<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1999
REGISTRATION NO: 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INFINITE TECHNOLOGY GROUP LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
NEW YORK 7379 11-3140209
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
INFINITE TECHNOLOGY GROUP LTD.
77 JERICHO TURNPIKE
MINEOLA, NEW YORK 11501
(516) 877-1605
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARK DRESNER
CHAIRMAN OF THE BOARD
INFINITE TECHNOLOGY GROUP LTD.
77 JERICHO TURNPIKE
MINEOLA, NEW YORK 11501
(516) 877-1605
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE OF PROCESS)
------------------------
COPIES OF COMMUNICATIONS TO:
------------------------
<TABLE>
<S> <C>
CRAIG S. LIBSON, ESQ. KENNETH S. GOODWIN, ESQ.
PARKER DURYEE ROSOFF & HAFT, P.C. COLEMAN, RHINE & GOODWIN LLP
529 FIFTH AVENUE 750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022
TELEPHONE: (212) 599-0500 TELEPHONE: (212) 317-8880
TELECOPIER: (212) 972-9487 TELECOPIER: (212) 317-1970
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED AMOUNT TO BE REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
Common Stock, par value $.01 per share......... 2,300,000(2) $11.50 $26,450,000 $7,353
Common Stock, par value $.01 per share,
issuable upon exercise of Underwriter's
Warrants(3).................................. 140,000 14.38 2,013,200 560
Total..................................... $7,913
</TABLE>
(footnotes on next page)
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
(footnotes from previous page)
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
(2) Includes 300,000 shares of Common Stock issuable upon exercise of an option
granted to the Underwriter to cover over-allotments of shares, if any.
(3) Represents shares which may be acquired upon exercise of the Underwriter's
Warrants. Pursuant to Rule 416, this Registration Statement also
registers such indeterminate number of shares as may become issuable
pursuant to the anti-dilution provisions of the Underwriter's Warrants.
<PAGE>
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY U.S. FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION, DATED OCTOBER 8, 1999
PROSPECTUS
2,000,000 SHARES
[LOGO]
INFINITE TECHNOLOGY GROUP LTD.
COMMON STOCK
------------------------
This is an initial public offering of Common Stock by Infinite Technology
Group Ltd. There is currently no public market for our Common Stock. We
anticipate that the initial public offering price will be between $9.50 and
$11.50 per share.
------------------------
We have applied to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol 'ITGL.'
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Infinite Technology Group, before expenses...... $ $
</TABLE>
------------------------
Infinite Technology Group has granted the Underwriter an option for a
period of 30 days to purchase up to 300,000 additional shares of Common Stock.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE 'RISK FACTORS' BEGINNING ON PAGE 6.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
AUERBACH, POLLAK & RICHARDSON, INC.
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
---
Corporate Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Combined Financial Data...... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 20
Management............................ 28
Certain Transactions.................. 34
Principal Shareholders................ 36
Description of Capital Stock.......... 37
Shares Eligible for Future Sale....... 38
Underwriting.......................... 39
Legal Matters......................... 41
Experts............................... 42
Where You Can Find More Information... 42
Index to Combined Financial
Statements........................... F-1
</TABLE>
------------------------
In this prospectus, we include some forward-looking statements that involve
substantial risks and uncertainties and other factors which may cause our
operational and financial activity and results to differ from those expressed or
implied by such forward-looking statements. In many cases, you can identify
these statements by forward-looking words such as 'may,' 'will,' 'expect,'
'anticipate,' 'believe,' 'estimate,' 'plan,' 'intend' and 'continue' or similar
words. You should read statements that contain these words carefully because
they discuss our future expectations, contain projections of our future results
of operations or of our financial condition or state other 'forward-looking'
information. This prospectus also contains third-party estimates regarding the
size and growth of markets and Internet usage in general.
You should not place undue reliance on these forward-looking statements.
The sections captioned 'Risk Factors' and 'Management's Discussion and Analysis
of Financial Condition and Results of Operations,' as well as any cautionary
language in this prospectus, provide examples of risks, uncertainties and events
that may cause our actual results to differ materially from the expectations.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus or to conform these statements to actual
results or to changes in our expectations.
CORPORATE INFORMATION
Infinite Technology Group Ltd. was incorporated on January 13, 1993.
References in this prospectus to 'Infinite Technology Group Ltd.,' 'Infinite
Technology Group,' 'Infinite Technology,' 'Infinite,' 'we,' 'our,' 'ITG' and
'us' refer to Infinite Technology Group Ltd., a New York corporation, and its
subsidiaries and predecessors.
Concurrently with the closing of our initial public offering, Infinite
Technology Information Services, Inc. ('ITIS'), a corporation owned by members
of our management, will be merged into our Mercury Internet Services, Inc.
subsidiary. That transaction is referred to in this prospectus as the ITIS
Merger and is described in detail in 'Certain Transactions.' Information in
this prospectus gives effect to such merger as if such merger occurred prior to
this offering.
Our principal executive offices are located at 77 Jericho Turnpike,
Mineola, New York 11501, and our telephone number is (516) 877-1605. We invite
you to visit our Internet site at www.infinitetech.com. The information
contained on our Internet site is not part of this prospectus.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our Common Stock. You should read the entire
prospectus carefully, including 'Risk Factors' and the financial statements,
before making an investment decision.
OUR COMPANY
OVERVIEW
Infinite Technology Group is a broad-based and versatile independent
supplier of information technology (IT) services. We are a full service provider
of Internet and e-commerce services that identifies, designs, builds, deploys
and maintains comprehensive solutions for Fortune 1000 companies and other users
of large-scale computing systems.
Our business strategy targets two primary areas:
Internet/e-commerce solution design and implementation, including hosting
and maintenance of interactive applications; and
Information technology systems integration, system maintenance and
hardware and software sales.
We originated in 1993 principally as a value-added reseller of computer
hardware systems and components. During the past three years we have shifted our
focus towards a services orientation by adding systems integration, maintenance
and on-site consulting services. The Internet and its effect on commerce and
communications has provided an opportunity for us to build on our skills and
experience to provide Internet architecture services.
We currently serve approximately 75 clients in the Northeast, primarily in
the New York metropolitan area. Our clients include such firms as
1-800-FLOWERS.com, Chase Manhattan Bank, CITICORP, StarMedia, Time Inc., CNN,
Simon & Schuster, TIAA CREF, Banque Paribas, Sanwa Bank, Marubeni Trading, and
Compaq Computer. With our data center expansion into the Washington, D.C. area,
we expect to expand our business significantly to clients in that area as well.
Historically our revenues have come primarily from systems integration
services and hardware sales. We are now well positioned to benefit from the
growing demand for interactive integration services to satisfy the changing
information technology needs resulting from the influence of the Internet on
business and communications. We believe our ability to combine an extensive
array of services gives us a competitive advantage. Our services include:
<TABLE>
<S> <C>
Strategic consulting System/Network design
Internet access Systems integration
Hardware and software sales Creative design services
Internet protocol based application System support and maintenance
development Security and virtual private networks
</TABLE>
We combine an extensive understanding of Internet technologies, a proven
track record of systems integration and strategic relationships with major
technology manufacturers, such as SUN Microsystems and Compaq/Digital Equipment
Corporation. Utilizing our fiber optic Internet network and Internet data
centers, we can develop and implement flexible and unique Internet solutions
tailored to our customers' needs. Our expansion and growth has come from
applying our expertise and client and supplier relationships to new business
opportunities arising from the changing information technology environment.
The Internet projects we undertake generally fall into two categories:
'Internet-enable' existing 'brick and mortar' businesses. We create an
Internet presence for clients to provide communication and/or e-commerce
capabilities for an existing business, by integrating existing 'legacy'
systems to function seamlessly with Internet based technologies.
'Concept-to-commerce' services for newly developing web-based and
e-commerce businesses. We assess the technical feasibility of new business
models focused on the developing business
3
<PAGE>
opportunities that the Internet and e-commerce presents, and we design and
implement an infrastructure for the business venture.
In either situation, our rare ability to provide not only the design and
consulting services, but also the system build-out, the Internet access, the
Internet solution hosting, as well as the ongoing maintenance and support
services, permits us to offer our clients a long-term commitment and
relationship in which we assume full responsibility for the implementation and
continuing success of their Internet projects.
We believe we are ideally positioned to take advantage of the increasing
dependence of businesses on their information technology systems, the continuing
need to integrate existing systems with emerging Internet technologies and the
evolution of commerce from traditional business models to those based on the
Internet and e-commerce. Our goal is to continually grow and expand our
capabilities, revenue and profitability. We expect this growth to come from
internal expansion of our capacity and the increase in business opportunities
presented by our existing client base, as well as by acquisition of
complementary businesses which bring new capabilities and/or additional customer
bases.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered................ 2,000,000 shares
Common Stock to be outstanding after
the offering...................... 8,000,000 shares(1)
Use of Proceeds..................... We plan to use the net proceeds of this offering to
acquire ITIS, to repay bank debt, for expansion of our
Internet data centers, for acquisitions of
complementary businesses and for working capital and
general corporate purposes.
Risk Factors........................ The securities we are offering involve a high degree
of risk and immediate substantial dilution to new
investors and should not be purchased by investors who
cannot afford the loss of their entire investment. See
'Risk Factors' and 'Dilution.'
Proposed Nasdaq National Market
symbol............................ ITGL
</TABLE>
Unless stated otherwise, the information contained in this prospectus (1)
assumes that our Common Stock will be sold at $10.50 per share, and (2) assumes
that the Underwriter's over-allotment option is not exercised.
- ------------
(1) The number of shares of Common Stock outstanding is 6,000,000 as of
September 30, 1999, giving pro forma effect to the ITIS Merger, and excludes
outstanding options to purchase 1,004,480 shares of Common Stock at a
weighted average exercise price of $5.11 per share. See 'Management -- Stock
Option Plans.'
4
<PAGE>
SUMMARY FINANCIAL DATA
The following table summarizes the combined financial data for our
business. You should read the following summary financial data together with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and our Combined Financial Statements and the Notes thereto,
beginning on page F-1 of this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $4,066 $16,837 $18,391 $22,906 $25,781 $14,347 $19,739
Operating income (loss)....... 789 69 328 (29) (177) (379) 925
Net income (loss)............. 789 68 281 (120) (354) (460) 765
Pro forma net income
(loss)(1)................... 434 37 153 (74) (242) (253) 421
Pro forma net income (loss)
per share:
Basic..................... $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.04) $ .07
Diluted................... $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.04) $ .06
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
------ -------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 683 $11,053
Total assets................................................ 17,198 29,418
Short-term debt............................................. 4,000 100
Total liabilities........................................... 16,080 12,180
Shareholders' equity(2)..................................... 1,119 17,239
</TABLE>
- ------------
(1) For all periods presented, we were treated as an S corporation and were not
subject to income taxes. Pro forma net income (loss) reflects Federal, state
and local income taxes as if we had not elected S corporation status for
income tax purposes. Upon completion of this offering, our S corporation
status will terminate.
(2) Prior to the closing of this offering, we intend to make an aggregate
S corporation distribution of approximately $350,000 to Mr. Dresner and
Mr. McGowan. Such distribution is reflected in the Pro Forma As Adjusted
balance sheet data as a reduction of shareholders' equity.
(3) The Pro Forma As Adjusted balance sheet data reflects the net proceeds of
the offering, or $18.6 million after deducting underwriting discounts and
offering expenses; the $3.5 million of cash consideration to be paid as well
as the estimated $1.4 million of value to be attributed to a Services
Agreement received in the ITIS Merger; repayment of $3.9 million in bank
borrowings; a loan of $500,000 to Paul Wolotsky; and the receipt of
$5,000 each from Mr. Dresner and Mr. McGowan in payment of notes receivable
from them in connection with their acquisition of ITIS common stock.
5
<PAGE>
RISK FACTORS
Before you invest in our Common Stock, you should understand that such an
investment involves various risks, including those described below. You should
carefully consider the following risk factors as well as all of the other
information contained in this prospectus before you decide to purchase shares of
our Common Stock. As a consequence of any of the following risks, our business,
financial condition and operating results could be adversely affected. In such
case, the trading price of our Common Stock could decline, and you could lose
all or part of your investment.
CERTAIN RISKS RELATING TO OUR BUSINESS
WE GENERATED NET LOSSES DURING 1997 AND 1998
We incurred net losses of $120,328 and $354,061 for the years ended
December 31, 1997 and 1998, respectively; however, we generated net income of
$765,133 for the six months ended June 30, 1999. At June 30, 1999, we had
shareholders' equity of $1,118,711. If we had not elected S corporation status
for income tax purposes, our pro forma net losses would have been $74,328 and
$242,061 for the years ended December 31, 1997 and 1998, respectively, and our
net income for the six months ended June 30, 1999 would have been $421,133. We
cannot assure you that we can sustain or increase profitability on a quarterly
or annual basis in the future. If our revenues grow more slowly than we
anticipate or if operating expenses exceed our expectations, our financial
performance will likely be adversely affected.
WE MUST RECRUIT AND RETAIN QUALIFIED PROFESSIONALS TO SUCCEED IN OUR BUSINESS
Our future success depends in large part on our ability to recruit and
retain project and engagement managers, strategists, engineers, and other
technical personnel and sales and marketing professionals. Qualified
professionals are in great demand and are likely to remain a limited resource in
the foreseeable future. Competition for qualified professionals is intense, and
the industry turnover rate is high. If we are unable to recruit and retain a
sufficient number of qualified employees, the growth of our business could be
hindered. Futhermore, clients or other companies seeking to develop in-house
capabilities may hire away some of our key employees.
WE DEPEND ON OUR SENIOR MANAGEMENT TEAM, AND THE LOSS OF ANY MEMBER MAY
ADVERSELY AFFECT OUR BUSINESS
We believe that our success will depend on the continued employment of our
senior management team, particularly Mark Dresner, James McGowan and Paul
Wolotsky. This dependence is especially important to our business because
personal relationships are a critical element of obtaining and maintaining
client engagements. If one or more members of our senior management team was
unable or unwilling to continue in their present positions, such persons would
be difficult to replace and our business could be seriously harmed. Accordingly,
the loss of one or more members of our senior management team could impact our
future revenues. The loss of key employees could also result in the loss of a
client relationship or a new business opportunity. Any losses of client
relationships could seriously harm our business.
POTENTIAL FUTURE ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE AND COULD
ADVERSELY AFFECT OUR OPERATING RESULTS
One of our strategies for growth is the acquisition of businesses. We may
not be able to find and consummate acquisitions on terms and conditions
reasonably acceptable to us. The acquisitions we do undertake may involve a
number of special risks, including:
Diversion of management's attention;
Potential failure to retain key acquired personnel;
Assumptions of unanticipated legal liabilities and other problems;
Difficulties integrating systems, operations and cultures; and
Amortization of acquired intangible assets.
6
<PAGE>
WE MAY NOT BE SUCCESSFUL IN EXPANDING OUR INTERNET SOLUTION SERVICES BUSINESS
Our growth strategy focuses on our ability to continue to expand our
Internet related services. Historically, we have derived most of our revenues
from systems integration, hardware sales and system maintenance services. We may
not be able to successfully generate significant revenues from the Internet
services we plan to deliver or be able to deliver such services profitably.
FAILURE TO MANAGE OUR GROWTH MAY ADVERSELY AFFECT OUR BUSINESS
We have grown rapidly in revenues and in the number of our employees and
key executives. We cannot be sure that we will continue to grow or that we will
be able to manage our growth. Our growth has resulted in new and increased
responsibilities for management and will continue to place a significant strain
on our management and our operating and financial systems. In order to
accommodate the increased number of engagements and clients and the increased
size of our operations, we will need to recruit and retain the appropriate
personnel to manage our operations. We will also need to improve our
operational, financial and management processes and systems. If we fail to
successfully implement and integrate these systems or if we are unable to expand
these systems to accommodate our growth, we may not have adequate, accurate or
timely financial and operational information, which would harm our business and
could lead to volatility in our stock price.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF CLIENTS FOR
A SIGNIFICANT PORTION OF OUR REVENUES
We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of clients. To the extent that any
significant client uses less of our services or terminates its relationship with
us, our revenues could decline substantially. As a result, the loss of any
significant client could seriously harm our business. In 1998, our ten largest
clients generated approximately 60% of our revenues, with three clients, The
Chase Manhattan Bank, The Bank of New York and Citibank, accounting for 22%, 12%
and 11%, respectively, of our revenues. The volume of work that we perform for a
specific client is likely to vary from year to year, and a significant client in
one year may not use our services in a subsequent year.
WE DEPEND UPON SUN MICROSYSTEMS AS A KEY SUPPLIER
For the fiscal year ended December 31, 1998 and for the six months ended
June 30, 1999, a significant portion of our revenues resulted from the sale of
products manufactured by SUN Microsystems. Although we have had a long-standing
relationship with SUN, this relationship may be terminated by SUN at will or
upon relatively short notice. Our reseller arrangements with SUN are not
exclusive. If we lose our status as an authorized reseller of SUN products, or
if either our relationship with SUN or the industry's perception of SUN as a
leading manufacturer of high quality computers deteriorates, our business could
be harmed.
OUR FAILURE TO MEET CLIENT EXPECTATIONS COULD RESULT IN LOSSES AND NEGATIVE
PUBLICITY
We create, implement and maintain applications that are often critical to
our clients' businesses. Any defects or errors in our applications or failure to
meet clients' expectations could result in:
Delayed or lost revenues due to adverse client reaction;
Requirements to provide additional services to a client at no charge;
Negative publicity, which could damage our reputation and adversely affect
our ability to attract or retain clients; and
Claims for substantial damages against us, regardless of our
responsibility for such failure.
While many of our contracts limit our liability for damages that may arise
from negligent acts, errors, mistakes or omissions in rendering services to our
clients, we cannot be sure that these contractual provisions will protect us
from liability for damages in the event we are sued. Furthermore, our general
liability insurance coverage may not continue to be available on reasonable
terms or in
7
<PAGE>
sufficient amounts to cover one or more large claims, or the insurer may
disclaim coverage as to any future claim. The successful assertion of any large
claim against us could seriously harm our business. Even if not successful, such
claims could result in significant legal and other costs and may be a
distraction to management.
WE MAY LOSE MONEY ON FIXED-PRICE CONTRACTS
Although a small portion of our revenues in 1998 was derived from
fixed-price contracts relating to our systems maintenance service, we anticipate
this amount will increase in the future. If we miscalculate the resources or
time we need to complete fixed-price engagements, our operating results could be
seriously harmed. The risk that such miscalculations will occur is high because
we work with complex technologies in compressed time frames.
OUR GROWTH COULD BE AFFECTED BY THE DEVELOPMENT OF THE MARKET FOR INTERNET
SOLUTIONS
We have dedicated our resources and focused our business plan to service
the growing need for Internet solutions arising from the acceptance and use of
the Internet in commerce and communications. We cannot be certain that a viable
market for Internet solutions will emerge or be sustainable. If a viable and
sustainable market for Internet solutions does not develop, our growth could be
negatively affected. Even if an Internet solutions market develops, we may not
be able to differentiate our services from those of our competitors. If we do
not differentiate our services, our revenue growth and operating margins may
decline.
OUR BUSINESS WILL BE HARMED IF THE GROWTH OF INTERNET COMMERCE IS SLOWER THAN
EXPECTED
If Internet commerce does not continue to grow, or grows more slowly than
expected, our growth would decline and our business would be harmed. The
widespread acceptance and adoption of the Internet for conducting business is
likely only in the event that the Internet provides businesses with greater
efficiencies and operating improvements.
OUR SALES CAN BE AFFECTED BY RAPID TECHNOLOGY CHANGES
The computer hardware and software sold and used by us is subject to rapid
change and frequent introduction of new products and product enhancements. This
results in relatively short product life cycles and rapid product obsolescence.
If new or enhanced products are announced, clients may delay their purchasing
decisions until such new or enhanced products are available. Our success depends
in large part on the ability of SUN Microsystems and our other suppliers to
identify and develop products that meet the changing requirements of the
marketplace. If SUN and our other suppliers are unable to identify and develop
these products, our continued success will depend upon our ability to identify
and source substitute products from other vendors.
WE COMPETE IN HIGHLY COMPETITIVE MARKETS AND ARE VULNERABLE TO LARGER AND MORE
EXPERIENCED COMPETITORS
Competition in the systems integration market and Internet solutions
markets is intense. If we fail to compete successfully, our business could be
seriously harmed. Our current competitors include, and may in the future
include, the following:
Systems integrators such as Andersen Consulting, IBM, Proxicom and Sapient
Corporation;
Information technology consulting services providers such as
PricewaterhouseCoopers, KPMG, Electronic Data Systems and Computer
Sciences Corporation;
Emerging Web consulting firms such as Agency.com, Razorfish, Scient
Corporation and Viant Corporation;
Internet professional service providers, such as US Web/CKS, Modem
Media.Poppe Tyson, US Interactive and iXL Enterprises; and
Internal management and information technology departments of current and
potential clients.
8
<PAGE>
Many of our competitors are larger and have greater financial, technical,
marketing and public relations resources, larger client bases and greater brand
or name recognition than us. As a result, our competitors may be better able to
finance acquisitions or internal growth or respond to technological changes or
client needs.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address client needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We cannot guarantee that the steps we have taken to protect our proprietary
rights will be adequate to deter misappropriation of our intellectual property.
In addition, we may not be able to detect unauthorized use of our intellectual
property and take appropriate steps to enforce our rights. If third parties
infringe or misappropriate our trade secrets, copyrights, trademarks or other
proprietary information, our business could be seriously harmed. In addition,
although we believe that our proprietary rights do not infringe on the
intellectual property rights of others, other parties may assert infringement
claims against us or claim that we have violated their intellectual property
rights. Such claims, even if not true, could result in significant legal and
other costs and may be a distraction to management.
YEAR 2000 ISSUES COULD ADVERSELY AFFECT OUR BUSINESS
Many of our clients and potential clients have limited information
technology budgets, and a substantial portion of their budgeted expenses through
December 31, 1999, and potentially beyond, are for Year 2000 remediation and
compliance projects. As our clients focus on Year 2000 issues, the amount
available to our clients for funding the projects we typically undertake may be
limited, which may result in fewer projects, especially large-scale, complex
projects.
The Year 2000 problem may also affect software or code that we develop or
third-party software products that are incorporated into the systems integration
solutions we create for our clients. Our clients license software directly from
third parties, and we do not guarantee that the software licensed from these
suppliers is Year 2000 compliant. However, any failure on our part to provide
Year 2000 compliant applications to our clients could result in financial loss,
harm to our reputation and liability to others and could seriously harm our
business, financial condition and operating results.
OUR BUSINESS WILL BE NEGATIVELY AFFECTED IF WE DO NOT KEEP PACE WITH THE LATEST
TECHNOLOGICAL CHANGES AND CLIENT PREFERENCES
Our market is characterized by rapid change. If we are unable to respond
successfully to technological developments or do not respond in a timely or cost
effective way, our business and operating results may be seriously harmed. We
have derived a substantial portion of our revenues from systems integration
based upon the Internet and other leading information technologies. As a result,
our success will depend, in part, on our ability to offer services that keep
pace with continuing changes in technology, evolving industry standards and
changing client preferences. In addition, we must recruit and retain
professionals who have expertise in technological advances and developments so
that they can fulfill the increasingly sophisticated needs of our clients.
OUR QUARTERLY REVENUES AND OPERATING RESULTS COULD BE VOLATILE AND MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE
Our quarterly revenues and operating results have fluctuated in the past
and may continue to fluctuate significantly in the future. Our operating results
could be volatile and difficult to predict. As a result, period-to-period
comparisons of our operating results may not be good indications of our future
performance. Operating expenses may increase in each quarter, either on absolute
terms or as a
9
<PAGE>
percentage of revenues, due to the potential hiring of large numbers of
employees each quarter, which results in increased salary expenses before such
new employees begin to generate substantial revenues. Factors that may harm our
business or cause our operating results to fluctuate include the following:
An inability to obtain new and follow-on client engagements;
Decreases in the amount and changes in the timing of expenditures by our
clients for our services;
Our inability to recruit and retain skilled management, strategic,
technical, design, sales, marketing and support professionals;
Decreases in our employee utilization rate, including our ability to
transition employees quickly from completed projects to new engagements;
The introduction of new services by us or our competitors;
Price competition;
Our inability to manage costs, including personnel costs and support
services costs;
Our inability to effectively integrate acquisitions with existing
operations; and
Costs related to the opening or expansion of offices.
A significant portion of our operating expenses, such as personnel and
facilities costs, are fixed in the short term. We have also hired a large number
of personnel in core support services, including technology infrastructure,
recruiting, business development, finance and administration, in order to
support our anticipated growth. Therefore, any failure to generate revenues
according to our expectations in a particular quarter could result in losses for
the quarter. In addition, our future quarterly operating results may not meet
the expectations of securities analysts or investors, which in turn may have an
adverse effect on the market price of our Common Stock.
WE MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE TO US, AND WHICH, IF
RAISED, MAY DILUTE YOUR OWNERSHIP INTEREST IN US
We may need to raise additional funds through public or private equity or
debt financings in order to:
Support additional capital expenditures;
Take advantage of acquisition or expansion opportunities;
Develop new services; or
Address additional working capital needs.
If we cannot obtain financing on terms acceptable to us or at all, we may
be forced to curtail some or all of these activities. As a result, we could grow
more slowly or stop growing. Any additional capital raised through the sale of
equity will dilute your ownership interest in us and may be on terms that are
unfavorable to holders of our Common Stock.
CERTAIN RISKS RELATING TO THIS OFFERING
OUR OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR STOCK AND COULD CONTROL
MATTERS SUBMITTED TO SHAREHOLDERS
Upon completion of this offering, our directors, executive officers and
their affiliates will beneficially own, in the aggregate, approximately 75% of
our outstanding Common Stock (not including shares which may be acquired upon
exercise of options they hold) or 72.3% if the Underwriter exercises its
over-allotment option. As a result, these shareholders will be able to exercise
control over all matters requiring shareholder approval, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of us.
10
<PAGE>
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of our Common Stock will be substantially
higher than the book value per share of the outstanding Common Stock. As a
result, if we were liquidated for book value immediately following this offering
and the closing of the ITIS Merger, each shareholder purchasing shares in this
offering would receive less than the price paid for the Common Stock. Investors
in this offering will have contributed 99.9% of our net capital, but will own
25% of our Common Stock.
MANAGEMENT WILL HAVE BROAD DISCRETION IN THE ALLOCATION OF THE NET PROCEEDS OF
THIS OFFERING
Management will have broad discretion in the allocation of the net proceeds
after payment of certain expenses and distributions and the retirement of debt.
Pending such uses, the proceeds of this offering will be invested in short-term,
investment grade, interest-bearing securities.
WE HAVE VARIOUS MECHANISMS IN PLACE THAT MAY PREVENT A CHANGE IN CONTROL THAT A
SHAREHOLDER MAY CONSIDER FAVORABLE
Our certificate of incorporation and bylaws may discourage, delay or
prevent a change in control of us that a shareholder may consider favorable. Our
certificate of incorporation and bylaws:
Authorize the issuance of 'blank check' preferred stock that could be
issued by our Board of Directors to increase number of outstanding shares
and thwart a takeover attempt;
Classify the Board of Directors with staggered, three-year terms, which
may lengthen the time required to gain control of our Board of Directors;
and
Prohibit cumulative voting in the election of directors, which would
otherwise allow less than a majority of shareholders to elect director
candidates.
SHARES BECOMING AVAILABLE FOR SALE COULD AFFECT OUR STOCK PRICE AND DILUTE YOUR
OWNERSHIP IN US
Sales of a substantial number of shares of our Common Stock, including
shares issued upon the exercise of outstanding options, in the public market
after this offering could cause the market price of our Common Stock to fall.
Such sales could also impair our ability to raise capital through the sale of
additional equity securities.
OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES IN THIS OFFERING
The trading price of our Common Stock is likely to be volatile. The stock
market in general, and the market for technology and Internet-related companies
in particular, has experienced extreme volatility. This volatility has often
been unrelated to the operating performance of particular companies. We cannot
be sure that an active public market for our Common Stock will develop or
continue after this offering. Investors may not be able to sell their Common
Stock at or above our initial public offering price. Prices for the Common Stock
will be determined in the marketplace and may be influenced by many factors,
including variations in our financial results, changes in earnings estimates by
industry research analysts, investors' perceptions of us and general economic,
industry and market conditions.
11
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 2,000,000 shares of Common Stock
offered by us will be approximately $18.6 million, assuming an initial public
offering price of $10.50 per share and after deducting the estimated
underwriting discounts and commissions and offering expenses.
The primary purposes of this offering are to obtain additional capital,
create a public market for our Common Stock and facilitate future access to
public markets. We expect to use a substantial portion of net proceeds from this
offering for working capital and other general corporate purposes. We also
expect to apply significant portions of such proceeds to:
our payment of $3.5 million toward the acquisition of ITIS;
the repayment of approximately $3.9 million of our bank debt;
expansion of our Internet network operations/data centers;
possible strategic acquisitions, although we currently have no
understandings, commitments or agreements to make any acquisitions; and
a loan of $500,000 to Paul Wolotsky, our Executive Vice President and
Director of Internet Operations.
Upon the closing of this offering, ITIS will merge with a wholly-owned
subsidiary of ours. ITIS is owned equally by Mark Dresner, James McGowan and
Wolotsky Enterprises, L.L.C., an entity owned and controlled by Paul Wolotsky.
Mr. Dresner, Mr. McGowan and Dr. Wolotsky are each an officer and director of
ours. ITIS was established by Mr. Dresner and Mr. McGowan to pursue certain
Internet/intranet projects. As a result of the merger, Mr. Dresner, Mr. McGowan
and Wolotsky Enterprises, L.L.C. will receive a total of $3.5 million in cash
and 100,000 shares of our Common Stock.
Management will have broad discretion in the allocation of the net proceeds
after payment of the ITIS Merger consideration and the repayment of debt.
Pending such uses, the proceeds of this offering will be invested in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
We currently intend to retain our future earnings to finance the operation
and expansion of our business and we do not anticipate paying cash dividends on
our Common Stock in the foreseeable future. Any future determination as to the
payment of dividends will be at the discretion of our Board of Directors.
