject and subordinate to those that may be
fixed with respect to any shares of the Preferred Stock.
(b) Preferred Stock. The Board of Directors is empowered to
authorize the issuance of one or more classes of the Corporation's
Preferred Stock, or one or more series of any such class, and to fix the
preferences and relative, participating, optional or other special rights,
and qualifications, limitations or restrictions thereof for each such
class or series, specifying for each such class or series:
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(i) the designation thereof in such manner as shall
distinguish shares thereof from all other series of Preferred Stock then
or theretofore authorized;
(ii) the number of shares which shall initially constitute
such class or series;
(iii) whether or not the shares of such class or series shall
have voting rights in addition to the voting rights affirmatively required
by law;
(iv) the rate or rates and the time or times at which
dividends and other distributions on the shares of such class or series
shall be paid, and whether or not any such dividends shall be cumulative;
(v) the amount payable on the shares of such class or series
in the event of the voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation;
(vi) whether or not shares of such class or series are to be
redeemable, and the terms and conditions upon which the Corporation or a
holder may exercise its or his right to redeem, or require redemption of,
shares of such class or series;
(vii) whether or not a sinking fund shall be created for the
redemption of the shares of such class or series, and the terms and
conditions of any such fund; and
(viii) any other preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof which shall be applicable to such class or series."
4. This amendment has been duly adopted in accordance with Section 242 of the
General Corporation Law.
IN WITNESS of the foregoing I have executed this certificate this ___ day of
September, 2000.
----------------------------------
Eli E. Hertz, President
Attest:
----------------------------------
I. Marilyn Hertz, Secretary