12
<PAGE>
CAPITALIZATION
The following table presents our cash position and total capitalization as
of June 30, 1999 (1) on an actual basis, and (2) on a pro forma as adjusted
basis to reflect the sale of shares of Common Stock by us in this offering at an
assumed initial public offering price of $10.50 per share and the use of
$3.9 million of the net proceeds to repay certain bank debt and $3.5 million of
the net proceeds for the acquisition of ITIS. You should read the following
information in connection with our Combined Financial Statements and the
Notes thereto beginning on page F-1 of this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 683 $11,053
------- -------
------- -------
Short-term debt............................................. 4,000 100
Long-term debt.............................................. 333 333
------- -------
Shareholders' equity
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued and outstanding............... -- --
------- -------
ITG Common Stock, $.01 par value per share, 20,000,000
shares authorized, 5,900,000 shares issued and
outstanding, actual, 8,000,000 shares issued and
outstanding pro forma as adjusted(1).................. 59 80
------- -------
ITIS common stock, no par value, 200 shares authorized,
100 shares issued and outstanding..................... 10 --
Additional paid-in-capital............................. 4 17,169
------- -------
Accumulated other comprehensive income................. (10) (10)
------- -------
Retained earnings...................................... 1,066 --
------- -------
Less: shareholder notes receivable for ITIS common
stock................................................. (10) --
Total shareholders' equity(2)..................... 1,119 17,239
------- -------
Total capitalization........................................ $ 5,452 $18,522
------- -------
------- -------
</TABLE>
- ------------
(1) The number of shares of Common Stock outstanding was 6,000,000 as of
September 30, 1999, giving pro forma effect to the ITIS Merger, and excludes
outstanding options to purchase 1,004,480 shares of Common Stock at a
weighted average exercise price of $5.11 per share. See 'Management -- Stock
Option Plans.'
(2) Prior to the closing of this offering, we intend to make an aggregate S
corporation distribution of approximately $350,000 to Mr. Dresner and Mr.
McGowan. Such distribution is reflected in Pro Forma As Adjusted balance
sheet data as a reduction of shareholders' equity.
(3) The Pro Forma As Adjusted balance sheet data reflects the net proceeds of
the offering, or $18.6 million after deducting underwriting discounts and
offering expenses; the $3.5 million of cash consideration to be paid as well
as the estimated $1.4 million of value to be attributed to a Services
Agreement received in the ITIS Merger; repayment of $3.9 million in bank
borrowings; a loan of $500,000 to Paul Wolotsky; and the receipt of
$5,000 each from Mr. Dresner and Mr. McGowan in payment of notes receivable
from them in connection with their acquisitions of ITIS common stock.
13
<PAGE>
DILUTION
As of June 30, 1999, our net tangible book value was $1,118,711, or
approximately $0.19 per share. Net tangible book value per share is determined
by dividing our net tangible book value (total net tangible assets less total
liabilities) by the number of shares of Common Stock outstanding. After giving
effect to the sale of the shares of Common Stock offered in this offering at an
assumed initial public offering price of $10.50 per share, and after deducting
the estimated underwriting discounts and commissions and offering expenses, and
after giving effect to the ITIS Merger and the estimated $350,000 Subchapter S
distribution, our pro forma tangible book value as of June 30, 1999 would have
been $15,888,711, or $1.99 per share. This represents an immediate increase in
net tangible book value of $1.80 per share to our shareholders and an immediate
dilution in net tangible book value of $8.51 per share to new investors
purchasing shares in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.50
Net tangible book value per share as of June 30,
1999.................................................. $0.19
Increase in net tangible book value attributable to new
shareholders.......................................... 1.80
-----
Pro forma net tangible book value per share after this
offering.................................................. 1.99
------
Dilution to new shareholders................................ $ 8.51
------
------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the number of shares of Common Stock purchased from us, the total consideration
paid to us and the average price per share paid to us by the existing holders of
Common Stock and by the new shareholders purchasing shares of Common Stock
offered by us (at an assumed initial public offering price of $10.50 per share),
before deducting the underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders....................... 6,000,000 75% $ 30,000 0.1% $ 0.01
New shareholders............................ 2,000,000 25 21,000,000 99.9 $10.50
--------- --- ----------- ----
Total.................................. 8,000,000 100% $21,030,000 100%
--------- --- ----------- ----
--------- --- ----------- ----
</TABLE>
The foregoing table excludes 1,004,480 shares which may be acquired upon
the exercise of presently outstanding stock options at a weighted average
exercise price of $5.11 per share, and further excludes the effect of $3.0
million of consideration paid in the ITIS Merger which is being treated
as a dividend for accounting purposes.
14
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The following selected combined financial data should be read in
conjunction with the Combined Financial Statements and the Notes thereto and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' included elsewhere in this prospectus. The balance sheet data as of
December 31, 1996, 1997 and 1998 and the statement of operations data for the
years ended December 31, 1996, 1997 and 1998 have been derived from the
Combined Financial Statements for such years, which have been audited by
Ernst & Young LLP, independent auditors. The balance sheet data as of
December 31, 1994 and 1995 and the statement of operations for the years
ended December 31, 1994 and 1995 are derived from the Financial Statements
for such years which are unaudited. The balance sheet data as of June 30,
1999 and the statement of operations data for the periods from January 1
through June 30, 1998 and 1999 are derived from our unaudited Combined
Financial Statements, which management believes include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................ $4,066 $16,837 $18,391 $22,906 $25,781 $14,347 $19,739
Operating expenses....... 3,277 16,768 18,062 22,936 25,958 14,726 18,814
Operating income
(loss)................. 789 69 328 (29) (177) (379) 925
Net income (loss)........ 789 68 281 (120) (354) (460) 765
Pro forma net income
(loss)(1).............. 434 37 153 (74) (242) (253) 421
Pro forma net income (loss)
per share:
Basic..................... $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.04) $ .07
Diluted................... $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.04) $ .06
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 14 $ 187 $ 158 $ 152 $ 637 $ 4 $ 683
Total assets................... 1,111 4,365 2,823 4,605 8,464 5,004 17,198
Total liabilities.............. 368 3,532 1,729 3,751 8,082 4,501 16,080
Shareholders' equity........... 743 833 1,094 854 383 503 1,119
</TABLE>
- ------------
(1) For all periods presented, we were treated as an S corporation and were not
subject to income taxes. Pro forma net income (loss) reflects Federal, state
and local income taxes as if we had not elected S corporation status for
income tax purposes. Upon completion of this offering, our S corporation
status will terminate.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section should be read in conjunction with Infinite
Technology Group's Financial Statements and Notes thereto beginning on page F-1
of this prospectus. In addition to historical information, this discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions which could cause actual results to differ materially from
management's expectations. Factors that could cause such differences include
those discussed in 'Risk Factors.'
OVERVIEW
Infinite Technology Group is a broad-based and versatile independent
supplier of information technology services. We are a full service provider of
Internet and e-commerce services that identifies, designs, builds, deploys and
maintains comprehensive solutions for Fortune 1000 companies and other users of
large-scale computing systems.
We originated in 1993 principally as a value-added reseller of computer
hardware systems and components. During the past three years we have shifted our
focus towards a services orientation by adding systems integration, maintenance
and on-site consulting services. The Internet and its effect on commerce and
communications has provided an opportunity for us to build on our skills and
experience to provide Internet architecture services.
Historically, a substantial portion of our revenues came from the resale of
computer hardware systems and related software products. As our business focus
shifts toward consulting and software system design services related to
Internet-based applications and networks, our revenues resulting from such
services is increasing. We expect this trend to continue.
While we continue to serve Fortune 1000 customers, we now target
middle-tier businesses, for which we provide a broader range of services and
achieve higher gross margins. These businesses typically do not have large
internal information technology departments and rely on our services more than
larger clients with extensive in-house information technology capabilities. In
addition, we typically generate higher profitability on product sales to these
middle-tier customers.
During 1998, we elected to end certain sales arrangements which were less
profitable and did not involve customization or integration services. This gave
us higher gross margins on product sales. This change was part of our strategic
decision to focus on the higher margin Internet architecture and systems
integration opportunities. Our revenues for the six months ended June 30, 1999
reflect a substantial increase over the first six months of 1998, and approach
our revenue levels for all of 1998.
Beginning in 1998, in anticipation of this shift, we undertook a program to
build the infrastructure required for the anticipated increase in our service
business. We increased the number of technicians and sales persons and
accelerated the implementation of helpdesk functionality and software systems to
enable us to provide more advanced integration and support services. These
increases coincided with the implementation of a purchasing cost reduction
program, enabling us to significantly reduce our cost of goods sold. This has
resulted in a return to profitability, as well as a significant increase in net
income, generating net income of $765,133 for the six months ended June 30,
1999, as compared to a net loss of $354,061 for the year ended December 31,
1998.
We believe that we are well positioned to provide the next generation of
information technology services with minimal capital expenditures. We have
entered into a Master Internet Services Agreement with MCSP, Inc. This
corporation owns Internet data centers in New York, Tysons Corner, Virginia and
Washington, D.C., with a direct fiber optic connection to a major internet
connection point. MCSP is owned by Paul Wolotsky, an officer and director of
ITG. The agreement provides us with exclusive access to MCSP's facilities for
the provision of Internet connectivity and website and database hosting
services, without the costs of building out such a facility, and we pay MCSP
only for the usage of its facility. In addition, we have the option to acquire
MCSP, should our usage of the facility reach a minimum threshold. If we exercise
this option, MCSP would become a wholly-owned subsidiary of ITG in exchange for
250,000 shares of our Common Stock.
16
<PAGE>
RECENT DEVELOPMENTS
In the third quarter of 1999, we agreed to acquire ITIS, a corporation
involved in Internet architecture and design, consulting, systems integration
and deployment services. The acquisition of this company will be completed upon
the closing of this offering. ITIS is owned by Mark Dresner and James McGowan
(officers and directors of our company) and Wolotsky Enterprises, L.L.C., a
company in which Paul Wolotsky (who has since become an officer and director of
our company) is the President and sole member. While this corporation has not
generated revenues to date, it has entered into, or is in the process of
securing, a number of Internet development contracts which we expect to
generate significant future revenues.
In addition, in September 1999, we hired Paul Wolotsky to head our Internet
operations. Dr. Wolotsky has approximately 18 years experience in Internet
design, infrastructure, application development and consulting.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenues increased 37.6% to $19,738,745 for the six months ended June 30,
1999 as compared to $14,347,495 for the six months ended June 30, 1998.
Product sales increased 49.6% to $17,675,995 for the six months ended June 30,
1999 as compared to $11,814,029 for the six months ended June 30, 1998. The
increase is due to the adding of new customers and increased sales to existing
customers during the six months ended June 30, 1999. Service sales for the six
months ended June 30, 1999 declined 18.6% to $2,062,750. This decline was
due to the performance of various special projects which were in addition
to our normal monthly contract billings during the six months ended
June 30, 1998.
Gross profit increased to $3,963,172, or 20.0% of sales, for the six months
ended June 30, 1999 from $1,464,274, or 10.2% of sales, for the 1998 period.
Gross profit relating to product sales was $2,571,608 or 14.5% for the six
months ended June 30, 1999 compared to a negative gross profit of $325,464 for
the six months ended June 30, 1998. During the six months ended June 30, 1998,
the company sold certain products at or slightly below costs because such
sales were associated with higher margin service sales which made the total
sales profitable. During the six months ended June 30, 1999, the increase in
gross profit was the result of a purchasing program instituted by us to more
efficiently purchase hardware and networking components, and to better utilize
credit in cooperative programs established by the manufacturers with whom we
have strategic alliances, particularly with SUN Microsystems and Compaq
Computer. In addition, in 1999, we terminated certain less profitable sales
arrangements. Due to greater information processing needs of our customers, our
product mix during the 1999 period shifted towards more high-end services
and hardware, which generate higher gross margins. Gross profit relating to
service sales was 67.5% for the six months ended June 30, 1999 compared to 70.6%
for the six months ended June 30, 1998.
Selling, general and administrative expenses increased to $3,037,978 during
the six months ended June 30, 1999, as compared to $1,843,728 during the six
months ended June 30, 1998. As a percentage of total revenues, this represented
an increase of 1.6%. This increase was the result of the hiring of additional
technical and sales personnel required to support the anticipated increasing
level of the service component of our business, together with the costs
associated with the infrastructure to support our services.
We generated net income of $765,133 during the six months ended June 30,
1999, as compared to a net loss of $459,723 during the corresponding 1998
period. The increase in profitability was due to the cost savings we achieved
through our purchasing program as well as the increased level of revenues from
product sales.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues increased 12.5% to $25,780,786 for the year ended December 31,
1998 as compared to $22,906,234 for the year ended December 31, 1997,
Product sales increased 9.8% to $21,584,246 for the year ended
December 31, 1998 as compared to $19,649,853 for the year ended December 31,
1998, due
17
<PAGE>
to the addition of new customers and increased sales to existing customers.
Service sales increased 28.9% to $4,196,540 as compared to $3,256,381 for the
year ended December 31, 1997. The service sales increase is due to the addition
of new customers and increased billings with existing customers due to various
special projects over and above our normal monthly contract billings.
Gross profit increased to $4,466,218, or 17.3%, for the year ended
December 31, 1998 from $2,627,170, or 11.5%, for the 1997 period. Gross
profit relating to product sales increased to 1,618,067 or 7.5%, for
the year ended December 31, 1998 compared to $458,324 or 2.3% for the year ended
December 31, 1997. This increase was the result of the initiation in mid-1998 of
a purchasing program instituted to more efficiently purchase hardware and
networking components, and to better utilize credits in cooperative programs
established by the manufacturers with whom we have strategic alliances,
particularly with SUN Microsystems and Compaq Computer. In addition, due to
greater information processing needs of our customers, our product mix shifted
towards more high-end service and hardware, which generate higher gross margins.
Gross profit relating to service sales was 67.9% for the year ended
December 31, 1998 compared to 66.6% for the year ended December 31, 1997.
Selling, general and administrative expenses increased to $4,643,513 during
the year ended December 31, 1998 as compared to $2,656,620 for the year ended
December 31, 1997, as a result of the increase in both sales and technical
personnel and payroll related expenses, together with the costs associated with
the expansion of our help desk functionality and software systems regressed by
such services.
We generated a net loss of $354,061 during the year ended December 31,
1998, as compared to a net loss of $120,328 during the corresponding 1997
period. The decrease in profitability was due to the significant increase in
general and administrative expense we incurred to build up our infrastructure.
This will enable us to exploit the expected increasing services needs of our
customers.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues increased 24.6% to $22,906,234 for the year ended December 31,
1997 as compared to $18,390,896 for the year ended December 31, 1996.
Product sales increased 14.3% to $19,649,853 for the year ended December
31, 1997 as compared to $17,191,567 for the year ended December 31, 1996. The
increase is due to obtaining new customers. Service sales increased 171% to
$3,256,381 for the year ended December 31, 1997, as compared to $1,199,329 for
the year ended December 31, 1996. This increase was due to the fact that 1997
was the Company's first full year of service sales compared to a partial 1996.
Gross profit increased to $2,627,170, or 11.5%, for the year ended
December 31, 1997 from $1,608,493, or 8.7%, for the 1996 period. Gross
profit relating to product sales was $458,324 or 2.3% for the year
ended December 31, 1997 compared to $938,044 or 5.5% for the year ended
December 31, 1996. The decrease in gross profit was due to the Company
taking lower margin hardware business which was associated with higher margin
service business. Gross profit relating to service sales was 66.6% for the year
ended December 31, 1997 compared to 55.9% for the year ended December 31, 1996.
Selling, general and administrative expenses increased to $2,656,620 for
the year ended December 31, 1997 compared to $1,280,084 for the year ended
December 31, 1996 as a result of the increase in technical and sales personnel
required by our expansion into the service component of our business.
We had a net loss of $120,328 during the year ended December 31, 1997, as
compared to net income of $281,381 during the corresponding 1996 period. The
decrease in profitability was due to the implementation of an increase in
technical personnel and infrastructure related to the expansion of our business.
LIQUIDITY AND CAPITAL RESOURCES
We have primarily funded our operations from cash flow generated from
operations and bank borrowings. In addition, we maintain lines of credit
providing for borrowings of up to $3,500,000. The line of credit for $3,500,000
bears interest at the bank's prime rate plus 3/4 of one percent and expires on
18
<PAGE>
June 30, 2000. We also have a $500,000 term loan expiring on November 30, 2003.
We repaid a note payable for $400,000 on September 7, 1999. As of June 30, 1999,
we had $4,333,336 of bank borrowings outstanding. We incurred capital
expenditures of approximately $114,000 for the period from January 1, 1999
through June 30, 1999 and approximately $219,000, $147,000 and $169,000 for
1996, 1997 and 1998, respectively, primarily for computers, office equipment and
leasehold improvements related to our growth. We expect to incur capital
expenditures of $2 to $3 million during the next 24 to 36 months in
connection with the upgrading of our existing and build out of our new network
operations data centers.
Inflation did not have a material impact on our revenues or income from
operations in 1996, 1997 and 1998, or during the period from January 1, 1999
through June 30, 1999.
As of June 30, 1999, we had cash and cash equivalents of $682,852, and we
believe that the net proceeds from the sale of the Common Stock offered by this
prospectus, together with cash provided from operations, borrowings available
under the lines of credit and existing cash will be sufficient to meet working
capital and capital expenditure requirements for at least the next 24 months.
INTEREST RATE RISKS
Our exposure to market rate risk for changes in interest rates relates
primarily to our investments in money market accounts and our outstanding bank
borrowings. We have not used derivative financial instruments in our investment
portfolio.
At June 30, 1999, our outstanding debt approximated $4.3 million with
approximately $400,000 of fixed rate obligations. If market rates decline, we
run the risk that the related required payments on the fixed rate debt will
exceed those based on the current market rate. We believe that the effect of any
change in current market rates will not have a material effect on our results of
operations.
If there was a 1% change in the Company's variable rate debt then interest
expenses would increase or decrease by approximately $20,000 based upon the
weighted average outstanding variable rate borrowings during the year ended
December 31, 1998.
EQUITY PRICE RISK
We have a minimal investment in marketable securities of publicly-traded
companies. These investments, as of June 30, 1999, were considered
available-for-sale, with any unrealized gains or losses deferred as a component
of shareholders' equity. It is customary for us to make investments in equity
securities as part of its investment strategy.
YEAR 2000 READINESS
On January 1, 2000, many computer systems and software products could fail
or malfunction because they may not be able to distinguish 21st century dates
from 20th century dates. As a result, computer systems and software used by many
companies, including us, our clients and our potential clients, may need to be
upgraded to comply with such 'Year 2000' requirements.
We believe that our principal internal systems, including our hardware and
software, are Year 2000 compliant. We have reviewed Year 2000 issues with the
suppliers of our principal internal systems. Our review of our Year 2000
readiness programs, including our assessment of our internal systems as well as
those of third parties with whom we have material interactions, is complete.
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material.
The Year 2000 problem may also affect software or code that we develop or
third-party software products that are incorporated into the applications we
create for our clients. Our clients license software directly from third parties
and we do not guarantee that the software licensed from these suppliers is Year
2000 compliant. However, any failure on our part to provide Year 2000 compliant
applications to our clients could result in financial loss, harm to our
reputation and liability to others and could seriously harm our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, 'Accounting for Derivative
Instruments and Hedging Activities.' SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for
us). SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
SFAS No. 133 requires the recognition of all derivatives as either assets or
liabilities in the statement of financial position and the measurement of those
instruments at fair value. We expect that the adoption of SFAS No. 133 will not
have a material impact on our financial position or results of operations.
19
<PAGE>
BUSINESS
OVERVIEW OF OUR BUSINESS
Infinite Technology Group is a broad-based and versatile independent
supplier of information technology (IT) services. We are a full service provider
of Internet and e-commerce services that identifies, designs, builds, deploys
and maintains comprehensive solutions for Fortune 1000 companies and other users
of large-scale computing systems.
Our business is structured into two primary focus areas:
Internet/e-commerce solution design and implementation, including hosting
and maintenance of interactive applications; and
Information technology systems integration, system maintenance and
hardware and software sales.
We originated in 1993 principally as a value-added reseller of computer
hardware systems and components. During the past three years we have shifted our
focus towards a services orientation by adding systems integration, maintenance
and on-site consulting services. The Internet and its effect on commerce and
communications has provided an opportunity for us to build on our skills and
experience to provide Internet architecture services.
We currently serve approximately 75 clients in the Northeast, primarily in
the New York metropolitan area. Our clients include such firms as
1-800-FLOWERS.com, Chase Manhattan Bank, Citibank, StarMedia, Time Inc., CNN,
Simon & Schuster, TIAA CREF, Banque Paribas, Sanwa Bank, Marubeni Trading, and
Compaq Computer. With our data center expansion into the Washington, D.C. area,
we expect to expand our business significantly.
INDUSTRY OVERVIEW
With recent advances in the Internet and information technology, companies
are transforming the way they run their businesses and manage information.
Interactive information technology companies such as ITG create value by solving
the complex challenges posed by the Internet opportunity, including:
The need to develop long-term IT strategies incorporating the Internet
into an 'e-business' model;
The need to constantly adopt and implement new and rapidly changing
technologies, with or without a significant in-house information
technology staff;
Achieving the required high degrees of integration (with or without the
Internet) among various applications, networks and platforms within a
company and among diverse business enterprises; and
The need to maintain significant technological infrastructure and support
for e-business applications, including backup systems, 24 hours a day, 7
days a week.
Market for Information Technology and Internet Services
The proliferation of the Internet and e-commerce has fueled a predicted
tenfold growth in Internet services from $7.8 billion in 1998 to $78.6 billion
in 2003, representing a five-year compounded annual growth rate of 59%,
according to International Data Corporation, an independent market research
firm. Complex solutions that combine and integrate strategy consulting, systems
integration and creative design will increasingly be required to address this
market.
Many information technology services providers focus on the less
technically demanding areas of basic creative web design and simple transaction
systems. They often lack the skills, financial resources and employees to
provide scalability, flexibility and rigorous performance characteristics to
overlapping legacy systems. These factors will grow in importance as established
companies continue to Internet-enable complex and established information
technology processes. This will give interactive information
20
<PAGE>
technology providers such as ITG, with our proven background of systems
integration, a superior competitive position compared to more content-focused
firms.
Growth of E-Commerce
Companies are rapidly expanding their commercial use of the Internet beyond
basic websites that act largely as 'online brochures'. They are deploying their
web presence as an efficient platform for conducting transactions and
establishing virtual storefronts. Traditional business functions such as
customer service, supply chain management, employee training and communications
are also shifting to the Internet. According to Forrester Research, total
e-commerce volume is expected to soar from $51 billion in 1998 to approximately
$1.4 trillion in 2002.
We believe that our experience and expertise in the design and integration
of complex legacy systems -- which can sustain high volume, online processing
capabilities and the large databases required for high-level e-commerce -- make
us particularly well-positioned to benefit from the growing demand from
medium-to-large corporations to deploy advanced interactive services, streamline
core operations and improve customer relationship management.
OUR STRATEGY & SOLUTIONS
We are well positioned to respond to the growing demand for interactive
integration services to satisfy changing information technology needs resulting
from the influence of the Internet on business and communications. Our
experience as a systems integrator, value added reseller and strategic
consultant affords us the range of required skills to deliver full service
solutions. We believe our ability to combine an extensive array of services
gives us a competitive advantage. These services include:
Internet strategic consulting
Internet protocol based application development
Internet access
Hardware and software sales
Application outsourcing
E-commerce design and support
Integration
Creative website design services
Ongoing support and maintenance
System/Network design
Security and virtual private networks
We believe that our particular combination of skills and experience gives
us a strategic advantage over other service providers. We have carefully
developed the complex and specialized capabilities required to devise solutions
that best meld the network infrastructure, hardware and software, Internet
access, back-end and legacy systems, desired performance objectives and
operational management and security issues into integrated systems that meet the
specific goals and expectations of our customers.
To provide comprehensive solutions, we combine:
An understanding of client business operations and goals;
An extensive understanding of Internet technologies;
A proven track record of systems integration;
Strategic relationships with major technology manufacturers; and
The resources and skills to provide complete Internet application hosting.
We divide our solution-creation process into three phases:
[The following boxes are included to be graphical arrows with the caption
above each, suggesting the flow of the project.]
21
<PAGE>
<TABLE>
<CAPTION>
'DEFINE AND DESIGN' 'CONSTRUCT AND CONNECT' 'INSTALL AND IMPLEMENT'
------------------- ----------------------- -----------------------
<S> <C> <C>
Define client needs and Internet-enable the Implement new computing
goals environment environment (ITG
Assess existing technology Integrate multi-platform host/customer location)
and infrastructure legacy systems Provide the e-commerce
Explore potential solutions Develop new Internet engine
Design Internet-based protocol-based Test and fine tune
solution applications, implement environment
databases, develop Implement customer support
web-enabled interfaces plan
</TABLE>
Define and Design
This critical first phase assists the client in identifying its business
goals and designing a solution, whether Internet or non-Internet based. We
assess the existing technology and infrastructure and fully explore potential
solutions. We then present our client with a complete solution, from design to
deployment. This phase concludes with a design specification of the
Internet-based solution.
The Define and Design phase is an impartial assessment of the client's
overall operating environment and its impact on the company's business
objectives. Our experienced team of business specialists, Internet technologists
and digital media specialists work in unison with the client's own staff to
develop a plan that becomes a collaborative solution. It also serves as an
important first step in a strong relationship between us and our customer, often
resulting in future engagements.
There are a number of perspectives considered in this assessment. These
considerations include:
Workflows
External influences
Existing systems design
Legacy systems
Network infrastructure
Deployment processes and schedules
Client experience
Performance criteria
Delivery mechanisms
Customer support issues
Cost
Time frames
Competitor and competitive capabilities
Business objectives, including operating efficiencies and expansion of
capabilities
We provide the client with a unified approach which addresses the technical
plan for network infrastructure modifications, the addition and integration of
new hardware and software components, the graphical and multimedia components of
the website and the deployment plan.
Construct and Connect
In this phase, we translate the solution we have designed into reality.
While each client and each solution is unique, our methodology to building
solutions is consistent. Our project team continues to take full responsibility
for all aspects of the new systems development.
Every solution requires a solid foundation to build upon. For an
Internet-based solution, this means that a solid network/computing
infrastructure must be in place. We therefore must upgrade the client's internal
network, implement security policy and provide Internet access. The
Internet-enabled network infrastructure is the foundation which enables us to
integrate the existing legacy applications and the new systems environment
containing newly developed and future Internet applications.
With this foundation in place, we can begin to develop new Internet
protocol-based applications. These new Internet-aware applications will usually
tie into relational databases, such as Oracle, and are accessed through web
enabled user interfaces. All of the work is done by our in-house developers and
digital media specialists.
22
<PAGE>
Once the new development is complete, we link the existing legacy
environment to create a single, unified 'Internet-e-grated' system. We seek to
provide an Internet point-of-entry for our client's customers that is intuitive,
consistent and graphically compelling.
Install and Implement
An Internet-based solution is by definition a high-availability solution.
No 'down-time' is acceptable to the customer delivering the application or the
individual or business using it. This requires the expertise of our systems
engineers to implement a high-availability environment which includes systems,
storage, Internet access, security and operations management.
In this final stage, we prepare for real world, high performance, reliable
deployment of the newly created or upgraded system. This platform can be
deployed, hosted and managed at one of our Internet data centers with Internet
access provided through our fiber optic backbone. For disaster recovery
requirements, a backup system can be implemented at one of our other Internet
data centers.
During system implementation, we typically create and implement:
High-availability systems platform, systems, storage, network;
A disaster recovery plan;
An operations plan;
A test plan;
A customer support plan;
A security plan with ongoing monitoring; and
An ongoing performance monitoring system.
Additional services we provide during this phase include payment processing
functionality, database management, mailbox and chat room functionality, site
performance monitoring, call center integration and other services to ensure the
optimum performance of the Internet solution.
OUR STRENGTHS
We believe that our experience and skills drawn from our success as a
systems integrator has provided us with the strengths to effectively meet the
complex needs of a wide range of institutional systems users. These strengths
include:
Premier reputation among high profile clients. We enjoy a strong reputation
for delivering complete, cost-effective IT solutions to a wide range of clients.
This track record of success in customized projects positions us well to work
with new and existing partners to develop solutions to the emerging challenges
now facing corporate clients.
Strategic marketing alliances. We have established technology and marketing
alliances with approximately 20 technology manufacturers, software developers
and distributors, including SUN Microsystems, Compaq/Digital Equipment
Corporation, Merisel, Nortel and IBM. Each of these partners is either a major
company in its field or a developer of a unique software product.
Comprehensive e-commerce application design and consulting. We provide
comprehensive services to a variety of business enterprises, in varying stages
of development. Although our experience includes work on projects for
enterprises as large as The New York Stock Exchange and MCI, our target customer
is the mid-sized business organization which seeks to maximize its opportunities
on the Internet without undermining its existing IT environment.
Natural extension of classic systems integration. Internet-enabling clients
requires the integration of another platform, that is, Internet protocol
applications, to an existing network environment. This process includes
providing a user with secure access to databases, while protecting the integrity
of the data. It also includes providing a system for communications among
various hardware and software components, as well as users of the system. This
strategic integration process has been a core ITG strength since inception.
23
<PAGE>
Full in-house creative and graphic design services. To customize the 'look
and feel,' and features of a website interface requires extensive efforts of
graphic artists and web design professionals. We have an internal staff of web
design specialists who work in conjunction with our systems integration and
software developers to provide an Internet interface that coordinates
functionality with attractiveness to the user. In addition to text and graphics,
audio and video components and animation may be included, as desired by the
client to enhance the Internet experience.
Application outsourcing, web hosting and connectivity services. Our data
centers have direct high bandwidth access to the Internet with which we are able
to provide Internet connectivity and website hosting services internally, rather
than through third party service providers or through a company unrelated to the
design and construction of the site. We believe that this not only provides
clients with an added convenience, resulting from our 'one stop' service, but
also permits a more efficient and effective implementation of the Internet
solution.
INTERNET SERVICES
Our Internet projects generally fall into two categories:
'Internet-enable' existing 'brick and mortar' businesses. We create an
Internet presence for clients to provide communication and/or e-commerce
capabilities for an existing business, by integrating existing legacy
systems to function seamlessly with Internet based technologies.
'Concept-to-commerce' services for newly developing web-based and
e-commerce businesses. We assess the technical feasibility of new business
models focused on the developing business opportunities that the Internet
presents and the acceptance of e-commerce as a paradigm for future
business, and we design and implement an infrastructure for the new
venture.
In either situation, our ability to provide a complete package of design
and consulting services, system build-out, Internet access, Internet solution
hosting and ongoing maintenance and support services, permit us to offer our
clients a long-term commitment and relationship through which we assume full
responsibility for the implementation and continuing success of their Internet
projects.
We offer connectivity to the Internet on a variety of levels, which can be
provided either as a stand-alone service or as part of a comprehensive Internet
solution. Our customers are primarily the enterprise level corporation, or the
e-commerce customer for whom we provide comprehensive services. We do not target
the individual mass market consumer for Internet access.
We provide nationwide dial up modem and ISDN connections, as well as
wireless Internet protocol connectivity for use by cellular modems or PDA's
(personal digital assistants). These capabilities are generally provided along
with other connections to provide remote access to individual users. Generally,
we provide dedicated copper connections and dedicated symmetrical and
asymmetrical digital subscriber line (DSL) service, providing speeds up to 7.1
mb/sec. In addition, we offer the option of dedicated fiber optic connectivity.
Our Internet Services division maintains network operations centers (NOC)
in Northern Virginia (MAE - East, a major Internet exchange point) and
Washington, D.C. We maintain dedicated, high-capacity fiber optic cable between
New York City and Washington, D.C., and are continually expanding that reach and
capacity. We have a direct connection to MAE-East, and we also maintain private
peering and transit arrangements with major peering partners, including
UUNet/MCI, America Online, Sprint, PSINet and others. We expect to open a third
NOC/data center at our headquarters during calendar year 2000. These data
centers contain state-of-the-art hardware components, many of which are
manufactured by companies with which we have strategic alliances.
Our Internet data centers offer traditional Web and e-commerce hosting and
co-location services for customers. We offer virtual hosting (customer is given
use of a shared server in our data center); dedicated hosting (customer has a
server in our data center that is dedicated to that customer's use) and
co-located hosting (customer's own equipment is located at our data center).
We also offer individual services, such as rack space, bandwidth, security,
virtual private network capabilities, and middleware payment processing and
electronic storefront systems. Full support services are also available, whereby
we provide not only the facility and the Internet access, but the actual
24
<PAGE>
hardware, systems management, systems maintenance and systems monitoring for the
customer's Internet solution.
NETWORK SOLUTIONS, SYSTEMS INTEGRATION AND MAINTENANCE
The network solutions, systems integration and maintenance services that we
provide to our clients include assessment and consulting services, hardware and
software sales, systems integration and installation, and maintenance services.
These services address the information technology needs of businesses,
institutions and other enterprise level networked computer systems.
We provide these services both from our internal professional staff as well
through strategic business alliances with technology solution developers and
niche service providers. These 'Technology Business Alliance' partners form the
backbone of our systems integration business. Each of these partners is either a
significant company within its industry or a developer of unique software or
technology. Our partners provide us two main benefits: innovative technology
solutions and a 'virtual' sales force.
Some of our partners are:
SUN Microsystems. We actively engage in joint marketing programs with SUN,
including sales of the SPARC line of RISC server and workstations.
Additionally, we provide on-site maintenance and support for SUN products.
Compaq/Digital Equipment Corporation. We provide integration and 'private
label' services for Compaq/DEC. In addition we resell Compaq/DEC products
and are an authorized warranty provider.
IBM. We sell IBM's RS6000 line of computers, storage products, software
and services, and are an authorized warranty provider for IBM products.
Merisel. Merisel is a leading distributor of computer systems and
components. In addition to sourcing products from Merisel, Merisel has
agreed to distribute certain Internet-based products under development by
us.
Nortel. We sell Nortel's line of networking products, including access
products, data and Internet products, Internet telephony products,
wireless and mobility products, switching products and network management
products.
Network Operations/Systems Integration
We often work with clients who need to replace or upgrade existing
computing functionality or who need advice about specific system inadequacies or
desired capabilities. We provide an analysis of existing client technology, an
analysis of the desired functionality, and the design of a hardware and software
solution to address the client's need. We present the client with a detailed
proposal containing the specifications and cost of each of the components
comprising the solution, and a description of the integration of such components
with existing systems.
Our systems integration services interconnect various hardware and software
components to create complete information systems that can then be seamlessly
linked to other internal and/or external information systems. We provide these
services both on-site at client locations and at our integration center, where
we fully configure and beta test the most significant components of the network
solution.
In addition, we are an 'integrator's integrator', subcontracted by
manufacturers to fulfill certain integration needs. These requirements may be to
integrate various components into systems designed and/or sold directly by the
manufacturer, or may be to provide high volume integration services related to
the customization of a large number of systems to meet specifications and
component requirements set forth by the manufacturer. We provide these services
either on a third-party or private label basis.
The systems integration portion of our business is supplemented by the
follow-on technical support services we offer for the systems we implement
and/or sell, as well as for existing systems that a customer may already have in
place.
25
<PAGE>
We have long-standing relationships with many manufacturers, which we
believe assist us in buying desired products on a timely basis and on attractive
financial terms. We sell a wide variety of networking and personal computer
products and peripherals from most major manufacturers, including:
<TABLE>
<S> <C>
AST Research Motorola
Cisco Systems NEC Technologies
Compaq/Digital Equipment Corporation Nortel/Bay Networks
Epson America Novell
Hewlett-Packard Company Seagate Technology
Intel Corporation SUN Microsystems
IBM Tektronix
Microsoft Corporation Texas Instruments
</TABLE>
Maintenance
We also provide our customers a variety of value-added services, such as:
Maintenance and repair;
Help desk;
Consulting; and
Support services.
Our existing maintenance services include multi-vendor desk-top and
mid-range system maintenance. Our maintenance services are generally under
long-term contracts, many of which are on a fixed price for standard services
with a variable fee for additional services. Typically, we provide maintenance
services via telephone, Internet or dial up network access, or by visits to
customer locations. However, we station on-site maintenance personnel at some
larger customer sites.
COMPETITION
The information technology services business is characterized by intense
competition and is subject to rapid technological change. We expect the
competition to continue and intensify. Our current and anticipated competitors
include:
Systems integrators, such as Andersen Consulting, IBM, Proxicom and
Sapient Corporation;
Information technology consulting services providers, such as
PricewaterhouseCoopers, KPMG, Electronic Data Systems and Computer
Sciences Corporation;
Emerging web consulting firms, such as Agency.com, Razorfish, Scient
Corporation and Viant Corporation;
Internet professional service providers, such as US Web/CKS, Modem
Media.Poppe Tyson, US Interactive and iXL Enterprises; and
Internal management and information technology departments of current and
potential clients.
Many of our competitors have substantially greater financial technical and
marketing resources, larger client bases, longer operating histories, greater
brand or name recognition and more established relationships in the industry
than we have. In addition, these competitors have entered and will likely
continue to enter into joint ventures to provide additional services competitive
with those provided by us.
There are low barriers to entry into our business. We do not own any
technologies that preclude or inhibit competitors from entering our industry.
Existing or future competitors may independently develop and patent or copyright
technologies that are superior or substantially similar to our technologies. The
costs to develop and to provide information technology services are relatively
low. Therefore, we expect to continue to face additional competition from new
entrants into our industry.
26
<PAGE>
We believe that the principal competitive factors in our business are:
The reputation, technical knowledge, creative skills, expertise and
experience of the professionals delivering solutions;
The ability to provide a complete 'turn-key' solution;
Price, speed and quality of service;
The success and reliability of the delivered solution; and
The variety of services and products offered and timing of introductions
of additional value services and products.
We believe that we compete favorably on each of these factors and that we
offer clients a unique combination of integrated strategy, technology and
creative design services. The market for our services is evolving, however, and
we must continue to rapidly develop the skills and capabilities needed to
compete successfully in the future.
EMPLOYEES
As of September 1, 1999, we had 89 employees. Of these, 51 were project
personnel, 18 were selling and marketing personnel, and 20 were general and
administrative personnel. None of our employees are represented by a labor
union, and we consider our employee relations to be good.
FACILITIES
Our headquarters, which house our principal administrative, finance, sales
and marketing operations, are located in Mineola, New York. These facilities are
located in approximately 25,000 square feet of leased office space. We also
maintain a 3,200 square foot sales office in New York City. Both leases expire
in 2002. We expect that we will need additional space as we expand our business
and believe that we will be able to obtain suitable space as needed.
Through a Master Internet Services Agreement, we have, together with MCSP,
Inc., exclusive use of two Internet data centers. One of these is in Washington,
D.C., and the other is in Tysons Corner, Virginia. We pay for the use of such
facilities based upon the direct costs incurred in connection with our usage.
This Agreement is described in the 'Certain Transactions' section.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings.
27
<PAGE>
MANAGEMENT
The following table sets forth the names, ages and positions of Infinite
Technology's directors and executive officers as of September 1, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark Dresner................................. 43 Chairman of the Board and Director
James McGowan................................ 43 President, Chief Executive Officer and
Director
Paul Wolotsky................................ 47 President, Mercury Internet Services,
Inc. and Director
Andrew Arlo.................................. 40 Executive Vice President
Stephen Baronian............................. 53 Vice President, Operations
Daniel Hickey................................ 39 Vice President, Services
Dennis Wilson................................ 50 Chief Financial Officer
Clifford Reddy............................... 51 Chief Technology Officer
Bernard Esquenet............................. 56 Director
Craig Libson................................. 38 Director
</TABLE>
Mark Dresner. Mr. Dresner is our co-founder and has served as our Chairman
of the Board and a director since December 1994. Prior to founding Infinite
Technology Group, Mr. Dresner served as a Sales Executive for Digital Equipment
Corporation from 1985 to 1994. He previously served in various marketing and
technical roles for The New York Life Insurance Company from 1979 to 1985. Mr.
Dresner holds a B.S. degree from Long Island University and an M.S. in Computer
Science from New York Institute of Technology.
James McGowan. Mr. McGowan is our co-founder and has served as our
President, Chief Executive Officer and a director since January 1993. Prior to
founding Infinite Technology Group, Mr. McGowan served in numerous sales and
marketing positions at Digital Equipment Corporation, ATT Information Systems,
Xerox Corporation, and Pioneer Standard Electronics. Mr. McGowan holds a B.S.
degree from Fordham University and an Advanced Certificate in Finance from St.
John's University.
Paul Wolotsky. Dr. Wolotsky joined us in September 1999 as a director and
as President of our Mercury Internet Services subsidiary. Prior to joining us,
Dr. Wolotsky was engaged for 18 years in the Internet consulting, website
hosting and design and Internet connectivity business through Medical Computer
Systems, a business formed by him in 1981. In 1995 and 1996 he served as
Chairman for the Open Systems World/FedUNIX Convention Internet and World Wide
Web Conferences. Currently Dr. Wolotsky serves on the Board of Directors of the
UniForum Association, the International UNIX/Open Systems organization. Dr.
Wolotsky earned his B.S., Biomedical Engineering from the University of Michigan
in 1973 and his M.D./Ph.D. in Neurophysiology from Albert Einstein College of
Medicine in 1977.
Andrew Arlo. Mr. Arlo joined us as Executive Vice President in 1995 to
focus on our growing services business. Prior to joining us, Mr. Arlo served for
eight years as a Sales Executive at Digital Equipment Corporation supporting
DEC's financial clients. Previously Mr. Arlo held positions at NCR and NIXDORF
Computer where he was National Sales manager. Mr. Arlo holds a B.S. degree in
Marketing from the University of Hartford.
Stephen Baronian. Mr. Baronian has served as our Vice President, Operations
since August 1999. Prior to this he served as our Director of Operations. Mr.
Baronian joined us with over 25 years experience in the banking and finance
industry, 15 years in a senior management role. Mr. Baronian holds a B.B.A.
degree in Finance with a minor in Personnel Administration from Adelphi
University.
Clifford Reddy. Mr. Reddy has served as our Chief Technology Officer since
1996. Prior to joining us, Mr. Reddy served in various technical capacities with
Digital Equipment Corporation, from 1977 to 1996. Before this Mr. Reddy served
in the U.S. Air Force for four years.
Daniel Hickey. Mr. Hickey has served as our Vice President, Services since
August 1999. He served as our Director of Technical Sales from 1997 to 1999.
Prior to joining us, Mr. Hickey served as Vice
28
<PAGE>
President of Unix Support at U.S. Computer Group from 1990 to 1997. Before this
Mr. Hickey was a Field Service Manager at Prime Computer Corporation for five
years.
Dennis Wilson. Mr. Wilson joined us as our Chief Financial Officer in
September 1999. Prior to joining us, Mr. Wilson was Vice President and Chief
Financial Officer and director of SysComm International Corporation. From 1972
through 1992, Mr. Wilson was employed by The Harvey Group Inc. During his career
at The Harvey Group, Mr. Wilson held the following positions: Member of the
Board of Directors, Executive Vice President and Chief Financial Officer,
Corporate Secretary and Director of Internal Audit. Mr. Wilson received a B.S.
in Accounting and an M.B.A. from St. John's University.
Bernard Esquenet. Mr. Esquenet has served as a director since August 1999.
Mr. Esquenet has been the Chief Executive Officer of The Ruhof Corporation for
more than the past five years.
Craig Libson. Mr. Libson has served as a director since August 1999. Mr.
Libson is a member of the law firm of Parker Duryee Rosoff & Haft, P.C., and has
been a practicing attorney specializing in corporate and securities law since
1985.
Except for Messrs. Dresner, McGowan and Wolotsky, each of whom has an
employment agreement, our executive officers are appointed annually by, and
serve at the discretion of, the board of directors. See ' -- Employment
Agreements.'
BOARD OF DIRECTORS
Our board consists of five directors, divided into three classes,
denominated Class I, Class II and Class III. After the offering we will be
adding an additional independent director. Members of each class hold office for
staggered three-year terms. At each annual meeting of our shareholders starting
with the meeting in 2000, the successors to the directors whose terms expire at
that meeting will be elected to serve for a three-year period following their
election or until a successor has been duly elected and qualified. Dr. Wolotsky
and the newly appointed sixth director will be Class I directors whose terms
expire at the 2000 annual meeting of shareholders. Messrs. Dresner and Esquenet
are Class II directors whose terms expire at the 2001 annual meeting of
shareholders. Messrs. McGowan and Libson are Class III directors whose terms
expire at the 2002 annual meeting of shareholders. The expiration of a
director's term is subject in all cases to the election and qualification of his
successor or his earlier death, removal or resignation. Each of Messrs. Dresner,
McGowan and Wolotsky have employment agreements with us providing for their
nomination as directors. See ' -- Employment Agreements.'
COMMITTEES OF THE BOARD OF DIRECTORS
We have an audit committee and a compensation committee. Each committee is
composed of a majority of independent directors. Following the offering, the
audit committee will be comprised of Craig Libson, Bernard Esquenet, James
McGowan and the additional independent director, and will recommend the annual
appointment of our auditors, with whom the audit committee will review the scope
of audit and non-audit assignments and related fees, accounting principles used
in financial reporting, internal auditing procedures and the adequacy of our
internal control procedures. Following the offering, the compensation committee
will be comprised of Craig Libson, Bernard Esquenet, Mark Dresner and the
additional independent director, and will make recommendations to the board
regarding compensation for our executive officers. The compensation committee
will also administer the 1999 Stock Option Plan and other compensatory plans or
arrangements adopted by the Board of Directors.
COMPENSATION OF DIRECTORS
Directors who are also our employees receive no additional compensation for
their services as directors. Directors who are not our employees will receive a
$500 fee for attendance in person at meetings of the Board or committees of the
Board and will be reimbursed for travel expenses and other out-of-pocket costs
incurred in connection with their attendance at such meetings. Members of the
29
<PAGE>
Board of Directors receive annual grants of stock options pursuant to the
Company's 1999 Directors' Stock Option Plan. See 'Stock Option Plans.'
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation earned during 1998 by our President and Chief Executive Officer and
certain other highly compensated officers. We use the term 'named executive
officers' to refer to these people in this prospectus. The table excludes
certain perquisites and other personal benefits received by a named executive
officer that do not exceed the lesser of $50,000 or 10% of any such officer's
salary and bonus disclosed in the table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- ---------------------
SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION(S) SALARY BONUS OTHER OPTIONS/SARS
------------------------------ ------ ----- ----- ------------
<S> <C> <C> <C> <C>
Mark Dresner ............................... $ 144,815 -- -- --
Chairman of the Board and Director
James McGowan .............................. $ 144,815 -- -- --
President, Chief Executive Officer and
Director
Andrew Arlo ................................ $ 137,615 -- -- --
Executive Vice President
Daniel Hickey .............................. $ 90,000 -- $138,122(1) 30,000
Vice President, Services
</TABLE>
- ------------
(1) Represents amounts paid for sales commissions.
The following table sets forth information on grants of stock options
during 1998 to the named executive officers. These options were granted with an
exercise price equal to the fair market value of our Common Stock on the date of
grant as determined by our Board of Directors. The 5% and 10% assumed annual
rates of compound stock price appreciation are prescribed by the rules and
regulations of the Securities and Exchange Commission and do not represent our
estimate or projection of the future trading prices of our Common Stock. There
can be no assurance that the actual stock price appreciation over the ten-year
option term will be at the assumed 5% and 10% levels or at any other defined
level. Actual gains, if any, on stock option exercises are dependent on numerous
factors, including our future performance, overall market conditions and the
option holder's continued employment with us throughout the entire vesting
period and option term, none of which are reflected in this table. The potential
realizable value is calculated by multiplying the fair market value per share of
Common Stock on the date of grant as determined by the Board of Directors, which
is equal to the exercise price per share, by the stated annual appreciation rate
compounded annually for the option term, subtracting the exercise price per
share from the product, and multiplying the remainder by the number of shares
underlying the option granted.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS POTENTIAL REALIZABLE VALUE
UNDERLYING GRANTED TO AT ASSUMED ANNUAL RATES
OPTIONS EMPLOYEES EXERCISE EXPIRATION OF STOCK PRICE APPRECIATION
NAME GRANTED IN FISCAL YEAR PRICE DATE FOR OPTION TERM
---- ------- -------------- ----- ---- -----------------------------
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Mark Dresner................. -- -- -- -- -- --
James McGowan................ -- -- -- -- -- --
Andrew Arlo.................. -- -- -- -- -- --
Daniel Hickey................ 30,000 25.1% $1.50 01/15/08 $73,300 $116,718
</TABLE>
30
<PAGE>
The following table sets forth information with respect to exercises of
options by the named executive officers during 1998 pursuant to the Infinite
Technology Group 1997 Stock Option Plan, and information with respect to
unexercised options to purchase Common Stock held by them at December 31, 1998.
YEAR-END 1998 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
----------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark Dresner.................................. -- -- -- --
James McGowan................................. -- -- -- --
Andrew Arlo................................... 80,192 120,288 $150,761 $226,141
Daniel Hickey................................. 7,500 22,500 $ 11,250 $ 33,750
</TABLE>
- ------------
(1) Based upon the fair market value of the Common Stock as of December 31,
1998, which was $3.00, as determined by the Board of Directors.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Mark Dresner. Under the
terms of this employment agreement, Mr. Dresner serves as our Chairman of the
Board. His employment agreement also provides for his nomination as a director.
The employment agreement has a five year term with automatic one year renewals,
subject to earlier termination.
As of September 1, 1999, Mr. Dresner's base annual salary was $250,000. The
compensation committee of our Board of Directors may increase his base salary
from time. We will increase his base salary annually to reflect increases in the
consumer price index. In addition to his base salary, our compensation committee
will grant Mr. Dresner cash bonuses and stock option grants based on the
attainment of certain performance objectives. In addition, we will lease an
automobile for Mr. Dresner's exclusive use. Mr. Dresner is also entitled to
participate in any employee benefit plans which we adopt for the general benefit
of our employees or executive employees.
Mr. Dresner's employment agreement automatically terminates upon his death.
In addition, we can terminate it based on his continued disability (as defined
in the employment agreement), for due cause (as defined in the employment
agreement), or without due cause. Mr. Dresner can terminate his employment
agreement for good reason (as defined in the employment agreement). If the
employment agreement is terminated for death, disability or due cause, we will
pay Mr. Dresner any unpaid base salary and bonus through the date of
termination. If we terminate Mr. Dresner's employment agreement for a reason
other than death, disability or due cause, or if he terminates it for good
reason, we will pay him his base salary for the remaining term of the employment
agreement, but in no event less than twenty-four or more than thirty-five
months.
Mr. Dresner's employment agreement contains standard provisions regarding
confidentiality and non-competition during the term of his employment.
We have entered into an employment agreement with James McGowan. Under the
terms of this employment agreement, Mr. McGowan serves as our President and
Chief Executive Officer. His employment agreement also provides for his
nomination as a director. The employment agreement has a five year term with
automatic one year renewals, subject to earlier termination.
As of September 1, 1999, Mr. McGowan's base annual salary was $250,000. The
compensation committee of our Board of Directors may increase his base salary
from time to time. We will increase his base salary annually to reflect
increases in the consumer price index. In addition to his base salary, our
compensation committee will grant Mr. McGowan cash bonuses and stock option
grants based on the attainment of certain performance objectives. In addition,
we will lease an automobile for Mr.
31
<PAGE>
McGowan's exclusive use. Mr. McGowan is also entitled to participate in any
employee benefit plans which we adopt for the general benefit of our employees
or executive employees.
Mr. McGowan's employment agreement automatically terminates upon his death.
In addition, we can terminate it based on his continued disability (as defined
in the employment agreement), for due cause (as defined in the employment
agreement), or without due cause. Mr. McGowan can terminate his employment
agreement for good reason (as defined in the employment agreement). If the
employment agreement is terminated for death, disability or due cause, we will
pay Mr. McGowan any unpaid base salary and bonus through the date of
termination. If we terminate Mr. McGowan's employment agreement for a reason
other than death, disability or due cause, or if he terminates it for good
reason, we will pay him his base salary for the remaining term of the employment
agreement, but in no event less than twenty-four or more than thirty-five
months.
Mr. McGowan's employment agreement contains standard provisions regarding
confidentiality and non-competition during the term of his employment.
We have entered into an employment agreement with Paul Wolotsky. Under the
terms of this agreement, Dr. Wolotsky serves as our Executive Vice President,
Director of Internet Operations. His employment agreement also provides for his
nomination as a director. The employment agreement has a five year term with
automatic one year renewals, subject to earlier termination.
As of September 1, 1999, Dr. Wolotsky's base annual salary was $250,000.
Our compensation committee may increase his base salary from time to time. We
will increase his base salary annually to reflect increases in the consumer
price index. In addition, we will lease an automobile for Dr. Wolotsky's
exclusive use. Dr. Wolotsky is also entitled to participate in any employee
benefit plans which we adopt for the general benefit of our employees or
executive employees.
Pursuant to his employment agreement, we granted Dr. Wolotsky options to
purchase 300,000 shares of our Common Stock, subject to a vesting schedule. We
will grant him additional stock options and cash bonuses based on the net income
generated by our Internet division. In addition, our compensation committee may
grant Dr. Wolotsky discretionary bonuses.
Dr. Wolotsky's employment agreement automatically terminates upon his
death. In addition, we can terminate it based on his continued disability (as
defined in the employment agreement) or for due cause (as defined in the
employment agreement). Dr. Wolotsky can terminate his employment agreement for
good reason (as defined in the employment agreement). If his employment
agreement is terminated for death, disability or due cause, we will pay Dr.
Wolotsky any unpaid base salary and bonus through the date of termination. If he
terminates the employment agreement for good reason, we will pay him his base
salary for 12 months from the date of termination. In addition, either Dr.
Wolotsky or we can terminate his employment agreement if our initial public
offering is not consummated by January 1, 2000, in which event we will enter
into a consulting agreement with Dr. Wolotsky for a term of one year and at a
rate of $250,000. The employment agreement may also be terminated by either Dr.
Wolotsky or us following the third anniversary of the agreement, upon six months
written notice to the other party, in which case we will pay Dr. Wolotsky any
unpaid base salary and bonus through the date of termination.
Dr. Wolotsky's employment agreement contains standard provisions regarding
confidentiality, non-competition and our ownership of his work product.
STOCK OPTION PLANS
1997 Stock Option Plan
Our 1997 stock option plan was adopted by our Board of Directors and
approved by our shareholders in June 1997. As amended, the 1997 plan authorizes
the issuance of up to 600,000 shares of our Common Stock pursuant to stock
options and other awards. As of September 30, 1999, options to purchase an
aggregate of 584,480 shares of Common Stock at a weighted average price of $2.36
per share were outstanding under the 1997 plan, of which 261,163 are currently
exercisable. The 1997 plan is substantially similar to our 1999 Stock Option
Plan, which is discussed in more detail below.
32
<PAGE>
1999 Stock Option Plan
We have previously adopted our 1999 Stock Option Plan. The purpose of the
1999 plan is to further our growth, development and financial success by
providing additional incentives and personal interest in us by those responsible
for securing our continued growth and success.
The 1999 plan is administered by our compensation committee, and provides
for the grant to our employees of both incentive options, intended to qualify
under Section 422 of the Internal Revenue Code, and non-qualified options to
purchase our Common Stock. The compensation committee will grant options subject
to a vesting schedule, conditions, restrictions and other provisions.
The price of the shares subject to each option will be equal to the fair
market value of the shares on the date we grant them. However, if we grant
incentive stock options to an individual owning more than 10% of the total
combined voting power of all classes of our stock, the exercise price of the
options will not be less than 110% of the fair market value of the underlying
shares on the date of grant, as required by Section 162(m) of the Internal
Revenue Code. If the aggregate fair market value of our shares with respect to
which incentive stock options are exercisable by any person for the first time
during any calendar year exceeds $100,000, the options will be treated as
non-qualified options.
A holder of options to purchase our common stock under the 1999 plan may
exercise the options by delivery to us of cash equal to the exercise price, or
with approval of the compensation committee, shares of our Common Stock equal to
the exercise price, a promissory note equal to the exercise price, or a
combination of these prescribed forms of payment.
If the outstanding shares of our Common Stock are changed into or exchanged
for a different number or kind of shares or other securities by reason of
reorganization, merger, consolidation, reclassification or combination of
shares, we will make adjustments in the number and kind of shares for the
purchase of which options may be granted.
The holders of options under our 1999 plan will not be considered
shareholders of ours unless and until certificates representing shares of our
Common Stock have been issued by us to such holders.
The maximum number of shares of our Common Stock for which options may be
granted under the 1999 plan is 350,000. If any option expires or is canceled
without having been fully exercised we may regrant that option. Options are not
exercisable after ten years after the date we grant them. Options we grant under
the 1999 plan generally are not transferable and terminate upon severance of
employment.
As of the date of this prospectus, there are no options outstanding under
the 1999 plan.
Infinite Technology Group Ltd. 1999 Directors' Stock Option Plan
We have previously adopted our 1999 Directors' Stock Option Plan. The
purpose of the 1999 directors' plan is to provide directors added incentives to
continue as directors of ours and to create a more direct interest by such
individuals in the future success of our operations.
The 1999 directors' plan is administered by our compensation committee, and
provides for the grant of automatic, non-discretionary, non-qualified options to
purchase our Common Stock to both our employee and non-employee directors. Upon
our adoption of the 1999 directors' plan, each of our existing non-employee
directors were granted an option to purchase 30,000 shares of our Common Stock.
In the future, an option to purchase 25,000 shares of our Common Stock will be
granted to each person who is elected or appointed to serve as a director. An
option to purchase 10,000 and 20,000 shares of our Common Stock will be granted
to each employee and non-employee director, respectively, who is re-elected as a
director by our shareholders. Upon our adoption of the 1999 directors' plan,
each of our existing employee directors was granted an option to purchase 20,000
shares of our common stock. In addition, any director who is elected to a
committee of our Board of Directors shall be granted an additional option to
purchase 5,000 shares of Common Stock.
Pursuant to the 1999 director's plan, each of our director's options will
vest one half immediately upon grant, and for so long as he or she remains on
the Board, one quarter at the end of each of the two years following the year in
which the option was granted. In the event of a change in control (as
33
<PAGE>
defined in the plan), each outstanding option under the 1999 directors' plan
shall become exercisable in full in respect of the aggregate number of our
shares covered by the option.
The price of the shares subject to each option under our 1999 directors'
plan will be equal to the fair market value of the shares on the date we grant
them.
If the outstanding shares of our Common Stock are changed into or exchanged
for a different number or kind of shares or other securities by reason of stock
split, subdivision, consolidation, combination, reclassification or
recapitalization involving our Common Stock, except in connection with an
initial public offering, we will make adjustments in the number and kind of
shares for the purchase of which options may be granted.
The holders of options under the 1999 directors' plan will not be
considered shareholders unless and until certificates representing shares of our
Common Stock have been issued by us to the holders.
The Board of Directors may terminate the 1999 directors' plan, and no
option may be granted after such termination. If not sooner terminated, the 1999
directors' plan will terminate on June 30, 2009. Options outstanding at the time
of termination will continue to be exercisable in accordance with their terms.
The maximum number of shares of our Common Stock for which options may be
granted under the 1999 directors' plan is 400,000. If any option expires or is
canceled without having been fully exercised we may regrant that option. Options
are not exercisable after ten years from their date of grant. Options we grant
under the 1999 directors' plan generally are not transferable and terminate
three months after termination as a director.
As of the date of this prospectus, there are 120,000 options outstanding
under the 1999 directors' plan, exercisable at a price of $10.00 per share, of
which 60,000 are currently exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mark Dresner, Chairman of the Board of Directors of our company, Craig
Libson and Bernard Esquenet currently serve on our compensation committee.
Immediately following this offering, the newly-appointed sixth member of our
Board will be named to serve on the compensation committee.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the extent permitted by the New York Business Corporation Law, we have
included in our certificate of incorporation a provision to eliminate the
personal liability of directors for monetary damages due to heir breach or
alleged breach of their fiduciary duties. Our charter does not, however, provide
for indemnification for liability due to a director's breach of his or her duty
of loyalty to us or our stockholders, for acts involving bad faith or
intentional misconduct or violations of law, or for any transaction from which
the director received an improper personal benefit. In addition, our bylaws
require us to indemnify our officers and directors under certain circumstances,
and we are required to advance to our officers and directors certain of their
expenses incurred in connection with the proceeding against them. We intend to
obtain directors' and officers' liability insurance.
CERTAIN TRANSACTIONS
Merger with Infinite Technology Information Services, Inc. and related
transactions
On September 20, 1999, we entered into a merger agreement with ITIS. This
agreement provides that ITIS will merge with and into Mercury Internet Services,
Inc., our wholly-owned subsidiary (the 'ITIS Merger') at the closing of this
offering. While ITIS has not generated revenues to date, it has entered into, or
is in the process of securing, a number of Internet development contracts which
we expect to generate future revenues. At the time of the ITIS Merger, all of
the outstanding shares of common stock of ITIS will be exchanged for a total of
100,000 shares of our Common Stock and $3.5 million of the proceeds from this
offering.
ITIS was organized by Mark Dresner and James McGowan for the purpose of
pursuing Internet related design and consulting services for start-up
e-commerce businesses. ITG had been referring many of such opportunities to
third parties. ITIS's activities during 1999 consisted primarily of identifying
34
<PAGE>
opportunities and performing sales and marketing activities, including
negotiating arrangements with e-commerce and Internet based businesses for the
design and construction of the web-based solution for these customers. In
July 1999, ITIS negotiated a Master Internet Services Agreement with MCSP
(described below) to provide ITIS with immediate data center and Internet
access infrastructure to provide such services on a large scale. In August 1999,
ITIS acquired from Wolotsky Enterprises, a company controlled by Paul Wolotsky
(as described below), the rights to a Services Agreement with World Online, Inc.
under negotiation for the design and hosting of an intranet project relating to
the auto industry. We anticipate that this Services Agreement will generate
significant revenue during the next twelve months. This agreement was executed
during September 1999. In exchange for the contribution of such contract
rights, Wolotsky Enterprises acquired one-third of the common stock of ITIS.
Mark Dresner, Chairman of our Board of Directors, is also the President
and Treasurer of ITIS. James McGowan, our President and Chief Executive Officer,
is also Vice President and Secretary of ITIS. Mr. Dresner, Mr. McGowan, and
Wolotsky Enterprises, L.L.C., of which Paul Wolotsky, our Executive Vice
President, Director of Internet Operations, is President and Sole Member, each
own one-third of the outstanding shares of common stock of ITIS. Mr. Dresner and
Mr. McGowan will each receive $1.5 million as a result of the ITIS Merger.
Wolotsky Enterprises, L.L.C. will receive $500,000 and 100,000 shares of our
Common Stock as a result of the ITIS Merger.
Under the merger agreement, at the closing of this offering, we will make a
loan to Dr. Wolotsky in the amount of $500,000 from the proceeds of the offering
(See 'Use of Proceeds'). We are making the loan to fund the payment of income
taxes Dr. Wolotsky will have to pay as a result of his receipt of consideration
from the ITIS Merger. The loan is secured by 100,000 shares of our Common Stock
which Wolotsky Enterprises, L.L.C. will receive at the closing. The loan will
bear interest at a rate of 6% per year and will mature upon the earlier of June
30, 2004 or upon the sale of the 100,000 shares of our Common Stock by Wolotsky
Enterprises, L.L.C.
ITIS is a party to a Master Internet Services Agreement with MCSP, Inc.,
dated July 1, 1999, pursuant to which ITIS has the exclusive use (other than
existing hosting commitments of MCSP, Inc.) of MCSP, Inc.'s Internet data center
facilities and Internet connectivity assets. MCSP has three Internet data
centers, located in Washington, DC, Tysons Corner, Virginia and New York City.
These data centers have direct fiber optic connectivity to the MAE-East
Internet hub and are connected by a dedicated backbone. ITIS will
compensate MCSP, Inc. in an amount equal to 105% of the actual direct costs
incurred by MCSP, Inc. in connection with the provision of these services. The
agreement also provides that, any time after January 1, 2001, either MCSP, Inc.
or ITIS may elect that MCSP, Inc. merge with and into ITIS, if certain revenue
levels have been attained. Under the terms of the merger agreement, we have
assumed this obligation, and, upon effectiveness of any merger involving ITG,
all of the shares of common stock of MCSP, Inc. will be exchanged for a total
of 250,000 shares of our Common Stock. Dr. Wolotsky is the sole officer,
director and shareholder of MCSP, Inc. By electing to merge with MCSP, we
would be able to acquire ownership of the three data centers owned by MCSP and,
as a result, acquire in-house, turn-key data center capability without the
costs or time delays of designing, constructing and implementing three
separate data centers.
S Corporation Distribution
Prior to the closing of this offering, we intend to make an S
corporation distribution of approximately $350,000 to Mr. Dresner and Mr.
McGowan. In addition, at the closing we will change our federal income tax
status from a S corporation to a C corporation. In connection with this change,
we will enter into an agreement with Mr. Dresner and Mr. McGowan to facilitate
our change in tax status. Pursuant to this agreement, Mr. Dresner and Mr.
McGowan will agree to indemnify us for all income tax liability for periods
prior to the the closing if we are found not to have qualified as an S
corporation.
Employment Agreements
During 1999, we entered into employment agreements with Mark Dresner, James
McGowan and Paul Wolotsky. See 'Management -- Employment Agreements'.
35
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of September 30, 1999 and immediately following
this offering by (1) each person who beneficially owns 5% or more of a class of
capital stock, (2) each of our directors, (3) each of the named executive
officers and (4) all of our directors and executive officers as a group.
Unless otherwise noted (1) each of the persons listed below has sole voting
and investment power with respect to the shares beneficially owned by it or him
as set forth opposite its or his name and (2) the address for each of the
persons listed below is: c/o Infinite Technology Group, 77 Jericho Turnpike,
Mineola, New York 11501.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE PERCENTAGE
NAME SHARES BEFORE OFFERING(1) AFTER OFFERING(1)
---- ------ ------------------ -----------------
<S> <C> <C> <C>
Mark Dresner(2).................................. 2,967,500 49.3% 37.0%
James McGowan(3)................................. 2,967,500 49.3 37.0
Paul Wolotsky(4)................................. 135,000 2.2 1.7
Andrew Arlo(5)................................... 120,288 2.0 1.5
Daniel Hickey(6)................................. 22,500 * *
Bernard Esquenet(7).............................. 15,000 * *
Craig Libson(8).................................. 15,000 * *
All directors and executive officers as a group
(10 persons)(9)................................ 6,277,163 100 75.8
</TABLE>
----------
* Less than 1%
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date of this Prospectus upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage
ownership is determined by assuming that options, warrants or convertible
securities that are held by such person (but not those held by any other
person) and which are exercisable within 60 days of the date of this
Prospectus have been exercised and converted. Assumes a base of 6,000,000
shares of Common Stock outstanding prior to this offering and a base of
8,000,000 shares of Common Stock outstanding immediately after this
offering, before any consideration is given to outstanding options,
warrants or convertible securities.
(2) Includes 17,500 shares of Common Stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 32,500
shares of Common Stock subject to stock options which are not currently
exercisable.
(3) Includes 17,500 shares of Common Stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 32,500
shares of Common Stock subject to stock options which are not currently
exercisable.
(4) Includes (i) 100,000 shares of Common Stock to be issued to Wolotsky
Enterprises, L.L.C. in connection with the ITIS Merger, which are
beneficially owned by Dr. Wolotsky, and (ii) 35,000 shares of Common Stock
which may be acquired upon the exercise of currently exercisable stock
options. Does not include 285,000 shares of Common Stock subject to stock
options which are not currently exercisable.
(5) Includes 120,288 shares of Common Stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 80,192
shares of Common Stock subject to stock options which are not currently
exercisable.
(6) Includes 22,500 shares of Common Stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 37,500
shares of Common Stock subject to stock options which are not currently
exercisable.
(7) Includes 15,000 shares of Common Stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 15,000
shares of Common Stock subject to stock options which are not currently
exercisable.
(8) Includes 15,000 shares of Common Stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 15,000
shares of Common Stock subject to stock options which are not currently
exercisable.
(9) Includes 277,163 shares of Common Stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 558,317
shares of Common Stock subject to stock options which are not currently
exercisable.
36
<PAGE>
DESCRIPTION OF CAPITAL STOCK
This summary description does not describe every term of the capital stock
contained in our certificate of incorporation. We refer you to the provisions of
New York corporate law and our certificate of incorporation and bylaws, which
you can access through EDGAR at www.sec.gov.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our certificate of incorporation authorizes us to issue 20,000,000 shares
of Common Stock, $.01 par value per share, and 2,000,000 shares of preferred
stock, $.01 par value per share. The preferred stock is issuable in series.
There will be 6,000,000 shares of Infinite Technology Group Common Stock
outstanding immediately prior to consummation of this offering, held of record
by two shareholders, and there will be no shares of preferred stock outstanding.
COMMON STOCK
Voting Rights. Holders of our Common Stock are entitled to one vote per
share on all matters to be voted upon by the shareholders. The holders of Common
Stock are not entitled to cumulative voting rights with respect to the election
of directors, and as a result, minority shareholders will not be able to elect
directors on the basis of their votes alone.
Dividend Rights. Subject to preferences that may be applicable to any then
outstanding shares of preferred stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the board out of funds
legally available therefor.
Liquidation Rights. In the event of our liquidation, dissolution or winding
up, holders of the Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding preferred stock. Holders of Common Stock have no preemptive,
conversion or other rights to subscribe for additional securities of Infinite
Technology Group. No redemption or sinking fund provisions apply to the Common
Stock. All outstanding shares of Common Stock are, and all shares of Common
Stock to be outstanding upon completion of the offering will be, validly issued,
fully paid and nonassessable.
PREFERRED STOCK
Our board has the authority, without further action by the shareholders, to
issue up to 2,000,000 shares of preferred stock in one or more series and to fix
the rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any series
or the designation of such series. The issuance of preferred stock could
adversely affect the voting power of holders of our Common Stock. This could
also decrease the likelihood that holders of our Common Stock will receive
dividend payments and payments upon liquidation and could have the effect of
delaying, deferring or preventing a change of control of our company.
Accordingly, the issuance of shares of preferred stock may discourage offers for
our Common Stock or may otherwise adversely affect the market price of our
Common Stock. We have no present plan to issue any shares of preferred stock.
CERTAIN PROVISIONS OF OUR CHARTER DOCUMENTS
Our Certificate of Incorporation and By-Laws contain the following
provisions which are intended to enhance the likelihood of continuity and
stability in the composition of the Board and in the policies formulated by the
Board and to discourage certain types of transactions that may involve an actual
or threatened change of control of our company. These provisions provide:
for the authorization of the Board to issue, without further action by the
shareholders, up to 2,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions
thereof;
for the division of the board into three classes, with each class serving
for a staggered term of three years;
37
<PAGE>
that vacancies on the board, including newly created directorships, can be
filled only by a majority of the directors then in office;
that our directors may be removed only for cause and only by the
affirmative vote of holders of at least 66 2/3% of the outstanding shares
of voting stock, voting together as a single class;
that cumulative voting is expressly prohibited;
that certain provisions of the By-Laws may be amended only by a vote of
66 2/3% of the shareholders entitled to vote; and
that shareholders wishing to nominate directors and propose other business
to be conducted at shareholder meetings must meet certain advance notice
requirements.
These provisions are designed to reduce our vulnerability to an unsolicited
proposal for a takeover that does not contemplate the acquisition of all of our
outstanding shares, or an unsolicited proposal for the restructuring or sale of
all or part of us. Such provisions, however, could discourage potential
acquisition proposals and could delay or prevent a change of control of our
company. Such provisions may also have the effect of preventing changes in our
management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company, and its address is 40 Wall Street, New York, New
York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, no public market for our Common Stock has existed.
Future sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this offering
because of contractual restrictions on resale. Sales of substantial amounts of
our Common Stock in the public market after the restrictions lapse could
adversely affect the prevailing market price and impair our ability to raise
equity capital in the future.
Upon completion of the offering and assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding stock
options, an aggregate of 8,000,000 shares of our Common Stock will be
outstanding. Of these shares, all of the shares sold in this offering will be
freely transferable without restriction or limitation under the Securities Act
of 1933 unless purchased by our 'affiliates,' as defined in Rule 144 under the
Securities Act. The remaining 6,000,000 shares are 'restricted shares' within
the meaning of Rule 144 under the Securities Act, and are subject to
restrictions under the Securities Act and the lock-up agreements described
below.
Our directors, executive officers, shareholders and certain option holders
have agreed not to sell, offer for sale, or otherwise dispose of any of our
Common Stock for a period of 180 days from the date of this prospectus without
the prior written consent of Auerbach, Pollak & Richardson, Inc. In addition,
during the 180-day period, we have agreed not to file any registration statement
with respect to our Common Stock or any securities convertible into or
exercisable or exchangeable for our Common Stock without the prior written
consent of Auerbach, Pollak & Richardson, Inc.
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned shares of Common
Stock for at least one year would be entitled to sell within any three-month
period the number of shares of Common Stock that does not exceed the greater of:
1% of the number of then outstanding shares; or
the average weekly reported trading volume during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to that sale.
Sales under Rule 144 are also subject to certain notice and manner of sale
requirements and to the availability of current public information about us and
must be made in unsolicited brokers' transactions or to a market maker. A person
who is not an 'affiliate' of us under the Securities Act during the three months
preceding a sale and who has beneficially owned shares for at least two years is
entitled to sell
38
<PAGE>
such shares under Rule 144 without regard to the volume, notice, information and
manner of sale provisions. Our affiliates must comply with the restrictions and
requirements of Rule 144 when transferring restricted shares even after the
two-year holding period has expired and must comply with the restrictions and
requirements of Rule 144 other than the one-year holding period in order to sell
unrestricted shares. Rule 144 allows persons to include the holding period of
the transferor under certain circumstances.
Any of our employees, officers, directors or consultants who purchased or
were awarded shares or options to purchase shares prior to this offering are
generally entitled to rely on the resale provisions of Rule 701 under the
Securities Act, which permit affiliates and non-affiliates to sell such shares
without having to comply with the holding period restrictions of Rule 144, in
each case commencing 90 days after the date of this prospectus. In addition,
non-affiliates may sell such shares without complying with the public
information, volume and notice provisions of Rule 144. Rule 701 is available for
our option holders as to all 1,004,480 shares issued pursuant to the exercise of
options granted prior to this offering.
After 180 days after the offering, we intend to file a registration
statement on Form S-8 to register all of the shares of Common Stock reserved for
issuance pursuant to the 1997 and 1999 Infinite Technology Group Stock Incentive
Plans and 1999 Directors' Stock Option Plan. Accordingly, shares issued upon
exercise of such options will be freely tradeable by holders who are not our
affiliates and, subject to the volume and other limitations of Rule 144, by
holders who are affiliates.
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
dated , 1999, Auerbach, Pollak & Richardson, Inc. has agreed to
purchase from us shares of Common Stock.
The underwriting agreement provides that the Underwriter's obligations to
purchase and accept delivery of the shares of Common Stock offered hereby is
subject to approval by its counsel of certain legal matters and to certain other
conditions. The Underwriter is obligated to purchase and accept delivery of all
the shares of Common Stock offered hereby (other than those shares covered by
the over-allotment option described below) if it purchases any of the shares.
We have granted to the Underwriter a 30-day option to purchase on a pro
rata basis up to 300,000 additional shares of our Common Stock at the initial
public offering price less the underwriting discounts and commissions. This
option may be exercised only to cover over-allotments of our Common Stock.
The Underwriter initially proposes to offer some of the shares of Common
Stock to the public at the initial public offering price set forth on the cover
page of this prospectus, and some of the shares to certain dealers (including
the Underwriter) at such price less a concession not in excess of $ per
share. The Underwriter may allow, and such dealers may re-allow to certain other
dealers, a concession not in excess of $ per share. After the initial
offering of the Common Stock, the representatives of the Underwriter may change
the public offering price and other selling terms at any time without notice.
The Underwriter does not intend to confirm sales to any accounts over which they
exercise discretionary authority.
We have agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the Underwriter may be required to make in respect thereof.
We, together with our executive officers, directors, shareholders and
certain option holders have agreed, subject to certain exceptions, not to:
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell or grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly
or indirectly, any shares of our Common Stock or any securities
convertible into or exercisable or exchangeable for our Common Stock; or
enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any of our
Common Stock,
39
<PAGE>
regardless of whether any of the transactions described above are to be settled
by the delivery of Common Stock, other securities, cash, or otherwise, for a
period of 180 days after the date of this prospectus without the prior written
consent of the Underwriter. In addition, during such 180-day period, we have
also agreed not to file any registration statement with respect to, and each of
our executive officers, directors and certain of our shareholders have agreed
not to make any demand for, or exercise any right with respect to, the
registration of any shares of our Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock without the prior written
consent of the Underwriter. However, the Underwriter may, in its sole
discretion, release all or any portion of the securities subject to the lock-up
agreements. We have determined that if the lock-up with respect to a significant
number of shares has been waived, whether with respect to a single stockholder
or a number of stockholders, we would review applicable securities laws and, if
public disclosure would be appropriate, disclose the waiver.
We have agreed to pay the Underwriter a non-accountable expense allowance
of 2% of the aggregate offering price of the Common Stock offered by this
prospectus (including any Common Stock purchased pursuant to the Underwriter's
over-allotment option), of which we have already paid $50,000. We have also
agreed to pay all expenses in connection with qualifying the Common Stock
offered by this prospectus for sale under the laws of such states as the
Underwriter may designate, if required, including the expenses of counsel
retained for such purposes by the Underwriter.
We have also agreed pursuant to the Underwriting Agreement to allow
Auerbach, Pollak & Richardson, Inc. to designate an observer to the Board of
Directors for a period of three years. The individual selected by the
Underwriter will be entitled to attend all our Board of Directors' meetings.
We have agreed to sell to the Underwriter and its designees, Underwriter's
Warrants to purchase up to 140,000 shares of Common Stock at an exercise price
per share equal to 125% of the initial public offering price per share of the
Common Stock offered hereby. The Underwriter's Warrants may not be transferred,
except during a one year period commencing on the date of this prospectus, to
officers of the Underwriter, and thereafter to officers or employees who are
shareholders of the Underwriter, and are exercisable during the four-year period
commencing one year from the date of the Prospectus (the 'Warrant Exercise
Term').
During the Warrant Exercise Term, the holders of the Underwriter's Warrants
are given, at nominal cost, the opportunity to profit from a rise in the market
price of the Common Stock. To the extent that the Underwriter's Warrants are
exercised or exchanged, dilution to the interests of our shareholders will
occur. Further, the terms upon which we will be able to obtain additional equity
capital may be adversely affected since the holders of the Underwriter's
Warrants can be expected to exercise them at a time when we would, in all
likelihood, be able to obtain any needed capital on terms more favorable to us
than those provided in the Underwriter's Warrants. Any profit realized by the
Underwriter on the sale of the Underwriter's Warrants or the underlying shares
of Common Stock may be deemed additional underwriting compensation. The
Underwriter's Warrants provide for reductions, which in certain circumstances
could be material, in the exercise price of the Underwriter's Warrants upon the
occurrence of certain events, including adjustment of the type of securities
issuable upon exercise of the Underwriter's Warrants to reflect changes in the
Common Stock and to reflect stock dividends, stock splits and mergers,
recapitalizations or sales of assets. We have agreed to register the
Underwriter's Warrants and the underlying shares of Common Stock under the
Securities Act on one occasion during the Warrant Exercise Term and to include
such Underwriter's Warrants and shares in any appropriate registration statement
that is filed by us during the Warrant Exercise Term.
We have agreed to grant the Underwriter for three years from this offering
a right of first refusal to act as manager, placement agent or investment banker
for proposed public or private offerings of our securities and certain other
transactions. In addition, we will pay the Underwriter a finder's fee if, at our
request, the Underwriter introduces potential strategic partners to us during
the 18 months following this offering and we consummate a transaction with any
of them.
Prior to this offering, no established trading market for our Common Stock
existed. The initial public offering price of our shares of Common Stock offered
by this prospectus was determined by negotiations among us and the
representatives of the underwriters. The factors considered in determining the
initial public offering price included the history of and the prospects for the
industry in
40
<PAGE>
which we compete, our past and present operations, our historical results of
operations, our prospects for future earnings, the recent market prices of
securities of generally comparable companies and the general condition of the
securities markets at the time of the offering.
We are applying to have our Common Stock approved for quotation on the
Nasdaq National Market under the symbol 'ITGL.'
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of Common Stock
offered hereby in any jurisdiction where action for that purpose is required.
The shares of Common Stock offered hereby may not be offered or sold, directly
or indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any shares of Common
Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons with this prospectus should inform
themselves about and observe any restrictions relating to the offering and the
distribution of this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
The Underwriter may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit
bids to purchase the underlying security so long as the stabilizing bids
do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the Common Stock originally sold by that
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of our common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for Infinite Technology Group by Parker Duryee Rosoff & Haft, P.C., New York,
New York. Craig S. Libson, a member of such firm, serves as a director of our
company. Certain legal matters in connection with this offering will be passed
upon for the underwriters by Coleman, Rhine & Goodwin LLP, New York, New York.
41
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our combined
financial statements at December 31, 1997 and 1998, and for each of the three
years in the period ended December 31, 1998, as set forth in their report. We've
included our financial statements in the prospectus and elsewhere in this
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the Common Stock being sold in this
offering. This prospectus constitutes a part of that registration statement.
This prospectus does not contain all the information set forth in the
registration statement and the exhibits and schedules to the registration
statement, because some parts have been omitted in accordance with the rules and
regulations of the Commission. For further information with respect to us and
our Common Stock being sold in this offering, you should refer to the
registration statement and the exhibits and schedules filed as part of the
registration statement. Statements contained in this prospectus regarding the
contents of any agreement, contract or other document referred to are not
necessarily complete; reference is made in each case to the copy of the contract
or document filed as an exhibit to the registration statement. Each statement is
qualified in all respects by reference to the exhibit. You may inspect a copy of
the registration statement without charge at the Commission's principal office
in Washington, D.C. and obtain copies of all or any part thereof, upon payment
of certain fees, from the Commission's Public Reference Room at the Commission's
principal office, 450 Fifth Street, NW, Washington, D.C. 20549, or at the
Commission's regional offices in New York, located at 7 World Trade Center,
Suite 1300, New York, New York 10048, or in Chicago, located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. You may obtain information
regarding the operation of the Public Reference Room by calling the Commission
at 1-800-SEC-0330. The Commission maintains an Internet site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The Commission's World
Wide Web address is www.sec.gov.
We intend to furnish holders of our Common Stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish such other reports as we may determine or as may be
required by law.
42
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors......................... F-2
Combined Balance Sheets as of December 31, 1997 and
1998 and June 30, 1999 (unaudited).................... F-3
Combined Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and the six-month
periods ended June 30, 1998 and 1999 (unaudited)...... F-4
Combined Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996, 1997 and 1998
and the six-month period ended June 30, 1999
(unaudited)........................................... F-5
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and the six-month
periods ended June 30, 1998 and 1999 (unaudited)...... F-6
Notes to Combined Financial Statements................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
We have audited the accompanying combined balance sheets of Infinite
Technology Group Ltd. and Affiliate (the 'Company') as of December 31, 1998 and
1997, and the related combined statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Infinite Technology
Group Ltd. and Affiliate at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Melville, New York
September 30, 1999
F-2
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30, PRO FORMA
1997 1998 1999 AS ADJUSTED
---- ---- ----------- -----------
(UNAUDITED) (UNAUDITED)
NOTE 13)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 152,480 $ 637,245 $ 682,852
Available-for-sale securities...................... -- 24,079 119,637
Accounts receivable, net of allowances for doubtful
accounts of $55,000 in 1998 and $100,000 in
1999............................................. 3,521,056 5,043,235 11,304,208
Inventories........................................ 402,834 2,022,042 4,131,082
Loans receivable from shareholders................. 100,000 -- --
Prepaid expenses and other current assets.......... 57,597 296,746 475,499
---------- ---------- -----------
Total current assets.......................... 4,233,967 8,023,347 16,713,278
Property and equipment, at cost, net of depreciation and
amortization of $118,749 in 1997, $218,010 in 1998 and
$288,010 in 1999...................................... 359,764 429,967 474,069
Other assets............................................ 11,132 11,132 11,132
---------- ---------- -----------
Total assets.................................. $4,604,863 $8,464,446 $17,198,479
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit..................................... $1,249,074 $3,400,000 $ 3,500,000
Note payable to bank............................... -- -- 400,000
Accounts payable................................... 2,055,289 3,497,090 10,883,560
Accrued expenses and other current liabilities..... 336,093 665,106 862,872
Current portion of term note payable to bank....... -- 99,996 99,996
Current portion of notes payable to shareholders... 68,523 36,342 --
---------- ---------- -----------
Total current liabilities..................... 3,708,979 7,698,534 15,746,428
Term note payable to bank, less current portion......... -- 383,338 333,340
Notes payable to shareholders, less current portion..... 42,236 -- --
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value -- 2,000,000 shares
authorized, none issued and outstanding.......... -- -- -- $ --
ITG Common Stock, $.01 par value -- 20,000,000
shares authorized, 5,900,000 issued and
outstanding...................................... 59,000 59,000 59,000 59,000
ITIS common stock, no par value
200 shares authorized, 100 shares issued and
outstanding...................................... 10,000 10,000 10,000 10,000
Additional paid-in capital......................... -- 4,290 4,290 4,290
Accumulated other comprehensive income............. -- (1,303) (10,299) (10,299)
Retained earnings.................................. 794,648 320,587 1,065,720 715,720
Less: shareholder notes receivable for ITIS common
stock............................................ (10,000) (10,000) (10,000) (10,000)
---------- ---------- ----------- --------
Total shareholders' equity.................... 853,648 382,574 1,118,711 $768,711
---------- ---------- ----------- --------
Total liabilities and shareholders' equity.... $4,604,863 $8,464,446 $17,198,479 --------
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales:
Product sales............ 17,191,567 19,649,853 21,584,246 11,814,029 17,675,995
Service sales............ 1,199,329 3,256,381 4,196,540 2,533,466 2,062,750
----------- ----------- ----------- ----------- -----------
Total sales......... 18,390,896 22,906,234 25,780,786 14,347,495 19,738,745
----------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of product sales.... 16,253,523 19,191,529 19,966,179 12,139,493 15,104,387
Cost of service.......... 528,880 1,087,535 1,348,389 743,728 671,186
Selling, general and
administrative
expenses............... 1,280,084 2,656,620 4,643,513 1,843,728 3,037,978
----------- ----------- ----------- ----------- -----------
Total operating
expenses.......... 18,062,487 22,935,684 25,958,081 14,726,949 18,813,551
----------- ----------- ----------- ----------- -----------
Operating income (loss)....... 328,409 (29,450) (177,295) (379,454) 925,194
Other (expense) income:
Interest expense, net of
interest income........ (47,028) (95,540) (196,973) (80,269) (163,679)
Miscellaneous income..... -- 4,662 20,207 -- 3,618
----------- ----------- ----------- ----------- -----------
Net income (loss)............. $ 281,381 $ (120,328) $ (354,061) $ (459,723) $ 765,133
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Pro Forma (unaudited):
Income (loss) before
provision for income
taxes.................. $ 281,381 $ (120,328) $ (354,061) $ (459,723) $ 765,133
Provision (benefit) for
income taxes........... 128,000 (46,000) (112,000) (207,000) 344,000
----------- ----------- ----------- ----------- -----------
Net income (loss)........ $ 153,381 $ (74,328) $ (242,061) $ (252,723) $ 421,133
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings per share:
Basic............... $ .03 $ (.01) $ (.04) $ (.04) $ .07
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted............. $ .03 $ (.01) $ (.04) $ (.04) $ .06
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding:
Basic............... 5,900,000 5,900,000 6,185,714 6,185,714 6,185,714
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted............. 5,900,000 5,900,000 6,185,714 6,185,714 6,601,957
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND SIX MONTH PERIOD
ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
INFINITE TECHNOLOGY GROUP LTD.
-------------------------------------------------------------
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... 5,900,000 $59,000 $-- $ 773,595 $ --
Distributions to shareholders...... -- -- -- (20,000) --
Net income......................... -- -- -- 281,381 --
--------- ------- ------ ---------- --------
Balance at December 31, 1996........... 5,900,000 59,000 -- 1,034,976 --
Distributions to shareholders...... -- -- -- (120,000) --
Net loss........................... -- -- -- (120,328) --
--------- ------- ------ ---------- --------
Balance at December 31, 1997........... 5,900,000 59,000 -- 794,648 --
Net loss........................... -- -- -- (354,061) --
Unrealized loss on
available-for-sale securities.... -- -- -- -- (1,303)
Total comprehensive loss........... -- -- -- -- --
Issuance of stock options to
consultants...................... -- -- 4,290 -- --
Distributions to shareholders...... -- -- -- (120,000) --
--------- ------- ------ ---------- --------
Balance at December 31, 1998........... 5,900,000 59,000 4,290 320,587 (1,303)
Net income (unaudited)............. -- -- -- 765,133 --
Unrealized loss on available for
sale securities (unaudited)...... -- -- -- -- (8,996)
Distributions to shareholders
(unaudited)...................... -- -- -- (20,000) --
--------- ------- ------ ---------- --------
Balance at June 30, 1999 (unaudited)... 5,900,000 $59,000 $4,290 $1,065,720 $(10,299)
--------- ------- ------ ---------- --------
--------- ------- ------ ---------- --------
<CAPTION>
INFINITE TECHNOLOGY
INFORMATION SYSTEMS INC.
------------------------------
COMMON STOCK SHAREHOLDER TOTAL
---------------- NOTES SHAREHOLDERS'
SHARES AMOUNT RECEIVABLE EQUITY
------ ------ ---------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1995........... 100 $10,000 $(10,000) $ 832,595
Distributions to shareholders...... -- -- -- (20,000)
Net income......................... -- -- -- 281,381
--- ------- -------- ----------
Balance at December 31, 1996........... 100 10,000 (10,000) 1,093,976
Distributions to shareholders...... (120,000)
Net loss........................... -- -- -- (120,328)
--- ------- -------- ----------
Balance at December 31, 1997........... 100 10,000 (10,000) 853,648
Net loss........................... -- -- -- (354,061)
Unrealized loss on
available-for-sale securities.... -- -- -- (1,303)
----------
Total comprehensive loss........... -- -- -- (355,364)
Issuance of stock options to
consultants...................... -- -- -- 4,290
Distributions to shareholders...... -- -- -- (120,000)
--- ------- -------- ----------
Balance at December 31, 1998........... 100 10,000 (10,000) 382,574
Net income (unaudited)............. -- -- -- 765,133
Unrealized loss on available for
sale securities (unaudited)...... -- -- -- (8,996)
Distributions to shareholders
(unaudited)...................... -- -- -- (20,000)
--- ------- -------- ----------
Balance at June 30, 1999 (unaudited)... 100 $10,000 $(10,000) $1,118,711
--- ------- -------- ----------
--- ------- -------- ----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................... $ 281,381 $ (120,328) $ (354,061) $ (459,723) $ 765,133
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization......... 35,732 363,882 99,261 53,725 70,000
Provision for doubtful accounts....... -- -- 55,000 -- 45,000
Non-cash consulting expense........... -- -- 4,290 -- --
Realized gain on sales of
available-for-sale securities,
net................................ -- -- (3,857) -- (3,618)
Changes in operating assets and
liabilities:
Accounts receivable................ 2,049,560 (1,651,708) (1,577,179) (159,255) (6,305,973)
Inventories........................ (353,147) (29,687) (1,619,208) (144,393) (2,109,040)
Prepaid expenses and other current
assets........................... (440) (36,142) (239,149) (108,830) (178,753)
Other assets....................... -- (11,132) -- -- --
Accounts payable................... (2,317,473) 1,240,986 1,441,801 (40,623) 7,386,470
Accrued expenses and other current
liabilities...................... 98,373 220,398 329,013 113,257 197,766
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities... (206,014) (23,731) (1,864,089) (745,842) (133,015)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment..... (218,596) (146,714) (169,464) (94,772) (114,102)
Purchases of available-for-sale
securities............................ -- -- (55,294) -- (181,787)
Proceeds from sales of
available-for-sale securities......... -- -- 33,769 -- 80,851
Other assets............................ -- (295,738) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities... (218,596) (442,452) (190,989) (94,772) (215,038)
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds of line of credit.............. 824,074 725,000 4,100,000 725,926 100,000
Principal repayments of line of
credit................................ (400,000) (100,000) (1,949,074) -- --
Principal repayments of notes payable to
shareholders.......................... (25,338) (63,903) (74,417) (33,664) (36,342)
Proceeds of notes payable to
shareholders.......................... 200,000 -- -- -- --
Proceeds of notes payable to bank....... -- -- 500,000 -- 400,000
Principal repayments of notes payable to
bank.................................. (183,340) -- (16,666) -- (49,998)
Loan to shareholders.................... -- (100,000) -- -- --
Proceeds of loan receivable from
affiliated companies.................. -- 120,000 -- -- --
Distributions to shareholders........... (20,000) (120,000) (20,000) (20,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities............................ 395,396 461,097 2,539,843 692,262 393,660
----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents........................... (29,214) (5,086) 484,765 (148,352) 45,607
Cash and cash equivalents at beginning
of period............................. 186,780 157,566 152,480 152,480 637,245
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period................................ $ 157,566 $ 152,480 $ 637,245 $ 4,128 $ 682,852
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid during the period......... $ 44,247 $ 90,442 $ 230,807 $ 83,795 $ 167,831
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Distributions to shareholders of $120,000 during the year ended December 31, 1998 included $100,000 which was
applied as a reduction of the loans receivable from shareholders.
</TABLE>
See accompanying notes.
F-6
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Infinite Technology Group Ltd. (the 'Company') and affiliate conducts its
business through four core enterprises: software applications and services that
apply to the disaster recovery, backup and record management areas; network and
business consultations and integration; computer systems design, integration,
staging and acquisition; internet implementation and consulting. The Company
focuses its sales efforts on financial, manufacturing, distribution, government,
health care, and education markets, principally in the metropolitan New York
area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF COMBINATION
The accompanying combined financial statements include the accounts of
Infinite Technology Group Ltd. ('ITG' or the 'Company') and Infinite Technology
Information Services, Inc. ('ITIS' or the 'Affiliate'). Each of these companies
were under common ownership and control during all of the periods presented in
the accompanying combined financial statements. See note 12 for further
information regarding ITIS.
CONCENTRATION OF CREDIT RISK
During 1996 and 1997, revenues from four customers aggregated approximately
$11 million and $17 million, respectively, and during 1998 revenues from three
customers aggregated approximately $11.5 million, which represented
approximately 59% (16%, 15%, 14% and 14%), 75% (28%, 21%, 13% and 13%) and 45%
(22%, 12% and 11%), of the Company's revenues. During the six month periods
ended June 30, 1998 and 1999, revenues from three customers aggregated
approximately $5.3 million and $9.8 million, respectively, which represented
approximately 37% (13%, 12% and 12%) and 49% (23%, 14% and 12%) of the Company's
revenues, respectively.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables
generally are due within 30 days. Credit losses relating to customers have been
consistently within management's expectations. The Company charged $55,000 and
$45,000 to operations for doubtful accounts during the year ended December 31,
1998 and the six month period ended June 30, 1999, respectively.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade receivables.
The Company places its cash and cash equivalents with high quality financial
institutions. Substantially all cash and cash equivalents are held in two
financial institutions at December 31, 1998 and June 30, 1999. Cash equivalents
are comprised of short-term money market funds.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVESTMENTS IN MARKETABLE SECURITIES
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards ('SFAS') No. 115, 'Accounting for Certain
Investments in Debt and Equity Securities.' The Company has evaluated its
investment policies and determined that all of its investment securities are
classified as available for sale. Available for sale securities are carried at
fair value, with the unrealized
F-7
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN MARKETABLE SECURITIES (CONTINUED)
gains and losses reported in a separate component of shareholders' equity.
Realized gains and losses and declines in value judged to be other than
temporary on available for sale securities are included in miscellaneous income.
The cost of securities sold is based on the specific identification method.
Interest and dividends on such securities are included in miscellaneous income.
INVENTORIES
Inventories are stated at the lower of cost or market.
DEPRECIATION AND AMORTIZATION
Office furniture, computer and telephone equipment are depreciated using
the straight-line method over estimated useful lives ranging from five to ten
years. Purchased computer software is depreciated over a period of four years.
Leasehold improvements are amortized using the straight-line method over the
lesser of the useful life of the asset or the life of the lease.
IMPAIRMENT OF LONG-LIVED ASSETS
When impairment indicators are present, the Company reviews the carrying
value of its assets in determining the ultimate recoverability of their
unamortized values using future undiscounted cash flow analysis expected to be
generated by the asset. If such assets are considered impaired, the impairment
recognized is measured by the amount by which the carrying amount of the assets
exceeds the future discounted cash flows.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, 'Accounting for Stock-Based Compensation,'
the Company has elected to follow Accounting Principles Board Opinion ('APB')
No. 25, 'Accounting for Stock Issued to Employees' and related Interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under SFAS No. 123, requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
INCOME TAXES
The Company has elected to operate under Subchapter S of the Internal
Revenue Code and, consequently, is not subject to federal and certain state
income taxes; the shareholders include the Company's income in their own income
for Federal and certain state income tax purposes.
In connection with the completion of the Company's proposed initial public
offering, the Company will no longer qualify as an S corporation and will become
subject to corporate income taxes. (See note 13.)
REVENUE RECOGNITION
Product sales are recognized at the time of shipment. Revenue from the sale
of services is recognized when the services are performed. Revenue from
maintenance contracts, which is billed monthly, is recognized at the time of
billing.
F-8
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
approximately $69,000, $74,000 and $166,000 in advertising costs during 1996,
1997 and 1998, respectively. During the six month periods ended June 30, 1998
and 1999, advertising expense was approximately $96,000 and $85,000,
respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The recorded amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities approximate fair values
principally because of the short-term nature of these items. The recorded
amounts of the Company's long-term debt approximates fair value because the
fixed interest rate approximates the Company's current borrowing rate.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited financial statements for the
six months ended June 30, 1998 and 1999 are presented on a basis consistent with
the audited combined financial statements and reflect all adjustments,
consisting of only normal recurring adjustments necessary for a fair
presentation of the results hereof. The results of operations for the six months
ended June 30, 1999, are not necessarily indicative of the results to be
expected for the year ending December 31, 1999.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, 'Reporting
Comprehensive Income.' SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income (loss) income or
shareholders' equity. SFAS No. 130 requires unrealized gains or losses on
available-for-sale securities to be included in comprehensive income. There were
no items of comprehensive income prior to January 1, 1998.
EARNINGS PER SHARE
The Company has presented unaudited pro forma net income (loss) per share
in accordance with the provisions of SFAS No. 128, 'Earnings per Share.' Under
the provisions of SFAS No. 128, basic and diluted net income (loss) per share is
computed by dividing the net income (loss) for the period by the
weighted-average number of common shares outstanding for the period. The
calculation of diluted net income per share for the six month period ended
June 30, 1999, includes the effect of dilutive stock options and warrants, as
well as the effect of the additional shares which are deemed to be outstanding
due to the payment of the merger consideration in the ITIS Merger which is
being treated as a dividend for accounting purposes. Diluted net (loss) per
share for the years ended December 31, 1997 and 1998 and six month period ended
June 30, 1998 excludes shares of Common Stock issuable upon the exercise of
stock options and warrants as the effect of such exercises would be
antidilutive. The effect of the aforementioned dividend treatment has been
included in the calculations for the year ended December 31, 1998 and the six
month period ended June 30, 1998.
3. AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities consist of marketable equity securities of
publicly traded companies. Investments at December 31, 1998 had an aggregate
cost, fair market value and gross unrealized holding loss of $25,382, $24,079
and $1,303, respectively. At June 30, 1999, investments had an aggregate cost,
fair market value and gross unrealized holding loss of $129,936, $119,637 and
$10,299, respectively.
F-9
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
4. PROPERTY AND EQUIPMENT
Details of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Computer equipment.................................... $298,280 $377,274 $425,970
Computer software..................................... 68,030 116,379 126,678
Furniture and fixtures................................ 47,200 57,535 79,622
Leasehold improvements................................ 65,003 96,789 129,809
-------- -------- --------
478,513 647,977 762,079
Less: accumulated depreciation and amortization....... 118,749 218,010 288,010
-------- -------- --------
$359,764 $429,967 $474,069
-------- -------- --------
-------- -------- --------
</TABLE>
5. DEBT
LINE OF CREDIT
The Company has a line of credit with a bank for up to $3,500,000 which
expires on June 30, 1999. At December 31, 1998 and June 30, 1999, $3,400,000 and
$3,500,000 were outstanding under the line, respectively. The line of credit
bears interest at the bank's prime lending rate plus three quarters of a
percent, which was 8.50% at December 31, 1998 and June 30, 1999. The line of
credit is collateralized by the Company's personal property, fixtures, accounts
receivable and inventory.
TERM NOTE PAYABLE TO BANK
During October 1998, the Company entered into a $500,000 term note payable
with a bank. The note is payable in equal monthly installments through
November 30, 2003 and bears interest at 7.61%. At December 31, 1998 and
June 30, 1999, $483,334 and $433,336 were outstanding, respectively.
Maturities of the note payable to bank are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1999................................................... $ 99,996
2000................................................... 99,996
2001................................................... 99,996
2002................................................... 99,996
2003................................................... 83,350
--------
$483,334
--------
--------
</TABLE>
6. LEASE COMMITMENTS
The Company leases equipment under operating leases with terms from one to
three years through 1999. Equipment rentals amounted to approximately $5,000,
$5,000 and $17,000 in 1996, 1997 and 1998, respectively. For the six months
ended June 30, 1998 and 1999, equipment rentals were approximately $6,000 and
$13,000, respectively.
The Company leases office and warehouse space under six operating leases,
five in Nassau County and one in New York City, with terms from two to five
years through 2002. The leases call for increases in real estate taxes and
operating costs over a base amount. The leases also include scheduled rent
escalations throughout the lease terms, which are expensed on a straight-line
basis over the lease term. No renewal terms exist. Rent expense was
approximately $111,000, $216,000 and $272,000 for 1996, 1997 and 1998,
respectively, and $119,000 and $139,000, for the six months ended June 30, 1998
and 1999, respectively.
F-10
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
6. LEASE COMMITMENTS (CONTINUED)
Future minimum lease payments under the above leases, excluding real estate
taxes and operating cost escalations, are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999................................................... $283,000
2000................................................... 274,000
2001................................................... 172,000
2002................................................... 60,000
--------
Total minimum lease payments........................... $789,000
--------
--------
</TABLE>
7. RELATED PARTY TRANSACTIONS
In October 1997, the principal shareholders of the Company borrowed
$100,000 from the Company. During 1998, shareholder distributions were declared
which were applied against the amounts due.
In August 1996, the Company borrowed $100,000 from each of the
shareholders. The loans are being repaid over three years at an interest rate of
7%. The balance of the shareholders' notes payable was $110,759 and $36,342 at
December 31, 1997 and 1998, respectively.
8. EMPLOYEE SAVINGS PLAN
Effective April 1, 1997, the Company established a 401(k) Savings Plan
('the Plan'). All employees of the Company employed at the time of adoption were
eligible for the Plan. All individuals subsequently employed must be employed
for three months and over the age of nineteen to be eligible. Employees may
elect to save up to 15% of their annual compensation on a pre-tax basis subject
to certain limits. The Company matches 25% of the first 4% of compensation
contributed to the plan. The Company incurred approximately $5,000 and $15,000
in 401(k) match during 1997 and 1998, respectively.
9. COMMON STOCK
On June 12, 1997, the Company amended its certificate of incorporation to
increase the aggregate number of shares of Common Stock authorized and issued,
from 200 shares, no par value, to 2,000,000 shares, $.01 par value.
On July 15, 1999, the Company again amended its certificate of
incorporation to increase the aggregate number of shares of Common Stock
authorized from 2,000,000 shares to 10,000,000 shares of Common Stock and
2,000,000 of preferred stock. In addition, a stock split of 5.9 shares for each
share previously outstanding was declared resulting in 5,900,000 shares
outstanding after the split. All share amounts have been restated to reflect the
stock split. On September 27, 1999, the Company again amended its certificate of
incorporation to increase the aggregate number of shares of Common Stock
authorized from 10,000,000 shares to 20,000,000 shares.
10. STOCK INCENTIVE PLAN
On June 16, 1997, the Company established an incentive stock option plan,
whereby incentive stock options and nonqualifying stock options may be granted
to employees and consultants to the Company which entitle them to purchase
shares of the Company's Common Stock.
The Company's 1997 Incentive Stock Option Plan authorized the grant of up
to 320,000 options to acquire shares of the Company's $.01 par value Common
Stock. Effective January 1, 1999, the Company increased the number of shares
authorized for issuance under the 1997 Incentive Stock Option Plan to 600,000
from 320,000. All options granted have 10 year terms. Vesting is either 25% on
the grant date
F-11
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
10. STOCK INCENTIVE PLAN (CONTINUED)
and 25% on each anniversary date during the following three years, or 20% on the
date of grant and 20% on each anniversary date during the following four years.
No options were exercised during 1997, 1998 or 1999.
The exercise price per share is determined by the Company's Board of
Directors at the time of grant of such option provided, however, that in the
case of an Incentive Stock Option, the exercise price may not be less than the
fair market value of the Common Stock at the time of the grant. The vesting and
expiration periods of options issued under this Plan are determined by the
Company's Board of Directors as set forth in the applicable option agreement,
provided that such date shall not be later than ten years after the date on
which the options were granted.
During 1997 and 1998, the Company's Board of Directors granted 200,480 and
119,500 Incentive Stock Options at $1.12 and $1.50 per share, respectively. The
options issued in 1997 fully vest after four years and expire ten years from the
date of grant. The options issued in 1998 fully vest after three years and
expire ten years from the date of grant. During the six months ended June 30,
1999, the Company granted 246,000 Incentive Stock Options at prices ranging from
$3.00 to $5.00 per share. Another 21,000 incentive stock options were granted
at an exercise price of $10.00 per share during August and September 1999. The
options fully vest after three years and expire ten years from the date of
grant.
Of the above options granted during 1998, 11,000 stock options were granted
to various consultants in payment for their efforts in assisting in various
Company matters. The Company recorded consulting expense as a result of this
transaction of $4,290, which represents the fair market value of the options
at the date of grant.
Effective March 8, 1999, the Company adopted the 1999 Stock Option Plan
which authorized the granting of up to 350,000 options to acquire shares of the
Company's $.01 par value Common Stock. All options have a ten year term. The
Compensation Committee will grant the options subject to a vesting schedule,
conditions, restrictions and other provisions as it sees fit. There are no
options currently outstanding under the 1999 Stock Option Plan.
Effective September 15, 1999, the Company adopted the 1999 Directors Stock
Option Plan which authorized the granting of up to 400,000 options to acquire
shares of the Company's $.01 par value Common Stock. All options have a ten year
term and vest 50% on the date of grant and 25% on each anniversary during the
following two years. Upon the adoption of the 1999 directors plan, each of our
existing eligible non-employee directors will be granted an option to purchase
30,000 shares of Common Stock. In the future, an option to purchase 25,000
shares of Common Stock will be granted to each non-employee who is elected or
appointed to same as a director. An option to purchase 20,000 shares of Common
Stock will be granted to each eligible non-employee director who is re-elected
as a director by the shareholders. Each eligible employee director upon adoption
of the plan will be granted an option to purchase 20,000 shares of Common Stock.
In the future, an option to purchase 25,000 shares of Common Stock will be
granted to each employee who is elected or appointed to serve as a director. An
option to purchase 10,000 shares of Common Stock will be granted to each
eligible employee director who is re-elected as a director by the shareholders.
In addition, any eligible director who is elected to a committee of our board of
directors shall be granted an additional option to purchase 5,000 shares of
Common Stock.
Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value of these options
was estimated at the date of grant using the minimum value option pricing model
with the following weighted average assumptions: risk free interest rate of 6%;
no dividend yield and a weighted average expected life of the options of five
years at date of grant.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect of
this amortization on the Company's pro forma
F-12
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
10. STOCK INCENTIVE PLAN (CONTINUED)
net loss using the minimum value option pricing model is approximately $381,000
(or approximately $210,000 (unaudited) after deducting pro forma income taxes)
for the year ended December 31, 1998. The effect of this amortization on the
year ended December 31, 1997 was immaterial.
A summary of the Company's stock option activity, and related information
is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
1997 1998 JUNE 30, 1999
------------------------ ------------------------ ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year..................... -- -$- 200,480 $1.12 319,980 $1.27
Granted.................... 200,480 1.12 119,500 1.50 246,000 3.15
Canceled................... -- -- -- -- -- --
------- ----- ------- ----- ------- -----
Outstanding -- end of
year..................... 200,480 $1.12 319,980 $1.27 565,980 $2.09
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
Exercisable at end of
year..................... 40,096 $1.12 110,067 $1.21 241,538 $1.73
Weighted-averaged fair
value of options granted
during the year.......... $ .29 $ .32 $1.05
</TABLE>
Exercise prices for options outstanding as of December 31, 1998, were as
follows:
<TABLE>
<CAPTION>
NUMBER OF RANGE OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE REMAINING CONTRACTUAL LIFE
------- -------------- --------------------------
<S> <C> <C>
200,480 $1.12 8.5 years
119,500 $1.50 9.0 years
-------
319,980
-------
-------
</TABLE>
The options issued during the six months ended June 30, 1999 had an
exercise price ranging from $3.00 to $5.00 per share.
Between July 1, 1999 and September 30, 1999, the Company's Board of
Directors granted 21,000 stock options at an exercise price of $10.00 per share
under the 1997 Incentive Stock Option Plan. Option grants during this period
under the 1999 Directors' Stock Option Plan were for 120,000 shares of common
stock at $10.00 per share. In addition, in connection with his employment
agreement with the Company, Paul Wolotsky was granted 300,000 options at $8.50
per share.
11. CONTINGENCIES
The Company is occasionally the subject of or a party to various lawsuits
in the normal course of business. One claim outstanding was settled during May
1999 for an immaterial amount. No other claims were outstanding at December 31,
1998 and June 30, 1999.
12. ITIS
ITIS was formed on April 5, 1995 as a New York Corporation equally owned by
James McGowan ('McGowan') (50 shares of common stock) and Mark Dresner
('Dresner') (50 shares of common stock). Consideration for the shares is
evidenced by notes payable to ITIS in the aggregate amount of $10,000, which
notes remain outstanding. The shareholders' equity of ITIS is included in the
accompanying balance sheets at December 31, 1997 and 1998 and June 30, 1999;
however, because the notes are deducted from shareholders' equity, the equity of
ITIS is effectively nil. Through June 30, 1999, ITIS had no operations or
transactions.
On August 10, 1999, ITIS entered into a Stock Purchase Agreement (the
'Agreement') with Wolotsky Enterprises, L.L.C., a Maryland limited liability
company owned 100% by Paul Wolotsky. In accordance with the agreement, ITIS
issued 50 new shares of its common stock to Wolotsky Enterprises,
F-13
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
12. ITIS (CONTINUED)
L.L.C. in exchange for the right to enter into a Services Agreement with
WorldOnline, Inc. for the establishment of an auto industry intranet project
(the 'CarNet Services Agreement'). As the result of this transaction, McGowan,
Dresner and Wolotsky Enterprises, L.L.C. each own 50 shares, or one-third, of
ITIS common stock.
On September 20, 1999, the Company and ITIS entered into a merger agreement
providing that ITIS will merge (the 'ITIS Merger') with and into a wholly-owned
subsidiary of the Company upon the closing of the Company's proposed initial
public offering. At the time of the ITIS Merger, all of the outstanding shares
of common stock of ITIS will be exchanged for a total of 100,000 shares of
Common Stock of the Company and $3.5 million in cash to be funded from the
proceeds of the proposed public
offering. In connection with the ITIS Merger, McGowan, Dresner and Wolotsky
Enterprises, L.L.C. entered into a consideration splitting agreement pursuant to
which McGowan and Dresner will each receive $1.5 million of the proceeds in cash
and Wolotsky Enterprises, L.L.C. will receive $.5 million in cash and 100,000
shares of Company Common Stock which will be valued at a price approximating the
Company's initial public offering price, currently estimated to be $10.50 per
share. ITIS recorded the estimated value of the CarNet Services Agreement at
$1,350,000. This amount will be amortized to operations over the three-year life
of the CarNet Services Agreement.
The ITIS Merger will be accounted for as a merger of entities under common
control, which is similar to the pooling of interests method of accounting. The
portion of the proceeds of the proposed initial public offering which will be
used to fund the consideration to McGowan and Dresner, or $3.0 million, will be
treated as a dividend.
Pursuant to the ITIS Merger agreement, upon the consummation of the ITIS
Merger, the Company will make a loan to Paul Wolotsky in the amount of $500,000.
The loan will be repayable on June 30, 2004 or upon the sale of the 100,000
shares of Company Common Stock held by Wolotsky Enterprises, L.L.C., which
shares will secure the loan. The loan will bear interest at 6% per annum.
ITIS is a party to a Master Internet Services Agreement with MCSP, Inc.,
dated July 1, 1999, pursuant to which ITIS has the exclusive use (other than
existing hosting commitments of MCSP, Inc.) of MCSP, Inc.'s Internet data center
facilities and internet connectivity assets. ITIS will compensate MCSP, Inc. in
an amount equal to 105% of the actual direct costs incurred by MCSP, Inc. in
connection with the provision of these services. The agreement also provides
that, at any time after January 1, 2001, either MCSP, Inc. or ITIS may elect
that MCPS, Inc. merge with and into ITIS, if certain revenue levels have been
attained. Under the terms of the merger agreement, we have assumed this
obligation, and, upon effectiveness of any merger involving ITG, all of the
shares of common stock of MCPS, Inc. will be exchanged for a total of 250,000
shares of Common Stock. Paul Wolotsky is the sole officer, director and
shareholder of MCSP, Inc.
13. PRO FORMA INCOME TAXES AND SUBCHAPTER S DISTRIBUTION (UNAUDITED)
As described in Note 2, the Company elected to operate under Subchapter S
of the Internal Revenue Code. In connection with the completion of the Company's
proposed initial public offering, the Company will no longer qualify as an
S corporation and will become subject to corporate income taxes. The Company
estimates that it will establish a deferred tax liability of approximately
$30,000 with a corresponding change to operations upon the termination of
its Subscription S status. The difference between pro forma taxes at the
Federal statutory rate and the pro forma tax provision (benefit) as presented
is the impact of state and local income taxes, net of Federal benefit.
The unaudited Pro Forma As Adjusted shareholders' equity information
presented with the accompanying unaudited balance sheet as of June 30, 1999
reflects the shareholders' equity of the Company as if the planned esimated
$350,000 Subchapter S distribution had been made to Mr. Dresner and Mr. McGowan
at such date.
F-14
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
14. SUBSEQUENT EVENTS
On June 4, 1999, the Company borrowed $400,000 under a note payable with a
bank. The note was due and timely repaid on September 7, 1999. Interest on the
note was paid at the bank's prime lending rate plus three quarters of a percent
(8.75%).
On June 30, 1999, the Company and an underwriter agreed to a proposed
public offering of 2,000,000 shares of the Company's Common Stock. The Company
anticipates filing a Registration Statement on Form S-1 with the Securities and
Exchange Commission in October 1999.
On September 20, 1999, the Company borrowed $500,000 under a note with a
bank. The note is due October 21, 1999 and bears interest at the bank's prime
rate plus one percent (9%).
On September 22, 1999, the Company borrowed $300,000 under a note with a
bank. This 30-day note was repaid early on September 28, 1999. Interest on the
note was paid at the bank's prime lending rate plus one percent (9%).
F-15
<PAGE>
(Inside back cover)
[INFINITE TECHNOLOGY GROUP GRAPHIC]
Copy:______________________________-
www.infinitetech.com
<PAGE>
________________________________________________________________________________
________________________________________________________________________________
[LOGO]
INFINITE TECHNOLOGY GROUP LTD.
2,000,000 SHARES OF COMMON STOCK
------------------
PROSPECTUS
------------------
AUERBACH, POLLAK & RICHARDSON, INC.
---------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make any representation as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Infinite
Technology Group have not changed since the date hereof.
Until , 1999 (25 days after the date of this prospectus),
all dealers that effect transactions in these shares of Common Stock, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
, 1999
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with issuance
and distribution of the securities being registered, all of which shall be paid
by Infinite Technology Group. All of such amounts (except the Securities and
Exchange Commission Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Listing Fee) are estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 7,913
NASD Filing Fee............................................. 3,346
Nasdaq National Market Listing Fee.......................... 69,375
Printing Expenses........................................... 100,000
Legal Fees and Expenses..................................... 150,000
Accounting Fees and Expenses................................ 125,000
Blue Sky Fees and Expenses.................................. 10,000
Transfer Agent and Registrar Fees and Expenses.............. 5,000
Miscellaneous Expenses...................................... 29,366
--------
Total.................................................. $500,000
--------
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
New York Business Corporation Law
Section 722(a) of the New York Business Corporation Law ('BCL') provides
that any person made a party to any action by reason of the fact that he is or
was a director, officer, employee or agent of Infinite Technology Group may and,
in certain cases, must be indemnified by Infinite Technology Group against, in
the case of a non-derivative action, judgments, fines, amounts paid in
settlement and reasonable expenses (including attorneys' fees) incurred by him
as a result of such action, and in the case of a derivative action, against
expenses (including attorneys' fees), if in either type of action he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of Infinite Technology Group. This indemnification does not
apply, in a derivative action, to matters as to which it is adjudged that the
director, officer, employee or agent is liable to Infinite Technology Group,
unless upon court order it is determined that, despite such adjudication of
liability, but in view of all the circumstances of the case, he is fairly and
reasonably entitled to indemnity for expenses, and, in a non-derivative action,
to any criminal proceeding in which such person had reasonable cause to believe
his conduct was unlawful.
Certificate of Incorporation
The certificate of incorporation of Infinite Technology Group provides that
a director of Infinite Technology Group shall not be personally liable to
Infinite Technology Group or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to Infinite Technology Group or its shareholders, (2)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (3) under Section 719 of the BCL or (4) for any
transaction from which the director derived an improper personal benefit.
Additionally, the certificate of incorporation provides that Infinite Technology
Group will indemnify its officers and directors to the fullest extent permitted
by the BCL. However, if the BCL is amended to authorize the further elimination
or limitation of the liability of directors, then the liability of a director of
Infinite Technology Group, in addition to the limitation on personal liability
described above, shall be limited to the fullest extent permitted by the amended
BCL. Further, any repeal or modification of such provision of the certificate of
incorporation by the shareholders of Infinite Technology Group shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of Infinite Technology Group existing at the time of
such repeal or modification.
II-1
<PAGE>
Bylaws
Infinite Technology Group's Bylaws generally provide for indemnification of
officers, directors, employees and agents of Infinite Technology Group and
persons serving at the request of Infinite Technology Group in such capacities
for other business organizations against certain losses, costs, liabilities, and
expenses incurred by reason of their positions with Infinite Technology Group or
such other business organizations. In the case of non-derivative actions,
Infinite Technology Group will indemnify such persons against expenses,
including attorney's fees, judgments, fines and amounts paid in settlement
incurred by such person as long as they acted in good faith and in a manner they
believed to be in or not opposed to the best interests of Infinite Technology
Group. In the case of derivative actions, Infinite Technology Group will
indemnify such persons against expenses, including attorneys' fees, incurred by
them as long as they acted in good faith and in a manner they believed to be in
or not opposed to the best interests of Infinite Technology Group. Infinite
Technology Group also has policies insuring its officers and directors and
certain officers and directors of its wholly owned subsidiaries against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act of 1933, as amended.
Underwriting Agreement
The underwriting agreement will provide for the indemnification of the
directors and officers of Infinite Technology Group in certain circumstances.
Insurance
Infinite Technology Group intends to maintain a policy of liability
insurance to insure its officers and directors and certain directors and
officers of its wholly owned subsidiaries against losses resulting from certain
acts committed by them in their capacities as officers and directors of Infinite
Technology Group or its subsidiaries.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1996, Infinite Technology Group has sold and issued the
following securities:
1. The Company's 1997 Stock Option Plan, as amended, provides for the grant
of stock options to key employees of the Company (the '1997 Plan').
Under the 1997 Plan, employees are eligible to receive grants of
incentive stock options, which are intended to be 'Incentive Stock
Options' as defined by Section 422 of the Internal Revenue Code of 1986,
as amended, or non-qualified options. Options granted under the 1997
Plan are not exercisable after ten years after the date of grant. An
aggregate of 600,000 shares of Common Stock have been reserved for
issuance upon exercise of outstanding options issued under the 1997
Plan. The Company believes that the 1997 Plan grants described in this
paragraph are exempt from the registration requirements of the
Securities Act by reason of Rule 701 promulgated thereunder, because
such options were granted pursuant to a written compensatory benefit
plan of the Company, copies of which were provided to each participant,
and the aggregate offering price did not exceed the limit prescribed by
Rule 701 in connection with any such grant. As of September 30, 1999,
pursuant to the 1997 Plan, options to purchase an aggregate of 584,480
shares of Common Stock were outstanding, including options to purchase
200,480 shares of Common Stock at an exercise price of $1.12 per share,
options to purchase 119,500 shares of Common Stock at an exercise price
of $1.50 per share, options to purchase 165,500 shares of Common Stock
at an exercise price of $3.00 per share, options to purchase 60,000
shares of Common Stock at an exercise price of $3.30 per share, options
to purchase 14,000 shares of Common Stock at an exercise price of $3.75
per share, options to purchase 4,000 shares of Common Stock at an
exercise price of $5.00 per share and options to purchase 21,000 shares
of Common Stock at an exercise price of $10.00 per share. No such
outstanding options had been exercised.
2. The Company's 1999 Directors' Stock Option Plan, provides for the grant
of stock options to employee and non-employee directors of the Company
(the '1999 Directors' Plan'). Under the 1999 Directors' Plan, directors
receive non-discretionary, automatic grants of non-qualified
II-2
<PAGE>
options. Under the 1999 Directors' Plan, options vest (i) 50%
immediately upon grant, (ii) 25% if the optionee has continued to serve
as a director of the Company for the entirety of the year in which the
grant of an option is made; and (iii) the remaining 25%, if the optionee
has continued to serve as a director of the Company for the entirety of
the second year following the year in which the option grant is made.
Options granted under the 1999 Directors' Plan are not exercisable after
ten years after the date of grant. An aggregate of 400,000 shares of
Common Stock have been reserved for issuance upon exercise of
outstanding options issued under the 1999 Directors' Plan. The Company
believes that the 1999 Directors' Plan grants described in this
paragraph are exempt from the registration requirements of the
Securities Act by reason of Rule 701 promulgated thereunder, because
such options were granted pursuant to a written compensatory benefit
plan of the Company, copies of which were provided to each participant,
and the aggregate offering price did not exceed the limit prescribed by
Rule 701 in connection with any such grant. As of September 30, 1999,
pursuant to the 1999 Directors' Plan, options to purchase an aggregate
of 120,000 shares of Common Stock were outstanding at an exercise price
of $10.00 per share. No such outstanding options had been exercised.
3. On September, 1 1999, the Company issued a ten (10) year option to Paul
Wolotsky to purchase up to 300,000 shares of the Common Stock at an
exercise price of $8.50 per share, in consideration for Mr. Wolotsky's
execution of his employment agreement. The shares underlying the option
vest as follows:
<TABLE>
<C> <S>
(i) 25,000 on September 1, 1999;
(ii) 35,000 on September 1, 2000;
(iii) 45,000 on September 1, 2001;
(iv) 55,000 on September 1, 2002;
(v) 65,000 on September 1, 2003; and
(vi) 75,000 on September 1, 2004.
</TABLE>
4. On September 20, 1999, the Company entered into a merger agreement with
Infinite Technology Information Services, Inc. ('ITIS'), pursuant to
which ITIS shall be merged with and into Mercury Internet Services, Inc,
a wholly-owned subsidiary of the Company. The merger shall be
consummated upon effectiveness of this offering. At consummation of the
merger, the Company shall issue 100,000 shares of it's Common Stock to
ITIS as part of the merger consideration.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offerings.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
1.2 -- Form of Dealer Agreement.*
1.3 -- Form of Underwriter's Warrant Agreement.*
2.1 -- Merger Agreement, dated September 20, 1999, between the
Company and Infinite
Technology Information Services, Inc.*
3.1 -- Amended and Restated Certificate of Incorporation of the
Company.*
3.2 -- Bylaws of the Company.*
4.1 -- Specimen Certificate representing Common Stock.**
4.2 -- 1997 Stock Option Plan, as amended.*
4.3 -- 1999 Stock Option Plan.*
4.4 -- 1999 Directors' Stock Option Plan.*
5.1 -- Opinion of Parker Duryee Rosoff & Haft, P.C.**
10.1 -- Employment Agreement, dated as of July 1, 1999, between
the Company and Mark
Dresner.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.2 -- Employment Agreement, dated as of July 1, 1999, between
the Company and James McGowan.*
10.3 -- Employment Agreement, dated as of September 1, 1999,
between the Company and Paul Wolotsky.*
10.4 -- Master Internet Services Agreement, dated July 1, 1999,
between Infinite Technology Information Services, Inc. and
MCSP, Inc.*
10.5 -- Lease, dated March 1, 1997, between the Company and
Gaspar Industries, Inc., as amended.**
10.6 -- Lease, dated June 4, 1997, between the Company and JMB-40
Broad Street Associates.**
21.1 -- Subsidiaries of the Company.*
23.1 -- Consent of Ernst & Young LLP.*
23.2 -- Consent of Parker Duryee Rosoff & Haft, P.C. (contained
in Exhibit 5.1).**
24.1 -- Power of Attorney (included on the signature page of this
registration statement).*
27.1 -- Financial Data Schedule.*
</TABLE>
- ------------
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Consolidated Financial Statements or
Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
underwriters, at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities Act
the information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Mineola, on October 8,
1999.
INFINITE TECHNOLOGY GROUP LTD.
By: /s/ JAMES MCGOWAN
...................................
JAMES MCGOWAN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark Dresner and James McGowan, and each of them,
his true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution for him, and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this registration statement
(including, without limitation, post-effective amendments), and any and all
registration statements for the same offering filed pursuant to Rule 462 under
the Securities Act of 1933, and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARK DRESNER Chairman of the Board and Director October 8, 1999
.........................................
MARK DRESNER
/s/ JAMES MCGOWAN President, Chief Executive Officer October 8, 1999
......................................... and Director (Principal Executive
JAMES MCGOWAN Officer)
/s/ PAUL WOLOTSKY Director October 8, 1999
.........................................
PAUL WOLOTSKY
/s/ BERNARD ESQUENET Director October 8, 1999
.........................................
BERNARD ESQUENET
/s/ CRAIG S. LIBSON Director October 8, 1999
.........................................
CRAIG S. LIBSON
/s/ DENNIS WILSON Chief Financial Officer (Principal October 8, 1999
......................................... Financial and Accounting Officer)
DENNIS WILSON
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement.*
1.2 Form of Dealer Agreement.*
1.3 Form of Underwriter's Warrant Agreement.*
2.1 Merger Agreement, dated September 20, 1999, between the Company and Infinite
Technology Information Services, Inc.*
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 Bylaws of the Company.*
4.1 Specimen Certificate representing Common Stock.**
4.2 1997 Stock Option Plan, as amended.*
4.3 1999 Stock Option Plan.*
4.4 1999 Directors' Stock Option Plan.*
5.1 Opinion of Parker Duryee Rosoff & Haft, P.C.**
10.1 Employment Agreement, dated as of July 1, 1999, between the Company and Mark
Dresner.*
10.2 Employment Agreement, dated as of July 1, 1999, between the Company and James
McGowan.*
10.3 Employment Agreement, dated as of September 1, 1999, between the Company and Paul
Wolotsky.*
10.4 Master Internet Services Agreement, dated July 1, 1999, between Infinite
Technology Information Services, Inc. and MCSP, Inc.*
10.5 Lease, dated March 1, 1997, between the Company and Gaspar Industries, Inc.,
as amended.**
10.6 Lease, dated June 4, 1997, between the Company and JMB-40 Broad Street Associates.**
21.1 Subsidiaries of the Company.*
23.1 Consent of Ernst & Young LLP.*
23.2 Consent of Parker Duryee Rosoff & Haft, P.C. (contained in Exhibit 5.1).**
24.1 Power of Attorney (included on the signature page of this registration statement).*
27.1 Financial Data Schedule.*
</TABLE>
- --------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
2,000,000 Shares of Common Stock
INFINITE TECHNOLOGY GROUP LTD.
UNDERWRITING AGREEMENT
______ _____, 1999
<PAGE>
Auerbach, Pollak & Richardson, Inc. _____ ___, 1999
450 Park Avenue
New York, New York 10022
Ladies and Gentlemen:
Infinite Technology Group Ltd., a New York corporation (the "Company"),
hereby agrees with Auerbach, Pollak & Richardson, Inc. (hereinafter "you" or the
"Underwriter") with respect to the sale by the Company and the purchase by the
Underwriter of an aggregate of 2,000,000 shares (the "Shares") of the Company's
common stock, par value $.01 per share (the "Common Stock"). Such 2,000,000
Shares are referred to hereinafter as the "Firm Shares." Upon your request, as
provided in Section 2(b) of this Agreement, the Company shall also issue and
sell to the Underwriter up to an additional aggregate of 300,000 shares of
Common Stock for the purpose of covering over-allotments, if any. Such shares of
Common Stock are hereinafter referred to as the "Option Shares." The Company
also proposes to issue and sell to you warrants (the "Underwriter's Warrants")
pursuant to the Underwriter's Warrant Agreement (the "Underwriter's Warrant
Agreement") for the purchase of an additional 140,000 shares of Common Stock.
The shares of Common Stock issuable upon exercise of the Underwriter's Warrants
are hereinafter referred to as the "Underwriter's Shares." The Firm Shares,
Option Shares, the Underwriter's Warrants and the Underwriter's Shares are more
fully described in the Registration Statement and the Prospectus referred to
below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter as of the date
hereof, and as of the Closing Date and the Option Closing Date, if any, as
follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (No. 333-______), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Shares, the Option Shares, the Underwriter's Warrants and the
Underwriter's Shares (collectively, hereinafter referred to as the "Registered
Securities") under the Securities Act of 1933, as amended (the "Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the Regulations (as
defined below) of the Commission under the Act. The Company will not file any
other amendment thereto to which the Underwriter shall have objected in writing
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations), is hereinafter called the "Registration Statement,"
and the form of prospectus in the form first filed with the Commission pursuant
to
2
<PAGE>
Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Regulations" mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus and no proceedings for
a stop order suspending the effectiveness of the Registration Statement have
been instituted, or, to the Company's knowledge, are threatened. Each of the
Preliminary Prospectus, the Registration Statement and the Prospectus at the
time of filing thereof conformed in all material respects with the requirements
of the Act and Regulations, and none of the Preliminary Prospectus, the
Registration Statement or the Prospectus at the time of filing thereof contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein and necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date (as defined in Section 2(c)
hereof) and each Option Closing Date (as defined in Section 2(b) hereof), if
any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriter or a dealer, the
Registration Statement and the Prospectus, as amended or supplemented as
required, will contain all statements which are required to be stated therein in
accordance with the Act and the Regulations, and will conform in all material
respects to the requirements of the Act and the Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will 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, provided, however, that this representation and warranty does
not apply to statements made or statements omitted in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of the Underwriter expressly for use in the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto.
(d) The Company and each of its subsidiaries, if any, have
been duly organized and are validly existing as corporations in good standing
under the laws of the respective states of their incorporation. The Company does
not own or control, directly or indirectly, any corporation, partnership, trust,
joint venture or other business entity other than the subsidiaries listed in
Exhibit 21 of the Registration Statement, if any. Each of the Company and its
subsidiaries is duly qualified and licensed and in good standing as a foreign
corporation (or other form of entity) in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
require such qualification or licensing. Each of the Company and its
subsidiaries has all requisite power and authority (corporate and other), and
has obtained any and
3
<PAGE>
all necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and conduct
its business as described in the Prospectus; the Company and each of its
subsidiaries have been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state, local and foreign laws, rules and regulations,
except where a failure to comply would not, singly or in the aggregate,
materially and adversely affect the condition, financial or otherwise, or the
business affairs, properties or results of operations of the Company and its
subsidiaries, taken as a whole; and neither the Company nor any of its
subsidiaries have received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the business affairs,
operations, properties, or results of operations of the Company and its
subsidiaries, taken as a whole. The disclosures in the Registration Statement
concerning the effects of federal, state, local, and foreign laws, rules and
regulations on the Company's business as currently conducted and as contemplated
are correct in all material respects and do not omit to state a material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the headings
"Capitalization" and "Description of Capital Stock" and will have the adjusted
capitalization set forth therein on the Closing Date and the Option Closing
Date, if any, based upon the assumptions set forth therein, and the Company is
not a party to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the Prospectus. The
Registered Securities and all other securities issued or issuable by the Company
conform or, when issued and paid for, will conform, in all material respects to
all statements with respect thereto contained in the Registration Statement and
the Prospectus. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or arrangements
and the options or other rights granted and exercised thereunder as set forth in
the Prospectus conforms in all material respects with the requirements of the
Act. All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable, and the
holders thereof have no rights of rescission with respect thereto and are not
subject to personal liability by reason of being such holders; and none of such
securities were
4
<PAGE>
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company.
(f) The Registered Securities are not and will not be subject
to any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the terms
hereof, will be validly issued, fully paid and non-assessable and will conform
in all material respects to the description thereof contained in the Prospectus;
the holders thereof will not be subject to any liability solely as such holders;
all corporate action required to be taken for the authorization, issue and sale
of the Registered Securities has been duly and validly taken; and the
certificates representing the Registered Securities will be in due and proper
form. Upon the issuance and delivery pursuant to the terms hereof of the
Registered Securities to be sold by the Company hereunder, the Underwriter will
acquire good and marketable title to such Registered Securities free and clear
of any lien, charge, claim, encumbrance, pledge, security interest, defect, or
other restriction or equity of any kind whatsoever. No stockholder of the
Company has any right which has not been waived in writing to require the
Company to register the sale of any shares owned by such stockholder under the
Act in the public offering contemplated by this Agreement. No further approval
or authority of the stockholders or the Board of Directors of the Company will
be required for the issuance and sale of the Shares, the Option Shares, the
Underwriter's Warrants and the Underwriter's Shares to be sold by the Company as
contemplated herein.
(g) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration Statement,
each Preliminary Prospectus and the Prospectus fairly present the financial
position, changes in stockholders' equity and the results of operations of the
Company at the respective dates and for the respective periods to which they
apply and such financial statements have been prepared in conformity with
generally accepted accounting principles and the Regulations, consistently
applied throughout the periods involved. There has been no material adverse
change or development involving a material prospective change in the condition,
financial or otherwise, or in the business, affairs, operations, properties, or
results of operation of the Company and its subsidiaries taken as a whole
whether or not arising in the ordinary course of business since the date of the
financial statements included in the Registration Statement and the Prospectus
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company and its subsidiaries taken as a whole conform in all
material respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Financial information set forth in the Prospectus
under the headings "Prospectus Summary - Summary Consolidated Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(h) The Company (i) has paid all federal, state, local,
franchise, and foreign taxes for which it is liable, including, but not limited
to, withholding taxes and amounts payable under
5
<PAGE>
Chapters 21 through 24 of the Internal Revenue Code of 1986, as amended (the
"Code"), and has furnished all information returns it is required to furnish
pursuant to the Code, (ii) has established adequate reserves for such taxes
which are not due and payable, and (iii) does not have any tax deficiency or
claims outstanding, proposed or assessed against it.
(i) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriter in connection with (i) the issuance
by the Company of the Registered Securities, (ii) the purchase by the
Underwriter of the Registered Securities from the Company and the purchase by
the Underwriter of the Underwriter's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Registered Securities by the Underwriter in connection with
the distribution contemplated hereby.
(j) There is no action, suit, proceeding, inquiry,
arbitration, mediation, investigation, litigation or governmental proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties or
businesses of, the Company which (i) questions the validity of the capital stock
of the Company, this Agreement or the Underwriter's Warrant Agreement, or of any
action taken or to be taken by the Company pursuant to or in connection with
this Agreement or the Underwriter's Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all material respects), or (iii) might materially and adversely
affect the condition, financial or otherwise, or the business, affairs,
position, stockholders' equity, operation, properties, or results of operations
of the Company and its subsidiaries taken as a whole.
(k) The Company has the corporate power and authority to
authorize, issue, deliver, and sell the Registered Securities and to enter into
this Agreement and the Underwriter's Warrant Agreement, and to consummate the
transactions provided for in such agreements; and this Agreement and the
Underwriter's Warrant Agreement have each been duly and properly authorized,
executed, and delivered by the Company. Each of this Agreement and the
Underwriter's Warrant Agreement constitutes a legal, valid and binding agreement
of the Company enforceable against the Company in accordance with its respective
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law), and none of the
Company's issue and sale of the Registered Securities, execution, delivery or
performance of this Agreement and the Underwriter's Warrant Agreement, its
consummation of the transactions contemplated herein and therein, or the conduct
of its businesses as described in the Registration Statement, the Prospectus,
and any amendments or supplements thereto, conflicts with or will conflict with
or results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim,
6
<PAGE>
encumbrance, pledge, security interest, defect or other restriction or equity of
any kind whatsoever upon, any property or assets (tangible or intangible) of the
Company pursuant to the terms of (i) the articles of incorporation or by-laws of
the Company, as amended and restated, (ii) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement or any other agreement or instrument to which the
Company is a party or by which it is or may be bound or to which its properties
or assets (tangible or intangible) is or may be subject, or any indebtedness, or
(iii) any statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company of any of their activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Registered Securities
pursuant to the Prospectus and the Registration Statement, the performance of
this Agreement, the Underwriter's Warrant Agreement, and the transactions
contemplated hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have for
the issue and/or sale of any of the Registered Securities, except such as have
been or may be obtained under the Act or may be required under state securities
or Blue Sky laws in connection with the Underwriter's purchase and distribution
of the Registered Securities to be sold by the Company hereunder.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law). The descriptions in the
Registration Statement of such agreements, contracts and other documents are
accurate in all material respects and fairly present the information required to
be shown with respect thereto by Form S-1, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are
complete and correct copies of the documents of which they purport to be copies.
(n) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as described in
or specifically contemplated by the Prospectus (i) the Company has not incurred
any material liabilities or obligations, indirect, direct or contingent, or
entered into any material verbal or written agreement or other transaction which
7
<PAGE>
is not in the ordinary course of business or which could result in a material
reduction in the future earnings of the Company; (ii) the Company has not
sustained any material loss or interference with its business or properties from
fire, flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or other
distributions with respect to its capital stock, and the Company is not in
default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock (other than
upon the sale of the Firm Shares, the Option Shares and the Underwriter's Shares
hereunder and upon the exercise of options and warrants described in the
Registration Statement) of, or indebtedness material to, the Company (other than
in the ordinary course of business); (v) the Company has not issued any
securities or incurred any liability or obligation, primary or contingent, for
borrowed money; and (vi) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, results of operations,
or prospects of the Company.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, (i) the Company has sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals and governmental authorizations to
conduct its business as now conducted; (ii) the expiration of any trademarks,
trade names, patent rights, copyrights, licenses, approvals or governmental
authorizations would not have a material adverse effect on the condition
(financial or otherwise), business, results of operations or prospects of the
Company; (iii) the Company has no knowledge of any infringement by it or its
subsidiaries of trademark, trade name rights, patent rights, copyrights,
licenses, trade secret or other similar rights of others; and (iv) there is no
claim being made against the Company regarding trademark, trade name, patent,
copyright, license, trade secret or other infringement which could have a
material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company.
(p) No default exists in the due performance and observance of
any term, covenant or condition of any material license, contract, indenture,
mortgage, installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement, or any other
material agreement or instrument evidencing an obligation for borrowed money, or
any other material agreement or instrument to which the Company is a party or by
which the Company may be bound or to which the property or assets (tangible or
intangible) of the Company is subject or affected.
(q) To the Company's knowledge, there are no pending
investigations involving the Company by the U.S. Department of Labor, or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or to its knowledge threatened against or involving the Company. No
representation question exists respecting the employees of the Company. No
collective bargaining agreement, or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is
8
<PAGE>
pending under any expired or existing collective bargaining agreements of the
Company. No labor dispute with the employees of the Company exists or to its
knowledge is imminent.
(r) Except as described in the Prospectus, the Company does
not maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") ("ERISA Plan"). The Company does not maintain or contribute to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code, which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected.
(s) None of the Company, nor any of its employees, directors,
stockholders, or affiliates (within the meaning of the Regulations) of any of
the foregoing has taken or will take directly or indirectly, any action designed
to or which has constituted or which might be expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Registered Securities.
(t) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, or other
restrictions or equities of any kind whatsoever other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
(u) Ernst & Young LLP ("Ernst & Young"), whose report is filed
with the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Regulations.
(v) The Company has caused to be duly executed legally binding
and enforceable agreements pursuant to which all officers and directors of the
Company and owners of five (5%) percent or more of the Common Stock as of the
date of this Agreement have agreed not to, directly or indirectly, offer, offer
to sell, sell, grant any option for the sale of, transfer, assign, pledge,
hypothecate or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into Common Stock, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
(either pursuant to Rule 144 of the Regulations or otherwise) or dispose of any
interest therein for a period from the date of the Prospectus until six (6)
months following the date that the Registration Statement becomes effective,
without the prior written consent of the Underwriter (the "Lock-up Agreements").
The Company will cause the Transfer Agent (as defined herein) to place "stop
transfer" orders on the Company's stock ledgers in order to effect the Lock-up
Agreements.
9
<PAGE>
(w) There are no claims, payments, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Registered
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuance with respect to the Company or any of its officers,
directors, stockholders, employees, affiliates or, to the Company's knowledge,
stockholders or their affiliates that may affect the Underwriter' compensation
as determined by the Commission and the National Association of Securities
Dealers, Inc. (the "NASD").
(x) The Registered Securities have been approved for quotation
on the Nasdaq National Market System ("Nasdaq"), subject to official notice of
issuance.
(y) Neither the Company nor any of its officers, employees,
agents or any other person acting on behalf of the Company has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any governmental agency (domestic or foreign) or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company (or assist the Company in connection
with any actual or proposed transaction) which might subject the Company or any
other such person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign). The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(z) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Regulations) of any of
the foregoing persons or entities has or has had, either directly or indirectly,
(i) an interest in any person or entity which (A) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficiary interest in any contract or agreement
to which the Company is a party or by which it may be bound or affected. Except
as set forth in the Prospectus there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company, and any officer,
director, principal shareholder (as such term is used in the Prospectus) of the
Company, or any affiliate or associate of any of the foregoing persons or
entities.
(aa) The Company is not, and does not intend to conduct its
business in a manner in which it would become, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(ab) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to the Underwriter's Counsel (as defined in
Section 4(d) herein) shall be deemed a
10
<PAGE>
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
(ac) The minute books of the Company have been made available
to the Underwriter and contain a complete summary of all meetings and actions of
the directors and stockholders of the Company, since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(ad) The Company has not distributed and will not distribute
prior to the Closing Date any offering material in connection with the offering
and sale of the Shares in this offering other than the Prospectus, the
Registration Statement and the other materials permitted by the Act. Except as
described in the Prospectus, no holders of any securities of the Company or of
any options, warrants or other convertible or exchangeable securities of the
Company have the right to include any securities issued by the Company as part
of the Registration Statement or to require the Company to file a registration
statement under the Act and no person or entity holds any anti-dilution rights
with respect to any securities of the Company.
(ae) Each of the Company and its subsidiaries maintains
insurance by insurers of recognized financial responsibility of the types and in
the amounts as are prudent, customary and adequate for the business in which it
is engaged, including, but not limited to, insurance covering real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect. The Company has no
reason to believe that it will not be able to renew existing insurance coverage
with respect to the Company as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business, in either case, at a cost that would not have a material adverse
effect on the financial condition, operations, business, assets or properties of
the Company. The Company has not failed to file any claims, has no material
disputes with its insurance company regarding any claims submitted under its
insurance policies, and has complied with all material provisions contained in
its insurance policies.
(af) The Company has applied for, and will obtain, key man
life insurance in the amount of at least $1,000,000 for each of Mark Dresner and
James McGowan, which insurance will be (i) payable to the Company and (ii) in
force for a period equal to the longer of (x) three (3) years from the date of
this Agreement or (y) the term of any employment agreement between Mr. Schuster
and the Company.
2. Purchase, Sale and Delivery of the Registered Securities.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriter, and the Underwriter
agrees to purchase from the Company, at a price equal to $_____ per share,
2,000,000 Shares.
11
<PAGE>
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase all or any part of the Option Shares at a price equal to
$________ per share. The option granted hereby will expire 30 days after (i) the
date the Registration Statement becomes effective, if the Company has elected
not to rely on Rule 430A under the Regulations, or (ii) the date of this
Agreement if the Company has elected to rely upon Rule 430A under the
Regulations, and may be exercised in whole or in part from time to time (but not
on more than two (2) occasions) only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the Shares
upon notice by the Underwriter to the Company setting forth the number of Option
Shares as to which the Underwriter is then exercising the option and the time
and date of payment and delivery for any such Option Shares. Any such time and
date of delivery (an "Option Closing Date") shall be determined by the
Underwriter, but shall not be later than three full business days after the
exercise of said option, nor in any event prior to the Closing Date, as
hereinafter defined, unless otherwise agreed upon by the Underwriter and the
Company. Nothing herein contained shall obligate the Underwriter to exercise the
over-allotment option described above. No Option Shares shall be delivered
unless the Shares shall be simultaneously delivered or shall theretofore have
been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the offices of the Underwriter, at
450 Park Avenue, New York, New York 10022, or at such other place as shall be
agreed upon by the Underwriter and the Company. Such delivery and payment shall
be made at 9:00 a.m. (New York time) on ____ ___, 1999, or at such other time
and date as shall be agreed upon by the Underwriter and the Company, but no more
than six (6) business days after the date hereof (such time and date of payment
and delivery being herein called the "Closing Date"). In addition, in the event
that any or all of the Option Shares are purchased by the Underwriter, payment
of the purchase price for, and delivery of certificates for, such Option Shares
shall be made at the above mentioned office of the Underwriter or at such other
place as shall be agreed upon by the Underwriter and the Company on each Option
Closing Date as specified in the notice from the Underwriter to the Company.
Delivery of the certificates for the Shares and the Option Shares, if any, shall
be made to the Underwriter against payment by the Underwriter, of the purchase
price for the Shares and the Option Shares, if any, to the order of the Company.
Certificates for the Shares and the Option Shares, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriter may
request in writing at least three (3) business days prior to Closing Date or the
relevant Option Closing Date, as the case may be. The certificates for the
Shares and the Option Shares, if any, shall be made available to the Underwriter
at such office or such other place as the Underwriter may designate for
inspection, checking and packaging no later than 9:30 a.m. on the last business
day prior to Closing Date or the relevant Option Closing Date, as the case may
be.
(d) On the Closing Date, the Company shall issue and sell to
the Underwriter Underwriter's Warrants at a purchase price of $0.001 per
warrant, which warrants shall entitle the
12
<PAGE>
holders thereof to purchase an aggregate of 140,000 shares of Common Stock. The
Underwriter's Warrants shall expire five (5) years after the effective date of
the Registration Statement and shall be exercisable for a period of four (4)
years commencing one (1) year from the effective date of the Registration
Statement at a price equaling 125% of the initial public offering price of the
Shares. The Underwriter's Warrant Agreement and form of Warrant Certificate
shall be substantially in the form filed as Exhibit 1.2 to the Registration
Statement. Payment for the Underwriter's Warrants shall be made on the Closing
Date.
3. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Underwriter deems advisable, the Underwriter
shall make a public offering of the Shares (other than to residents of or in any
jurisdiction in which qualification of the Shares is required and has not become
effective) at the price and upon the other terms set forth in the Prospectus.
The Underwriter may from time to time increase or decrease the public offering
price after distribution of the Shares has been completed to such extent as the
Underwriter, in its sole discretion deems advisable. The Underwriter may enter
into one or more agreements as the Underwriter, in its sole discretion, deems
advisable with one or more broker-dealers who shall act as dealers in connection
with such public offering.
4. Covenants of the Company. The Company covenants and agrees with the
Underwriter as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or Exchange Act before termination of the offering of the Shares
by the Underwriter of which the Underwriter shall not previously have been
advised and furnished with a copy, or to which the Underwriter shall have
objected or which is not in compliance with the Act, the Exchange Act or the
Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriter and confirm the notice in
writing, (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective, (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose, (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Registered Securities for offering
or sale in any jurisdiction or of the initiation, or the threatening, of any
proceeding for that purpose, (iv) of the receipt of any comments from the
Commission, and (v) of any request by the Commission for any amendment to
13
<PAGE>
the Registration Statement or any amendment or supplement to the Prospectus or
for additional information. If the Commission or any state securities commission
authority shall enter a stop order or suspend such qualification at any time,
the Company will use its best efforts to obtain promptly the lifting of such
order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriter) in accordance with the requirements
of the Act.
(d) The Company will give the Underwriter notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriter in connection with the offering of the Registered Securities
which differs from the corresponding prospectus on file at the Commission at the
time the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Regulations),
and will furnish the Underwriter with copies of any such amendment or supplement
a reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such amendment or supplement to which the
Underwriter or Coleman, Rhine & Goodwin LLP ("Underwriter's Counsel") shall
reasonably object.
(e) The Company shall endeavor in good faith, in cooperation
with the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Registered Securities for offering and sale under the
securities laws of such jurisdictions as the Underwriter may reasonably
designate to permit the continuance of sales and dealings therein for as long as
may be necessary to complete the distribution, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; provided, however, the Company shall not be required to qualify as a
foreign corporation or become subject to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Underwriter agrees that such action is not at the
time necessary or advisable, use all reasonable efforts to file and make such
statements or reports at such times as are or may reasonably be required by the
laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, as now and hereafter amended,
and by the Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Registered Securities in
accordance with the provisions hereof and the Prospectus, or any amendments or
supplements thereto. If at any time when a prospectus relating to the Registered
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of counsel for the Company or
Underwriter's Counsel, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the
14
<PAGE>
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend or supplement the Prospectus to comply with the Act, the
Company will notify the Underwriter promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriter's Counsel, and the Company will furnish to the Underwriter copies of
such amendment or supplement as soon as available and in such quantities as the
Underwriter may request.
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Regulations, and to the Underwriter, an earnings statement which
will be in the detail required by, and will otherwise comply with, the
provisions of Section 11(a) of the Act and Rule 158(a) of the Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least 12 consecutive months after the effective date of the Registration
Statement.
(h) During a period of five (5) years after the date hereof if
required by law or the applicable rules of the Commission, any securities
exchange or the NASD, the Company will furnish to its stockholders, as soon as
practicable after the end of each respective period, annual reports (including
financial statements audited by independent public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to the Underwriter:
(i) concurrently, if required (when available if
not), with furnishing such reports to its stockholders, statements of operations
of the Company for each of the first three quarters in the form furnished to the
Company's stockholders;
(ii) concurrently with furnishing to its
stockholders, an annual report;
(iii) as soon as they are available, copies of all
other reports (financial or
other) mailed to the Company's stockholders;
(iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, any
securities exchange or the NASD;
(v) every material press release in respect of the
Company or its affairs which was released or prepared by the Company; and
(vi) any additional information of a public nature
concerning the Company or its business that the Underwriter may reasonably
request. During such five-year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
15
<PAGE>
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary that is not so consolidated.
(i) The Company will maintain a transfer agent (the "Transfer
Agent") and, if necessary under the jurisdiction of incorporation of the
Company, a registrar (which may be the same entity as the transfer agent) for
the Common Stock and the Underwriter's Warrants.
(j) The Company will furnish to the Underwriter or on the
Underwriter's order, without charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), each
Preliminary Prospectus, the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such quantities
as the Underwriter may reasonably request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Underwriter with true copies of duly
executed, legally binding and enforceable Lock-up Agreements. On or before the
Closing Date, the Company shall deliver instructions to the Transfer Agent
authorizing it to place appropriate stop transfer orders on the Company's
ledgers.
(l) The Company shall use its best efforts to cause its
officers, directors, stockholders or affiliates (within the meaning of the
Regulations) not to take, directly or indirectly, any action designed to, or
which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of
the Registered Securities substantially in the manner, and subject to the
conditions, set forth under "Use of Proceeds" in the Prospectus. Without
limiting the generality of the foregoing, a minimum of $3,000,000 of such
proceeds will be utilized as merger consideration in connection with the
Company's acquisition by merger of Infinite Technology Information Services,
Inc.
(n) The Company shall timely file all such reports, forms or
other documents as may be required from time to time, under the Act, the
Exchange Act, and the Regulations, and all such reports, forms and documents
filed will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act, and the Regulations.
(o) The Company shall cause the Registered Securities to be
quoted on Nasdaq, and for a period of five (5) years from the date hereof shall
use its best efforts to maintain the quotation of the Registered Securities to
the extent outstanding.
(p) For a period of two (2) year from the Closing Date, the
Company shall furnish to the Underwriter, at the Company's sole expense, upon
the written request of the Underwriter,
16
<PAGE>
daily consolidated transfer sheets relating to the Common Stock, up to four (4)
times during such year.
(q) For a period of five (5) years after the effective date of
the Registration Statement the Company shall, at the Company's sole expense,
take all necessary and appropriate actions to further qualify the Company's
securities in all jurisdictions of the United States in order to permit
secondary sales of such securities pursuant to the Blue-Sky laws of those
jurisdictions which do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process.
(r) The Company (i) prior to the effective date of the
Registration Statement, has filed a Form 8-A with the Commission providing for
the registration of the Common Stock under the Exchange Act and (ii) as soon as
practicable, will use its best efforts to take all necessary and appropriate
actions to be included in Standard and Poor's Corporation Descriptions and to
continue such inclusion for a period of not less than five (5) years.
(s) The Company agrees that for a period of six (6) months
following the effective date of the Registration Statement it will not, without
the prior written consent of the Underwriter, offer, issue, sell, contract to
sell, grant any option for the sale of or otherwise dispose of any Common Stock,
or securities convertible into Common Stock, except for the issuance of the
Option Shares, the Underwriter's Warrants and shares of Common Stock issued upon
the exercise of currently outstanding warrants or options issued under any stock
option plan in effect on the Closing Date, shares of Common Stock automatically
granted pursuant to any stock option plan in effect on the Closing Date, or
shares of Common Stock issued pursuant to any employee stock purchase plan in
effect on the Closing Date.
(t) Until the completion of the distribution of the Registered
Securities, the Company shall not without the prior written consent of the
Underwriter or Underwriter's Counsel, issue, directly or indirectly any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering contemplated hereby, other than trade
releases issued in the Company's business consistent with past practices with
respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5) years
from the date hereof, and (ii) the sale to the public of the Underwriter's
Shares, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form S-1 (or other appropriate form) for the
registration under the Act of the Underwriter's Shares.
(v) The Company agrees that it shall use its best efforts,
which shall include, but shall not be limited to, the solicitation of proxies,
to elect two (2) additional persons reasonably acceptable to the Underwriter to
the Company's Board of Directors. Each of these individuals shall be an
"independent director" within the meaning of the rules of The Nasdaq Stock
Market (and, in particular, Rule 4200(a)(14)). In addition, during such three
(3) year period the Company
17
<PAGE>
shall allow an individual selected by the Underwriter to attend all meetings of
the Company's Board of Directors. The Company will use its best efforts to
obtain Directors and Officers insurance in an amount of not less than
$5,000,000, which insurance, once obtained, it shall use its best efforts to
keep in full force and effect for a period of at least five (5) years from the
Closing.
(w) The Company agrees that within forty-five (45) days after
the Closing it shall retain a public relations firm which is acceptable to the
Underwriter. The Company shall keep such public relations firm, or any
replacement, for a period of three (3) years from the Closing. Any replacement
public relations firm shall be retained only with the consent of the
Underwriter.
(x) The Company shall prepare and deliver, at the Company's
sole expense, to the Underwriter within the one hundred and twenty (120) day
period after the later of the effective date of the Registration Statement or
the latest Option Closing Date, as the case may be, four bound volumes
containing all correspondence with regulatory officials, agreements, documents
and all other materials in connection with the offering as requested by the
Underwriter's Counsel.
(y) For a period of two (2) years following the effective date
of the Registration Statement, the Company shall not effect a change in its
independent outside accountants without the prior written consent of the
Underwriter.
(z) Until expiration of the Underwriter's Warrants, the
Company will keep reserved sufficient shares of Common Stock for issuance upon
exercise of the Underwriter's Warrants.
(aa) For the a period of three (3) years following the
effective date of the Registration Statement the Underwriter shall have a right
of first refusal (on terms at least as favorable as can be obtained from other
sources) to act as manager, placement agent, or investment banker with respect
to any proposed written public distribution or private placement of the
Company's securities or any merger, acquisition, or disposition of the equity or
assets of the Company. The Company shall promptly advise the Underwriter in
writing of such proposed transaction. The Underwriter thereafter shall advise
the Company in writing within fifteen (15) days of its receipt of such notice
whether it intends to exercise said right. If any such proposal is not accepted
by the Underwriter, but later modified, the Company will re-submit such proposal
to the Underwriter, which thereafter shall advise the Company in writing within
five (5) days of its receipt of such notice whether it intends to exercise said
right with respect to the proposal as modified. An election by the Underwriter
not to exercise said right with respect to a particular transaction shall not
affect the Underwriter's rights of first refusal with respect to other
transactions during such three (3) year period; and
(ab) If, at the request of the Company, the Underwriter
introduces a potential merger or acquisition candidates to the Company, it shall
be entitled to a "Lehman Formula" fee (any consideration other than cash to be
valued at fair market value) of the aggregate
18
<PAGE>
consideration involved in any transaction (including mergers, acquisitions,
joint ventures and any other business combination for the Company introduced by
the Underwriter) consummated by the Company with such candidate within eighteen
(18) months following the date of this Agreement, such finder's fee to be paid
in cash to the Underwriter at the closing of such transaction. The Underwriter
shall provide the Company with written notice of the introduction of any merger
and acquisition candidate for which it may be entitled to a fee hereunder. For
purposes of this Agreement, a Lehman Formula fee shall be equal to five (5%)
percent of the first million dollars of such consideration, or portion thereof,
four (4%) percent of the second million dollars of such consideration, or
portion thereof, three (3%) percent of the third million dollars of such
consideration, or portion thereof, two (2%) percent of the fourth million
dollars of such consideration, or portion thereof, and one (1) percent of all
consideration in excess of four million ($4,000,000) dollars.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of the Closing
Date and each Option Closing Date (to the extent not previously paid) all
expenses and fees (other than fees of Underwriter's Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement and the Underwriter's Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, filing, delivery and mailing (including the
payment of postage with respect thereto) of the Registration Statement and the
Prospectus and any amendments and supplements thereto and the duplication,
mailing (including the payment of postage with respect thereto) and delivery of
this Agreement, the Selected Dealers Agreements, the Powers of Attorney, and
related documents, including the cost of all copies thereof and of the
Preliminary Prospectuses and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Underwriter and such dealers as the
Underwriter may request, in quantities as hereinabove stated, (iii) the
printing, engraving, issuance and delivery of the certificates representing the
Registered Securities, (iv) the qualification of the Registered Securities under
state or foreign securities or "Blue Sky" laws and determination of the status
of such securities under legal investment laws, including the costs of printing
and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky
Memorandum," the "Final Blue Sky Memorandum" and "Legal Investments Survey," if
any, and reasonable disbursements and fees of counsel in connection therewith
(such legal fees not to exceed $20,000), (v) expense of tombstone advertisements
(not to exceed $15,000) and other advertising costs and expenses, (vi) costs and
expenses in connection with the "road show", (vii) fees and expenses of the
transfer agent and registrar, (viii) the fees payable to the Commission and the
NASD and (ix) the fees and expenses incurred in connection with the listing of
the Registered Securities on Nasdaq and any other market or exchange.
(b) If the transactions contemplated hereby are not
consummated by reason of any refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriter's obligations hereunder, or if
19
<PAGE>
the Company shall terminate the Agreement for any reason other than a breach by
the Underwriter of its obligations hereunder, the Company will reimburse the
Underwriter for all reasonable out-of-pocket expenses (including any and all
reasonable fees and disbursements of Underwriters' Counsel) in an amount not to
exceed $100,000, including the fees and disbursements of Underwriter's Counsel,
inclusive of any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, it will pay to
the Underwriter on the Closing Date by certified or bank cashier's check or wire
transfer or, at the election of the Underwriter, by deduction from the proceeds
of the offering contemplated herein, a non-accountable expense allowance equal
to two percent (2%) of the gross proceeds received by the Company from the sale
of the Shares, $50,000 of which has been paid to date. In the event the
Underwriter elects to exercise the over-allotment option described in Section
2(b) hereof, the Company further agrees to pay to the Underwriter on the Option
Closing Date (by certified or bank cashier's check or, at the Underwriter's
election, by deduction from the proceeds of the offering) a non-accountable
expense allowance equal to two percent (2%) of the gross proceeds received by
the Company from the sale of the Option Shares.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York City time, on the date prior to the date of this
Agreement or such later date and time as shall be consented to in writing by the
Underwriter, and, at Closing Date and each Option Closing Date, if any, no stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriter's Counsel. If the Company has elected to
rely upon Rule 430A of the Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Regulations within the
prescribed time period, and prior to Closing Date the Company shall have
provided evidence satisfactory to the Underwriter of such timely filing, or a
post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A of
the Regulations.
20
<PAGE>
(b) The Underwriter shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's opinion, is material, or omits to
state a fact which, in the Underwriter's opinion, is material and is required to
be stated therein or is necessary to make the statements therein not misleading,
or that the Prospectus, or any supplement thereto, contains an untrue statement
of fact which, in the Underwriter's reasonable opinion, is material, or omits to
state a fact which, in the Underwriter's reasonable opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall
have received from Underwriter's Counsel such opinion or opinions with respect
to the organization of the Company, the validity of the Registered Securities,
the Registration Statement, the Prospectus and other related matters as the
Underwriter may request and Underwriter's Counsel shall have received from the
Company such papers and information as they request to enable them to pass upon
such matters.
(d) At the Closing Date, the Underwriter shall have received
the favorable opinion of Parker Duryee Rosoff & Haft, P.C. ("PDR&H"), counsel to
the Company, dated the Closing Date, addressed to the Underwriter and in form
and substance satisfactory to Underwriter's Counsel, to the effect that:
(i) the Company (A) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, (B) is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing, and (C) to the best of such counsel's knowledge, has
all requisite corporate power and authority and has obtained any and all
necessary authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus.
(ii) except as described in the Prospectus, and to
the best of such counsel's knowledge after reasonable investigation, the Company
does not own an interest in any corporation, limited liability company,
partnership, joint venture, trust or other business entity;
(iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under "Capitalization" and "Description of Capital Stock,"
and to the knowledge of such counsel, the Company is not a party to or bound by
any instrument, agreement or other arrangement providing for it to issue any
capital stock, rights, warrants, options or other securities, except for this
Agreement, the Underwriter's Warrant Agreement, and as described in the
Prospectus. The
21
<PAGE>
Registered Securities and all other securities issued or issuable by the Company
conform in all material respects to the statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof are not
subject to personal liability by reason of being such holders; and to such
counsel's knowledge after reasonable inquiry, none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company. The Registered Securities to be sold by the Company hereunder and
under the Underwriter's Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with their terms, will be
validly issued, fully paid and non-assessable and conform in all material
respects to the description thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Registered Securities has been duly and validly taken; and the certificates
representing the Registered Securities are in due and proper form. The
Underwriter's Warrants constitute valid and binding obligations of the Company
to issue and sell, upon exercise thereof and payment therefor, the number and
type of securities of the Company called for thereby (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law). Upon the issuance and
delivery pursuant to this Agreement of the Registered Securities to be sold by
the Company, the Company will convey, against payment therefor as provided
herein, to the Underwriter good and marketable title to the Registered
Securities free and clear of all liens and other encumbrances;
(iv) the Registration Statement is effective under
the Act, and, if applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, and no stop order suspending the
use of the Preliminary Prospectus, the Registration Statement or Prospectus or
any part of any thereof or suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or, to the best of such counsel's knowledge,
threatened or contemplated under the Act;
(v) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments or supplements
thereto (other than the financial statements and other financial and statistical
data included therein as to which no opinion need be rendered) comply as to form
in all material respects with the requirements of the Act and the Regulations.
Such counsel shall state that such counsel has participated in conferences with
officers and other representatives of the Company and the Underwriter and
representatives of the independent public accountants for the Company, at which
conferences the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and any amendments or supplements thereto were
discussed, and, although such counsel is not passing upon and does not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Preliminary
22
<PAGE>
Prospectus, the Registration Statement and Prospectus, and any amendments or
supplements thereto, on the basis of the foregoing, no facts have come to the
attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto, at the time such Registration
Statement or amendment became effective or the Preliminary Prospectus or
Prospectus or amendment or supplement thereto as of the date of such opinion
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading (it being understood that such counsel need express no opinion
with respect to the financial statements and schedules and other financial and
statistical data included in the Preliminary Prospectus, the Registration
Statement or Prospectus, and any amendments or supplements thereto);
(vi) to the best of such counsel's knowledge after
reasonable investigation, (A) there are no agreements, contracts or other
documents required by the Act to be described in the Registration Statement and
the Prospectus and filed as exhibits to the Registration Statement other than
those described in the Registration Statement and the Prospectus and filed as
exhibits thereto; (B) the descriptions in the Registration Statement and the
Prospectus and any supplement or amendment thereto of contracts and other
documents to which the Company is a party or by which it is bound are accurate
in all material respects and fairly represent the information required to be
shown by Form S-1; (C) there is not pending or threatened against the Company
any action, arbitration, suit, proceeding, litigation, governmental or other
proceeding (including, without limitation, those having jurisdiction over
environmental or similar matters),domestic or foreign, pending or threatened
against the company which (x) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all material respects),
(y) questions the validity of the capital stock of the Company or this
Agreement, or the Underwriter's Warrant Agreement, or of any action taken or to
be taken by the Company pursuant to or in connection with any of the foregoing;
and (D) there is no action, suit or proceeding pending or threatened against the
Company before any court or arbitrator or governmental body, agency or official
in which there is a reasonable possibility of an adverse decision which may
result in a material adverse change in the financial condition, business,
affairs, stockholders' equity, operations, properties, business or results of
operations of the Company, which could adversely affect the present or
prospective ability of the Company to perform its obligations under this
Agreement or the Underwriter's Warrant Agreement or which in any manner draws
into question the validity or enforceability of this Agreement or the
Underwriter's Warrant Agreement;
(vii) the Company has the corporate power and
authority to enter into each of this Agreement and the Underwriter's Warrant
Agreement and to consummate the transactions provided for therein; and each of
this Agreement and the Underwriter's Warrant Agreement has been duly authorized,
executed and delivered by the company. Each of this Agreement and the
Underwriter's Warrant Agreement, assuming due authorization, execution and
delivery by each other party thereto, constitutes a legal, valid and binding
agreement of the Company enforceable against the company in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or
23
<PAGE>
other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution maybe
limited by applicable law), and none of the company's execution, delivery or
performance of this Agreement and the Underwriter's Warrant Agreement, its
consummation of the transactions contemplated herein or therein, or the conduct
of its business as described in the Registration Statement, the Prospectus, and
any amendments or supplements thereto conflicts with or results in any breach or
violation of any of the terms or provisions of, or constitutes a default under,
or result in the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
pursuant to the terms of (A) the articles of incorporation or by-laws of the
Company, as amended, (B) any license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument known to such counsel to which
the Company is a party or by which it is bound, or (C) any federal, state or
local statute, rule or regulation applicable to the Company or any judgment,
decree or order known to such counsel of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties;
(viii) no consent, approval, authorization or order,
and no filing with, any court, regulatory body, government agency or other body
(other than such as may be required under federal securities or Blue Sky laws,
as to which no opinion need be rendered) is required in connection with the
issuance of the Registered Securities pursuant to the Prospectus, and the
Registration Statement, the performance of this Agreement and the Underwriter's
Warrant Agreement, and the transactions contemplated hereby and thereby;
(ix) to the best of such counsel's knowledge after
reasonable investigation, the properties and business of the Company conform in
all material respects to the description thereof contained in the Registration
Statement and the Prospectus;
(x) to the best knowledge of such counsel, and except
as disclosed in Registration Statement and the Prospectus, the Company is not in
breach of, or in default under, any term or provision of any license, contract,
indenture, mortgage, installment sale agreement, deed of trust, lease, voting
trust agreement, stockholders' agreement, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company is a party or by which
the Company is bound or to which the property or assets (tangible or intangible)
of the Company is subject; and the Company is not in violation of any term or
provision of its articles of incorporation or by-laws, as amended, and to the
best of such counsel's knowledge after reasonable investigation, not in
violation of any franchise, license, permit, judgment, decree, order, statute,
rule or regulation;
24
<PAGE>
(xi) the statements in the Prospectus under "Dividend
Policy," "Description of Capital Stock," and "Shares Eligible for Future Sale"
have been reviewed by such counsel, and insofar as they refer to statements of
law, descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
(xii) the Common Stock has been accepted for
quotation on Nasdaq;
(xiii) to the best of such counsel's knowledge and
based upon a review of the outstanding securities and the contracts furnished to
such counsel by the Company and except as described in the Prospectus, no
person, corporation, trust, partnership, association or other entity, has the
right to include and/or register any securities of the Company in the
Registration Statement, require the Company to file any registration statement
or, if filed, to include any security in such registration statement;
(xiv) assuming due execution by the parties thereto
other than the Company, each Lock-up Agreement to be entered into by an officer,
director or stockholder of the Company is a legal, valid and binding obligation
of the party thereto, enforceable against the party and any subsequent holder of
the securities subject thereto in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law); and
(xv) the Company is not an "investment company" or
"promoter" or "principal underwriter" for or an "affiliated person" of, an
"investment company" as such terms are defined in the 1940 Act.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws, rules and regulations
of the United States and the laws, rules and regulations of the State of New
York, to the extent such counsel deems proper and to the extent specified in
such opinion, if at all, upon an opinion or opinions (in form and substance
satisfactory to Underwriter's Counsel) of other counsel acceptable to
Underwriter's Counsel, familiar with the applicable laws; (B) as to matters of
fact, to the extent they deem proper, on certificates and written statements of
responsible officers of the Company and certificates or other written statements
of officers of departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company, provided
that copies of any such statements or certificates shall be delivered to
Underwriter's Counsel if requested. The opinion of such counsel shall state that
knowledge shall not include the knowledge of a director or officer of the
Company who is affiliated with such firm in his or her capacity as an officer or
director of the Company. The opinion of such counsel for the Company shall
further state that the opinion of any such other counsel is in form satisfactory
to such counsel. At each Option Closing Date, if any, the Underwriter shall have
received the favorable opinion of PDR&H, counsel to the Company, dated the
Option Closing Date, addressed to the Underwriter and in
25
<PAGE>
form and substance satisfactory to Underwriter's Counsel confirming as of such
Option Closing Date the statements made by PDR&H in their opinion delivered on
the Closing Date.
(e) On or prior to each of the Closing Date and the Option
Closing Date, if any, Underwriter's Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company or herein contained.
(f) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects, stockholders' equity or the business activities of the
Company, whether or not in the business, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii) there
shall have been no transaction, not in the business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is adverse to
the Company; (iii) the Company shall not be in default under any provision of
any instrument relating to any outstanding indebtedness which default has not
been waived; (iv) the Company shall not have issued any securities (other than
the Registered Securities and the Selling Stockholder Securities) or declared or
paid any dividend or made any distribution in respect of its capital stock of
any class and there has not been any change in the capital stock, or any
material increase in the debt (long or short term) or liabilities or obligations
of the Company (contingent or otherwise); (v) no material amount of the assets
of the Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (vi) no action, suit or proceeding, at
law or in equity, shall have been pending or threatened (or circumstances giving
rise to same) against the Company, or affecting any of its respective properties
or businesses before or by any court or federal, state or foreign commission,
board or other administrative agency wherein an unfavorable decision, ruling or
finding may materially adversely affect the business, operations, prospects or
financial condition or income of the Company, except as set forth in the
Registration Statement and Prospectus; and (vii) no stop order shall have been
issued under the Act and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(g) At each of the Closing Date and each Option Closing Date,
if any, the Underwriter shall have received a certificate of the Company signed
on behalf of the Company by the principal executive officer of the Company,
dated the Closing Date or Option Closing Date, as the case may be, to the effect
that such executive has carefully examined the Registration Statement, the
Prospectus and this Agreement, and that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the Closing Date
or the Option Closing Date, as the case may be, and the Company has complied
with all agreements and covenants and satisfied all
26
<PAGE>
conditions contained in this Agreement on its part to be performed or satisfied
at or prior to such Closing Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or, to the best
of each of such person's knowledge after due inquiry, are contemplated or
threatened under the Act;
(iii) The Registration Statement and the Prospectus
and, if any, each amendment and each supplement thereto, contain all statements
and information required by the Act to be included therein, and none of the
Registration Statement, the Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and neither the Preliminary Prospectus or any supplement, as of
their respective dates, thereto included any untrue statement of a material fact
or omitted 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; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus: (a) the
Company has not incurred up to and including the Closing Date or the Option
Closing Date, as the case may be, other than in the its business, any material
liabilities or obligations, direct or contingent; (b) the Company has not paid
or declared any dividends or other distributions on its capital stock; (c) the
Company has not entered into any transactions not in the ordinary course of
business; (d) there has not been any change in the capital stock or material
increase in long-term debt or any increase in the short-term borrowings (other
than any increase in the short-term borrowings in the ordinary course of
business) of the Company; (e) the Company has not sustained any loss or damage
to its property or assets, whether or not insured; (f) there is no litigation
which is pending or threatened (or circumstances giving rise to same) against
the Company or any affiliated party of any of the foregoing which is required to
be set forth in an amended or supplemented Prospectus which has not been set
forth; and (g) there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set forth. References to
the Registration Statement and the Prospectus in this subsection (g) are to such
documents as amended and supplemented at the date of such certificate.
(h) By the Closing Date, the Underwriter will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriter.
(i) At the time this Agreement is executed, the Underwriter
shall have received a letter, dated such date, addressed to the Underwriter in
form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriter and Underwriter's Counsel, from Ernst & Young:
27
<PAGE>
(i) confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable Rules and Regulations;
(ii) stating that it is their opinion that the
financial statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Regulations thereunder and
that the Underwriter may rely upon the opinion of Ernst & Young with respect to
the financial statements and supporting schedules included in the Registration
Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and board of directors and the various
committees of the board of directors of the Company, consultations with officers
and other employees of the Company responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that (x) the unaudited financial
statements and supporting schedules of the Company included in the Registration
Statement, if any, do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Regulations or are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements of the Company included in the Registration Statement, or (y) at a
specified date not more than five (5) days prior to the effective date of the
Registration Statement, there has been any change in the capital stock or
material increase in long-term debt of the Company, or any material decrease in
the stockholders' equity or net current assets or net assets of the Company as
compared with amounts shown in the [June 30], 1999, balance sheet included in
the Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease;
(iv) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(v) statements as to such other material matters
incident to the transaction contemplated hereby as the Underwriter may
reasonably request.
28
<PAGE>
(j) At the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received from Ernst & Young a letter, dated as of the
Closing Date or the Option Closing Date, as the case may be, to the effect that
they reaffirm that statements made in the letter furnished pursuant to
Subsection (i) of this Section 6, except that the specified date referred to
shall be a date not more than five (5) days prior to Closing Date or the Option
Closing Date, as the case may be, and, if the Company has elected to rely on
Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (iv) of Subsection (i) of this
Section 6 with respect to certain amounts, percentages and financial information
as specified by the Underwriter and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (iv).
(k) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriter the appropriate number of
Registered Securities.
(l) No order suspending the sale of the Registered Securities
in any jurisdiction designated by the Underwriter pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(m) On or before the Closing Date, the Company shall have
executed and delivered to the Underwriter, (i) the Underwriter's Warrant
Agreement, substantially in the form filed as Exhibit 4.2, to the Registration
Statement, in final form and substance satisfactory to the Underwriter, and (ii)
the Underwriter's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(n) On or before Closing Date, the Common Stock shall have
been duly approved for quotation on Nasdaq.
(o) On or before Closing Date, there shall have been delivered
to the Underwriter all of the Lock-up Agreements in final form and substance
satisfactory to Underwriter's Counsel.
If any condition to the Underwriter' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification. (a) The Company agrees to indemnify and hold
harmless the Underwriter (for purposes of this Section 7 "Underwriter" shall
include the officers, directors, partners, employees, agents and Underwriter's
Counsel), and each person, if any, who controls the Underwriter ("controlling
person") within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, from and against any and all loss, liability, claim, damage, and
expense whatsoever (including, but not limited to, reasonable attorneys' fees
and any and all reasonable
29
<PAGE>
expense whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever and any and all
amounts paid in settlement of any claim or litigation provided that the
indemnified persons may not agree to any such settlement without the prior
written consent of the Company), as and when incurred, arising out of, based
upon or in connection with (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented); or
(B) in any application or other document or communication (in this Section 7
collectively called "application") executed by or on behalf of the Company or
based upon written information furnished by or on behalf of the Company in any
jurisdiction in order to qualify the Registered Securities under the securities
laws thereof or filed with the Commission, any state securities commission or
agency, Nasdaq or any securities exchange; or any omission or alleged omission
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of the Prospectus, in the light
of the circumstances under which they were made), unless such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriter by or on behalf of such
Underwriter expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto, or in
any application, as the case may be; or (ii) any breach of any representation,
warranty, covenant or agreement of the Company contained in this Agreement. The
indemnity agreement in this subsection (a) shall be in addition to any liability
which the Company may have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
Registration Statement, and each other person, if any, who controls the Company,
within the meaning of the Act, to the same extent as the foregoing indemnity
from the Company to the Underwriter but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to the Underwriter by the
Underwriter expressly for use in such Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
such application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration Statement
or Prospectus directly relating to the transactions effected by the Underwriter
in connection with this Offering. The Company acknowledges that the statements
with respect to the public offering of the Registered Securities set forth under
the heading "Underwriting" and the stabilization legend in the Prospectus have
been furnished by the Underwriter expressly for use therein and constitute the
only information furnished in writing by or on behalf of the Underwriter for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify
30
<PAGE>
each party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure to so notify an indemnifying party shall
not relieve it from any liability which it may have otherwise or which it may
have under this Section 7, except to the extent that it has been prejudiced in
any material respect by such failure). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events the reasonable fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Registered Securities or (B) if the allocation provided by clause (A) 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 each of the contributing parties, on the one hand, and the
party to be indemnified on the other hand in connection with the
31
<PAGE>
statements or omissions that resulted in such losses, claims, damages, expenses
or liabilities, as well as any other relevant equitable considerations. In any
case where the Company is a contributing party and the Underwriter is the
indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriter, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Registered
Securities (before deducting expenses other than underwriting discounts and
commissions) bear to the total underwriting discounts received by the
Underwriter hereunder, in each case as set forth in the table on the Cover Page
of the Prospectus. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriter, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this
subdivision (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subdivision (d), the Underwriter shall not be required to contribute any amount
in excess of the underwriting discount applicable to the Registered Securities
purchased by the Underwriter hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in each case
to this subparagraph (d). Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect to which a claim for contribution may be made
against another party or parties under this subparagraph (d), notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements of the Company
at the Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the respective
indemnity and contribution agreements contained in Section 7 hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Underwriter, the Company, any controlling person of either
the Underwriter or the Company, and shall survive termination of this Agreement
or the issuance and delivery of the Registered Securities to the Underwriter, as
the case may be.
32
<PAGE>
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the date hereof. For purposes of this Section 9, the
Registered Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Registered Securities.
10. Termination. (a) Subject to subsection (b) of this Section 10, the
Underwriter shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has disrupted, or in the
Underwriter's reasonable opinion will in the immediate future disrupt the
financial markets; or (ii) any material adverse change in the financial markets
shall have occurred; or (iii) if trading on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction; or (iv) if the United States shall
have become involved in a war or major hostilities, or if there shall have been
an escalation in an existing war or major hostilities or a national emergency
shall have been declared in the United States; or (v) if a banking moratorium
has been declared by a state or federal authority; or (vi) if the Company shall
have sustained a loss material or substantial to the Company by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in the
Underwriter's opinion, make it inadvisable to proceed with the delivery of the
Registered Securities; or (viii) if there shall have been such a material
adverse change in the prospects or conditions of the Company, or such material
adverse change in the general market, political or economic conditions, in the
United States or elsewhere as in the Underwriter's judgment would make it
inadvisable to proceed with the offering, sale and/or delivery of the Registered
Securities.
(b) If this Agreement is terminated by the Underwriter in
accordance with any of the provisions of Section 6, Section 10(a) or Section 11,
the Company shall promptly reimburse and indemnify the Underwriter pursuant to
Section 5(b) hereof. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 6, 10 and 11 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 and Section 7 shall not be in any way affected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
11. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Registered Securities which it is obligated to sell hereunder on such date,
then this Agreement shall terminate (or, if such default shall occur with
respect to any Option Shares to be purchased on an Option Closing Date, the
Underwriter may, by notice the Company, terminate the Underwriter' obligation to
purchase Option Shares from the Company on such date) without any liability on
the part of any
33
<PAGE>
non-defaulting party other than pursuant to Section 5, Section 7 and Section 10
hereof. No action taken pursuant to this Section shall relieve the Company from
liability, if any, in respect of such default.
12. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to Auerbach,
Pollak & Richardson, Inc., 450 Park Avenue, New York, New York 10022, Attention:
Michael P. Considine, with a copy, which shall not constitute notice, to
Coleman, Rhine & Goodwin LLP, 750 Lexington Avenue, New York, New York 10022,
Attention: Kenneth S. Goodwin, Esq. Notices to the Company shall be directed to
the Company at 77 Jericho Turnpike, Mineola, New York 115012, Attention: Mark
dresner, with a copy, which shall not constitute notice, to Parker Duryee Rosoff
& Haft, P.C., 529 Fifth Avenue, New York, New York 10017, Attention: Craig L.
Libson, Esq.
13. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon the Underwriter, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Registered Securities from the Underwriter shall be deemed to be a
successor by reason merely of such purchase.
14. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
16. Entire Agreement; Amendments. This Agreement and the Underwriter's
Warrant Agreement constitute the entire agreement of the parties hereto and
supersede all prior written or oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may not be amended
except in a writing, signed by the Underwriter and the Company.
34
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
INFINITE TECHNOLOGY GROUP LTD.
By:_______________________
Name:
Title:
CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
AUERBACH, POLLAK & RICHARDSON, INC.
By:___________________________
Name:
Title:
35
<PAGE>
2,000,000 Shares
Common Stock
DEALER AGREEMENT
----------------
Auerbach, Pollak & Richardson, Inc.
450 Park Avenue
New York, New York 10022
Ladies and Gentlemen:
We acknowledge receipt of the Prospectus dated ______ __, 1999 (the
"Prospectus") relating to the offering of 2,000,000 shares (the "Shares") of
common stock, $.01 par value (the "Common Stock"), of Infinite Technology Group
Ltd., a New York corporation (the "Company").
We understand that you are offering a portion of the Shares for sale to
certain securities dealers who enter into an agreement with you in this form at
the public offering price of $____ per Share, less a selling concession of
$0.___ per Share.
We hereby agree with you as follows with respect to any purchase of the
Shares from you or from any dealer at a concession from the public offering
price.
In purchasing Shares, we will rely only on the Prospectus and on no
other statements whatsoever, written or oral.
1. Public Offering, Trading. The Shares purchased by us at a concession
from the public offering price shall be promptly offered to the public upon the
terms set forth in the Prospectus or for sale at a concession not in excess of
$0.____ per Share to (i) you or to any other member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") who enters into an
agreement with you in this form and (ii) foreign dealers not eligible for
membership in the NASD who enter into an agreement with you in this form.
We agree that except with your consent and except as provided herein we
will not, prior to the termination of this Agreement, bid for, purchase or sell,
directly or indirectly, for our own account, in the open market or otherwise, or
attempt to induce others to bid for, purchase or sell, either before or after
the sale of the Shares, and either for long or short account, any Shares or
other shares of Common Stock of the Company, and prior to the completion (as
defined in Regulation M under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of our participation in the distribution, we will
otherwise comply with said Regulation M. Nothing contained in this Section 1
shall prohibit us from acting as broker or agent in the execution of unsolicited
orders of customers for the purchase or sale of any securities of the Company.
<PAGE>
We agree to advise you from time to time upon request, prior to the
termination of this Agreement, of the number of Shares remaining unsold which
were purchased by us from you or from any other dealer at a concession from the
public offering price and, on your request, we will resell to you any such
Shares remaining unsold at the purchase price thereof if, in your opinion, such
Shares are needed to make delivery against sales made to others.
If, prior to the termination of this Agreement (or prior to such
earlier date as you may have determined), you purchase or contract to purchase
for your account in the open market or otherwise any Shares which were purchased
by us from you or from any other dealer at a concession from the public offering
price, or any Shares which may have been issued in exchange for such Shares, we
authorize you either to charge our account with an amount equal to the selling
concession with respect thereto, which amount shall be credited against the cost
of such Shares, or to require us to repurchase such Shares at a price equal to
the total cost of such purchase, including commissions, if any, and transfer
taxes on the redelivery thereof.
2. Delivery and Payment. If we purchase any Shares from you hereunder,
we agree that such purchases will be evidenced by your written confirmation and
will be subject to the terms and conditions set forth in the confirmation and in
the Prospectus.
We agree that delivery of any Shares purchased by us shall be made
through the facilities of The Depository Trust Company if we are a member
thereof, unless we are otherwise notified by you in your discretion. If we are
not a member of The Depository Trust Company, such delivery shall be made
through a correspondent who is such a member, if we shall have furnished
instructions to you (in connection with the purchase of Shares) naming such
correspondent, unless we are otherwise notified by you in your discretion.
Shares purchased by us from you hereunder shall be paid for in full at
the public offering price stated above, or, if you shall so advise us, at such
price less the applicable concession, at the office of Auerbach, Pollak &
Richardson, Inc.,450 Park Avenue, New York, New York 10022, at such time and on
such date as you may advise us, by wire transfer payable in New York Clearing
House (same day) funds to the order of Auerbach, Pollak & Richardson, Inc.
against delivery of the Shares. If we are called upon to pay the public offering
price for the Shares purchased by us, the applicable concession will be paid to
us, less any amounts charged to our account pursuant to Section 1 above, after
termination of this Agreement.
3. Termination. You will advise us of the date and time of termination
of this Agreement or of any designated provisions hereof. Unless sooner
terminated by you, this Agreement shall, in any event, either terminate 45 days
from the date of the commencement of the public offering of the Shares or 30
days from the date on which any Shares are purchased pursuant to the
over-allotment option granted to you, whichever is later.
4. Representations and Agreements. We represent that we are actually
engaged in
2
<PAGE>
the investment banking or securities business and we are either a member in good
standing of the NASD or, if not such a member, a foreign dealer, bank or
institution not eligible for membership. If we are such a member, we agree that
in making sales of the Shares we will comply with all applicable rules of the
NASD, including, without limitation, the NASD's Interpretation With Respect to
Free-Riding and Withholding under NASD Conduct Rule IM-2110-1 and Rule 2740 of
the NASD Conduct Rules. If we are such a foreign dealer, bank or institution, we
agree not to offer or sell any Shares in the United States of America, its
territories or possessions or to persons who are citizens thereof or residents
therein, except through you and in making sales of Shares outside the United
States of America we agree to comply, as though we were a member, with all
applicable rules of the NASD, including, without limitation, such Interpretation
and Rules 2730, 2740 and 2750 of the NASD Conduct Rules and to comply with Rule
2420 of such NASD Conduct Rules as it applies to non-NASD member brokers or
dealers in a foreign country.
We represent that neither we nor any of our directors, officers,
partners or "persons associated with" us (as defined in the By-Laws of the NASD)
nor, to our knowledge, any "related person" (as defined in the By-Laws of the
NASD, which definition includes counsel, financial consultants and advisors,
finders, members of the selling or distribution group, and any other persons
associated with or related to any of the foregoing) of any broker-dealer (i)
within the last eighteen months has purchased in private transactions, or
intends before, at or within six months after the commencement of the public
offering of the Shares, to purchase in private transactions, any securities
(including warrants or options) of the Company, its parent (if any), any
guarantor or insurer of the Shares or any subsidiary of any of the foregoing or
(ii) within the last twelve months had any dealings with the Company, any
guarantor or insurer of the Shares, any seller other than the foregoing or any
subsidiary or controlling person of any of the foregoing (other than in
connection with the syndicate agreements relating to this offering) as to which
documents or information are required to be filed with the NASD pursuant to its
Interpretation with Respect to Review of Corporate Financing.
5. Miscellaneous. We will not give any information or make any
representations not contained in the Prospectus, or act as agent for the Company
or you.
We agree that you have full authority to take such action as you may
deem to be advisable in respect to all matters pertaining to the offering of the
Shares. You shall not be under any liability to us except for lack of good faith
or for obligations expressly assumed by you in this Agreement.
You shall provide us with such number of copies of each preliminary
prospectus, the Prospectus and any supplement thereto as we may reasonably
request for the purposes contemplated by the Securities Act of 1933, as amended
(the "Securities Act") and the Exchange Act, and the applicable rules and
regulations of the Securities and Exchange Commission thereunder. We represent
that we are familiar with Securities Act Release No. 4968 and with Rule 15c2-8
under the Exchange Act relating to the distribution of preliminary and final
prospectuses and agree that we will comply therewith. We agree to keep an
accurate record of
3
<PAGE>
our distribution (including dates, number of copies and persons to whom sent) of
copies of the Prospectus or any preliminary prospectus (or any amendment or
supplement to the Prospectus or any preliminary prospectus), and, promptly upon
request by you, to bring all subsequent changes to the attention of anyone to
whom such material shall have been furnished. We agree to furnish to persons who
receive a confirmation of a sale a copy of the Prospectus filed pursuant to Rule
424(b) or Rule 424(c) under the Securities Act.
All communications to you relating to the subject matter of this
Agreement shall be addressed to Auerbach, Pollak & Richardson, Inc., 450 Park
Avenue, New York, New York 10022, Attention: Michael P. Considine, and any
notices to us shall be deemed to have been duly given if mailed, telexed or
telegraphed to us at the address shown below.
Neither you nor any of the Underwriters shall have any responsibility
or obligation with respect to the right of any dealer to sell Shares in any
jurisdiction, notwithstanding any information you may furnish in that
connection.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without giving effect to
choice of law or conflicts of law principles thereof, and we hereby submit to
the nonexclusive jurisdiction of the courts of the State of New York and the
United States District Court of the Southern District of New York.
Very truly yours,
------------------------
------------------------
------------------------
(Please type or print name and address)
By:
---------------------
Name:
Title:
4
<PAGE>
INFINITE TECHNOLOGY GROUP LTD.
AND
AUERBACH, POLLAK & RICHARDSON, INC.
UNDERWRITER'S
WARRANT AGREEMENT
Dated as of ______ ____, 1999
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of ____ ____, 1999, between
INFINITE TECHNOLOGY GROUP LTD., a New York corporation (the "Company"), and
AUERBACH, POLLAK & RICHARDSON, INC. and its assignees or designees (each
hereinafter referred to variously as a "Holder" or "Auerbach").
W I T N E S S E T H :
WHEREAS, Auerbach has agreed pursuant to the underwriting agreement
(the "Underwriting Agreement") between the Company and Auerbach to act as
underwriter (the "Underwriter") in connection with the Company's proposed public
offering of 2,000,000 shares of common stock of the Company, $.01 par value,
(the "Common Stock"), at a public offering price of $_____ per share (the
"Public Offering").
WHEREAS, pursuant to the Underwriting Agreement, the Company proposes
to issue warrants to the Underwriter to purchase up to an aggregate of 140,000
shares of Common Stock (the "Underwriter's Warrants").
WHEREAS, the Underwriter's Warrants to be issued pursuant to this
Agreement will be issued on the Closing Date (as such term is defined in the
Underwriting Agreement) by the Company to the Underwriter in consideration for,
and as part of the Underwriter's compensation in connection with, the
Underwriter acting as the underwriter pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representatives to the Company of an aggregate of One Hundred Forty Dollars
($140.00), the agreements herein set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Grant. Auerbach is hereby granted the right to purchase, at any time
from _____ ___, 2000 until 5:30 p.m., New York time, on _____ ___, 2004 (5 years
from the effective date (the "Effective Date") of the registration statement and
any supplement thereto, on Form S-1, No.333- (the "Registration Statement")), at
which time the Underwriter's Warrants expire, up to an aggregate 140,000 shares
of Common stock (subject to adjustment as provided in Section 8 hereof), at an
initial exercise price (subject to adjustment as provided in Section 11 hereof)
of $_____ (125% of the public offering price) (the "Exercise Price").
2. Underwriter's Warrant Certificates. The Underwriter's Warrant
certificates (the "Warrant Certificates") delivered and to be delivered pursuant
to this Agreement shall be in the form set forth in Exhibit A, attached hereto
and made a part hereof, with such appropriate insertions, omissions,
substitutions, and other variations as required or permitted by this Agreement.
3. Registration of Warrant. The Underwriter's Warrants shall be
numbered and shall be registered on the books of the Company when issued.
2
<PAGE>
4. Exercise of Underwriter's Warrant.
4.1 Method of Exercise. The Underwriter's Warrants initially
are exercisable at the Exercise Price (subject to adjustment as provided in
Section 11 hereof) per Underwriter's Warrant set forth in Section 8 hereof
payable by certified or official bank check in New York Clearing House funds.
Upon surrender of a Underwriter's Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise Price
for the shares of Common Stock purchased at the Company's principal offices in
New York (currently located at 156 William Street, New York, New York 10038) the
registered Holder of a Underwriter's Warrant Certificate ("Holder" or "Holders")
shall be entitled to receive a certificate or certificates for the shares of
Common Stock so purchased. The purchase rights represented by each Underwriter's
Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of Common Stock underlying the
Underwriter's Warrants). In the case of the purchase of less than all of the
shares of Common Stock purchasable under any Underwriter's Warrant Certificate,
the Company shall cancel said Underwriter's Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Underwriter's Warrant
Certificate of like tenor for the balance of the shares of Common stock
purchasable thereunder.
4.2 Exercise by Surrender of Underwriter's Warrant. In
addition to the method of payment set forth in Section 4.1 and in lieu of any
cash payment required thereunder, the Holder(s) of the Underwriter's Warrants
shall have the right at any time and from time to time to exercise the
Underwriter's Warrants in full or in part by surrendering the Warrant
Certificate in the manner specified in Section 4.1 in exchange for the number of
shares of Common Stock equal to the product of (x) the number of shares of
Common Stock as to which the Underwriter's Warrants are being exercised,
multiplied by (y) a fraction, the numerator of which is the Market Price (as
defined in Section 9.3 (e) hereof) of the shares of Common Stock minus the
Exercise Price of the shares of Common Stock and the denominator of which is the
Market Price per share of Common Stock. Solely for the purposes of this Section
4.2, Market Price shall be calculated either (i) on the date on which the form
of election attached hereto is deemed to have been sent to the Company pursuant
to Section 15 hereof ("Notice Date") or (ii) as the average of the Market Price
for each of the five trading days immediately preceding the Notice Date,
whichever of (i) or (ii) results in a greater Market Price.
5. Issuance of Certificates. Upon the exercise of the Underwriter's
Warrant, the issuance of certificates for shares of Common Stock, properties or
rights underlying such Underwriter's Warrant shall be made forthwith (and in any
event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax, other than income taxes, which
may be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Sections 7 and 9 hereof) be issued in the name of,
or in such names as may be directed by, the Holder thereof; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons
3
<PAGE>
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Underwriter's Warrant Certificates and the certificates
representing the shares of Common Stock or other securities, property or rights
issued upon exercise of the Underwriter's Warrant shall be executed on behalf of
the Company by the manual or facsimile signature of the then present President
or any Vice President of the Company under its corporate seal reproduced
thereon, attested to by the manual or facsimile signature of the then present
Secretary or any Assistant Secretary of the Company. Underwriter's Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
6. Transfer of Underwriter's Warrant. The Underwriter's Warrant shall
be transferable only on the books of the Company maintained at its principal
office, where its principal office may then be located, upon delivery thereof
duly endorsed by the Holder or by its duly authorized attorney or representative
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any registration transfer, the Company shall execute and deliver
the new Underwriter's Warrant to the person entitled thereto.
7. Restriction On Transfer of Underwriter's Warrant. The Holder of a
Underwriter's Warrant Certificate, by its acceptance thereof, covenants and
agrees that the Underwriter's Warrant is being acquired as an investment and not
with a view to the distribution thereof, and that the Underwriter's Warrant may
not be sold, transferred, assigned, hypothecated or otherwise disposed of, in
whole or in part, for the term of the Underwriter's Warrant, except (i) during
the first year of the term, to officers of the Underwriter and thereafter (ii)
to officers or employees of the Underwriter who are also stockholders of the
Underwriter, or by will, pursuant to the laws of descent and distribution, or by
the operation of law.
8. Exercise Price and Number of Securities. Except as otherwise
provided in Section 10 hereof, each Underwriter's Warrant is exercisable to
purchase one share of Common Stock at an initial exercise price equal to the
Exercise Price. The Exercise Price and the number of shares of Common Stock for
which the Underwriter's Warrant may be exercised shall be the price and the
number of shares of Common Stock which shall result from time to time from any
and all adjustments in accordance with the provisions of Section 11 hereof.
9. Registration Rights.
9.1 Registration Under the Securities Act of 1933. Each
Underwriter's Warrant Certificate and each certificate representing shares of
Common Stock and any of the other securities issuable upon exercise of the
Underwriter's Warrant (collectively, the "Warrant Shares") shall bear the
following legend unless (i) such Underwriter's Warrant or Warrant Shares are
distributed to the public or sold to the underwriters for distribution to the
public pursuant to Section 9 hereof or otherwise pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the "Act"), or
(ii) the Company has received an opinion of counsel, in form and
4
<PAGE>
substance reasonably satisfactory to counsel for the Company, that such legend
is unnecessary for any such certificate:
THE UNDERWRITER'S WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE UNDERWRITER'S WARRANT REPRESENTED BY THE
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE UNDERWRITER'S WARRANT AGREEMENT
REFERRED TO HEREIN.
9.2 Piggyback Registration. If, at any time commencing one (1)
year after the Effective Date and expiring five (5) years thereafter, the
Company proposes to register any of its securities under the Act (other than in
connection with a merger or pursuant to Form S-4 or Form S-8 or successor form
thereto) it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such registration statement, to the Holders of
the Warrant Shares of its intention to do so. If any of the Holders of the
Warrant Shares notify the Company within twenty (20) days after mailing of any
such notice of its or their desire to include any such securities in such
proposed registration statement, the Company shall afford such Holders of the
Warrant Shares the opportunity to have any such Warrant Shares registered under
such registration statement. In the event that the managing underwriter for said
offering advises the Company in writing that in its opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without causing a diminution in the offering
price or otherwise adversely affecting the offering, the Company will include in
such registration (a) first, the securities the Company proposes to sell, (b)
second, the securities held by the entities that made the demand for
registration, (c) third, the Warrant Shares requested to be included in such
registration which in the opinion of such underwriter can be sold, pro rata
among the Holders of Warrant Shares on the basis of the number of Underwriter's
Warrant Shares requested to be registered by such Holders, and (d) fourth, other
securities requested to be included in such registration.
Notwithstanding the provisions of this Section 9.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 9.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement or to withdraw the same after the filing but prior to the
effective date thereof.
9.3 Demand Registration. (a) At any time commencing one (1)
year after the Effective Date and expiring five (5) years thereafter, the
Holders of the Underwriter's Warrants and/or Warrant Shares representing a
"Majority" (as hereinafter defined) of the Underwriter's
5
<PAGE>
Warrants and/or Warrant Shares shall have the right (which right is in addition
to the registration rights under Section 9.2 hereof), exercisable by written
notice to the Company, to have the Company prepare and file with the Securities
and Exchange Commission (the "Commission"), on one occasion, a registration
statement and such other documents, including a prospectus, as maybe necessary
in the opinion of both counsel for the Company and counsel for the Holders, in
order to comply with the provisions of the Act, so as to permit a public
offering and sale by such Holders and any other Holders of the Underwriter's
Warrant and/or Warrant Shares who notify the Company within fifteen (15) days
after the Company mails notice of such request pursuant to Section 9.3(b) hereof
(collectively, the "Requesting Holders") of their respective Warrant Shares for
the earlier of (i) six (6) consecutive months or (ii) until the sale of all of
the Warrant Shares requested to be registered by the Requesting Holders.
(b) The Company covenants and agrees to give written
notice of any registration request under this Section 9.3 by any Holder or
Holders representing a Majority of the Underwriter's Warrants and/or Warrant
Shares to all other registered Holders of the Underwriter's Warrants and the
Warrant Shares within ten (10) days from the date of the receipt of any such
registration request.
(c) Notwithstanding anything to the contrary
contained herein, if the Company shall not have filed a registration statement
for the Warrant Shares within the time period specified in Section 9.4(a) hereof
pursuant to the written notice specified in Section 9.3(a) of the Holders of a
Majority of the Underwriter's Warrants and/or Warrant Shares, the Company, at
the option of the Holders of a Majority, will be required to repurchase (i) any
and all Warrant Shares at the higher of the Market Price (as defined in Section
9.3(e)) per share of Common Stock on (x) the date of the notice sent pursuant to
Section 9.3(a) or (y) the expiration of the period specified in Section 9.4(a)
and (ii) any and all Underwriter's Warrants at such Market Price per share of
Common Stock less the Exercise Price of such Underwriter's Warrants. The Holders
of a Majority shall notify the Company in writing of their election to require
such repurchase. Such repurchase shall be in immediately available funds and
shall close within two (2) days after the later of (i) the expiration of the
period specified in Section 9.4(a) or (ii) the delivery of the written notice of
election specified in this Section 9.3(d).
(e) Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be the average of the last
reported sale prices for the last five (5) trading days, as officially reported
by the principal securities exchange on which the Common Stock is listed or
admitted to trading, or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the average closing sale price as
furnished by the Nasdaq National Market System ("Nasdaq"), or if the Common
Stock is not quoted on Nasdaq, as determined in good faith by resolution of the
Board of Directors of the Company, based on the best information available to
it.
9.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Sections 9.2 or 9.3 hereof, the Company
covenants and agrees as follows:
6
<PAGE>
(a) The Company shall use its best efforts to file a
registration statement within ninety (90) days of receipt of any demand
therefor, and to have any registration statements declared effective at the
earliest possible time, shall furnish each Holder desiring to sell Warrant
Shares such number of prospectuses as shall reasonably be requested and shall
maintain the effectiveness of such registration statement for a period of at
least twelve (12) months. Notwithstanding the foregoing sentence, the Company
shall be entitled one time only to postpone the filing of any registration
statement otherwise required to be prepared and filed by it pursuant to this
Section 9.4(a) if the Company is (i) publicly committed to a self-tender or
exchange offer and the filing of a registration statement would cause a
violation of Regulation M under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or (ii) involved in negotiating or consummating an
acquisition or merger which would make such registration impracticable, in
either of which cases the filing of the registration statement may be delayed
for a period of up to 60 days. The Company shall promptly deliver to the Holders
a written notice of postponement, which notice shall specifically set forth the
reason for such postponement. Following the delivery of such notice, the Company
shall be required to file the postponed registration statement upon the earlier
of (i) the consummation or termination, as applicable, of the event requiring
such postponement (ii) 60 days after delivery of the aforementioned notice.
(b) The Company shall pay all costs (excluding fees
and expenses of Holder(s)' counsel and any underwriting or selling commissions,
and excluding roadshow expenses if the only shares to be registered in such
Registration Statement are Warrant Shares), fees and expenses in connection with
all registration statements filed pursuant to Sections 9.2 and 9.3(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. The Holder(s) will pay all costs, fees and
expenses (including those of the Company)in connection with the registration
statement filed pursuant to Section 9.3(c).
(c) The Company will take all necessary action which
may be required in qualifying or registering the Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided that
the Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s)of the
Warrant Shares to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from such registration statement but only to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to indemnify
each of the Underwriters contained in Section 7 of the Underwriting Agreement.
7
<PAGE>
(e) The Holder(s) of the Warrant Shares to be sold
pursuant to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration statement to
the same extent and with the same effect as the provisions contained in Section
7 of the Underwriting Agreement pursuant to which the Underwriter has agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be
construed as requiring the Holder(s) to exercise their Underwriter's Warrant
prior to the initial filing of any registration statement or the effectiveness
thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrant Shares to be included in any registration
statement filed pursuant to Section 9.3 hereof, or permit any other registration
statement to be or remain effective during the effectiveness of a registration
statement filed pursuant to Section 9.3 hereof (other than registration
statements filed prior to an exercise of registration rights by a Holder of
Underwriter's Warrants and/or Warrant Shares pursuant to Section 9.2 hereof),
without the prior written consent of Auerbach or as otherwise required by the
terms of any existing registration rights granted prior to the date of this
Agreement by the Company to the holders of any of the Company's securities.
(h) In the event of an underwritten offering, the
Company shall furnish to each Holder participating in the offering and to each
underwriter a signed counterpart, addressed to such Holder or underwriter, of
(i) an opinion of counsel to the Company, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable after
the effective date of the registration statement, and in any event within 15
months thereafter, make "generally available to
8
<PAGE>
its security holders" (within the meaning of Rule 158 funder the Act) an
earnings statement (which need not be audited) complying with Section 11(a) of
the Act and covering a period of at least 12 consecutive months beginning after
the effective date of the registration statement.
(j) The Company shall enter into an underwriting
agreement with the managing underwriters (in the case of registration rights
exercised pursuant to Section 9.3 hereof, selected for such underwriting by
Holders holding a Majority of the Warrant Shares requested to be included in
such underwriting, which may be the Representative). Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders shall be parties to
any underwriting agreement relating to an underwritten sale of their Warrant
Shares and may, at their option, require that any or all the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters shall also be made to and for the benefit of such Holders. Such
Holders shall not be required to make any representations or warranties to or
agreements with the Company or the underwriters except as they may relate to
such Holders and their intended methods of distribution.
(k) For purposes of this Agreement, the term
"Majority" in reference to the Underwriter's Warrants or Warrant Shares shall
mean in excess of fifty percent (50%) of the then outstanding Underwriter's
Warrants or Warrant Shares that (i) are not held by the Company, an affiliate,
officer, creditor, employee for agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
10. Obligations of Holders. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 9 hereof that
each of the selling Holders shall:
(a) Furnish to the Company such information
regarding themselves, the Warrant Shares held by them, the intended method of
sale or other disposition of such securities, the identity of and compensation
to be paid to any underwriters proposed to be employed in connection with such
sale or other disposition, and such other information as may reasonably be
required to effect the registration of their Warrant Shares.
(b) Notify the Company, at any time when a prospectus
relating to the Warrant Shares covered by a registration statement is required
to be delivered under the Act, of the happening of any event with respect to
such selling Holder as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
11. Adjustments to Exercise Price and Number of Securities. The
Exercise Price in effect at any time and the number and kind of securities
purchased upon the exercise of the
9
<PAGE>
Underwriter's Warrant shall be subject to adjustment from time to time only upon
the happening of the following events:
11.1 In case the Company shall (i) declare a dividend on its
Common Stock in Common Stock or make a distribution of Common Stock, (ii)
subdivide its outstanding Common Stock, (iii) combine its outstanding Common
Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its Common Stock other securities of the Company (including
any such reclassification in connection with a consolidation or merger in
which the Company is the continuing corporation), the number of Warrant Shares
purchasable upon exercise of each Underwriter's Warrant immediately prior
thereto shall be adjusted so that the Holder of each Underwriter's Warrant shall
be entitled to receive the kind and number of shares of Common Stock or other
securities of the Company which he would have owned or have been entitled to
receive after the happening of any of the events described above, had such
Underwriter's Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made pursuant to
this paragraph 11.1 shall become effective immediately after the effective date
of such event retroactive to immediately after the record date, if any, for such
event.
11.2 In case the Company shall issue rights, options or
warrants to all holders of its Common Stock, without any charge to such holders,
entitling them (for a period expiring within 45 days after the record date
mentioned below in this paragraph 11.2) to subscribe for or to purchase Common
Stock at a price per share that is lower at the record date mentioned below than
the then current market price per share of Common Stock (as defined in paragraph
11.4 below), the number of Warrant Shares thereafter purchasable upon exercise
of each Underwriter's Warrant shall be determined by multiplying the number of
Warrant Shares theretofore purchasable upon exercise of each Underwriter's
Warrant by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock outstanding on such
record date plus the number of shares which the aggregate offering price of the
total number of shares of Common Stock so offered would purchase at the then
current market price per shares of Common Stock. Such adjustment shall be made
whenever such rights, options or warrants are issued, and shall become effective
retroactively to immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
11.3 In case the Company shall distribute to all holders of
its shares of Common Stock securities other than Common Stock or evidences of
its indebtedness or assets (excluding cash dividends payable out of consolidated
earnings or retained earnings and dividends or distributions referred to in
paragraph 11.1 above) or rights, options or warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock (excluding those referred to in paragraph 11.2 above), then in
each case the number of Warrant Shares thereafter issuable upon the exercise of
each Underwriter's Warrant shall be determined by multiplying the number of
Warrant Shares theretofore issuable upon the exercise of each Underwriter's
Warrant, by a fraction, of which the numerator shall be the current market
10
<PAGE>
price per shares of Common Stock (as defined in paragraph 11.4 below) on the
record date mentioned below in this paragraph 11.3, and of which the denominator
shall be the current market price per shares of Common Stock on such record
date, less the then fair value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the portion of the shares
of stock other than Common Stock or assets or evidences of indebtedness so
distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to immediately after
the record date for the determination of stockholders entitled to receive such
distribution.
11.4 For the purpose of any computation under paragraphs 11.2
and 11.3 of this Section 11, the current market price per share of Common Stock
at any date shall be the average of the daily closing prices for fifteen (15)
consecutive trading days commencing twenty (20) trading days before the date of
such computation. The closing price for each day shall be the last reported sale
price regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in either
case on the principal national securities exchange on which the shares are
listed or admitted to trading, or if they are not listed or admitted to trading
on any national securities exchange, but are traded in the over-the-counter
market, the closing sale price of the Common Stock or, in case no sale is
publicly reported, the average of the representative closing bid and asked
quotations for the Common Stock on Nasdaq or any comparable system, or if the
shares of Common Stock are not listed on Nasdaq or a comparable system, the
closing sale price of the Common Stock or, in case no sale is publicly reported,
the average of the closing bid and asked prices as furnished by two members of
the NASD selected from time to time by the Company for that purpose.
11.5 No adjustment in the number of Warrant Shares purchasable
hereunder or the Exercise price thereof shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the number
of Warrant Shares purchasable upon the exercise of each Underwriter's Warrant;
provided, however, that any adjustments which by reason of this paragraph 11.5
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment, but not later than three years after the happening of
the specified event or events. All calculations shall be made to the nearest one
thousandth of a share. Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled, but shall not be required, to
make such changes in the number of Warrant Shares purchasable upon the exercise
of each Underwriter's Warrant, in addition to those required by this Section 11,
as it in its discretion shall determine to be advisable in order that any
dividend or distribution in shares of Common Stock, subdivision,
reclassification or combination of shares of Common Stock, issuance of rights,
warrants or options to purchase Common Stock, or distribution of shares of stock
other than Common Stock, evidences of indebtedness or assets (other than
distributions of cash out of consolidated earnings or retained earnings) or
convertible or exchangeable securities hereafter made by the Company to the
holders of its shares of Common Stock shall not result in any tax to the holders
of its Common Stock or securities convertible into Common Stock.
11
<PAGE>
11.6 Whenever the number of Warrant Shares purchasable upon
the exercise of each Underwriter's Warrant is adjusted, as herein provided, the
Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to such adjustment by a fraction, of which the numerator shall
be the number of Warrant Shares purchasable upon the exercise of each
Underwriter's Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of Warrant Shares so purchasable immediately
thereafter.
11.7 For the purpose of this Section 11, the term "Common
Stock" shall mean (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely of
changes in par value, or from no par value to par value, or from par value to no
par value. In the event that at any time, as a result of an adjustment made
pursuant to paragraph 11.1 above, the Holders shall become entitled to purchase
any shares of capital stock of the Company other than Common Stock, thereafter
the number of such other shares so purchasable upon exercise of each
Underwriter's Warrant and the Exercise Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
paragraphs 11.1 through 11.6, inclusive, and paragraphs 11.8 through 11.13,
inclusive, of this Section 11, and the provisions of Sections 4, 5, 9 and 13,
with respect to the Warrant Shares, shall apply on like terms to any such other
shares.
11.8 Upon the expiration of any rights, options, warrants or
conversion rights or exchange privileges granted pursuant to paragraphs 11.2 and
11.3 above, if any thereof shall not have been exercised, the Exercise Price and
the number of shares of Common Stock purchasable upon the exercise of each
Underwriter's Warrant shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it originally been adjusted (or had
the original adjustment not been required, as the case may be) as if (i) the
only shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such rights, options, warrants or
conversion rights or exchange privileges and (ii) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company upon such exercise plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all of such rights,
options, warrants or conversion rights or exchange privileges whether or not
exercised; provided, however, that no such readjustment shall have the effect of
increasing the Exercise Price by an amount in excess of the amount of the
adjustment initially made in respect to the issuance, sale or grant of such
rights, options, warrants or conversion rights or exchange privileges.
11.9 The Company may, at its option, at any time during the
term of the Underwriter's Warrants, reduce the then current Exercise Price to
any amount deemed appropriate by the Board of Directors of the Company.
11.10 Whenever the number of Warrant Shares issuable upon the
exercise of each Underwriter's Warrant or the Exercise Price of such Warrant
Shares is adjusted, as herein provided, the Company shall promptly mail by first
class mail postage prepaid, to each Holder
12
<PAGE>
notice of such adjustment or adjustments. The Company shall retain a firm of
independent public accountants (who may be the regular accountants employed by
the Company) to make any computation required by this Section 11 and shall cause
such accountants to prepare a certificate setting forth the number of Warrant
Shares issuable upon the exercise of each Underwriter's Warrant and the Exercise
Price of such Warrant Shares after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such certificate shall be
conclusive on the correctness of such adjustment and each Holder shall have the
right to inspect such certificate during reasonable business hours.
11.11 Except as provided in this Section 8, no adjustment in
respect of any dividends shall be made during the term of the Underwriter's
Warrants or upon the exercise of the Underwriter's Warrants.
11.12 In case of any consolidation of the Company with, or
merger of, the Company with or into another corporation or in case of any sale
or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation (or an affiliate of such successor or purchasing
corporation), as the case may be, agrees that each Holder shall have the right
thereafter upon payment of the Exercise Price in effect immediately prior to
such action to purchase upon exercise of each Underwriter's Warrant the kind and
amount of shares and other securities and property (including cash) which he
would have owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had such Underwriter's Warrant been
exercised immediately prior to such action. The provisions of this paragraph
11.12 shall similarly apply to successive consolidations, mergers, sales or
conveyances.
11.13 Notwithstanding any adjustment in the Exercise Price or
the number or kind of shares purchasable upon the exercise of the Underwriter's
Warrants pursuant to this Agreement, certificates for Underwriter's Warrants
issued prior or subsequent to such adjustment may continue to express the same
price and number and kind of Warrant Shares as are initially issuable pursuant
to this Agreement.
11.14 Each Underwriter's Warrant Certificate is exchangeable,
without expense, upon the surrender thereof by the registered Holder at the
principal executive office of the Company for a new Underwriter's Warrant
Certificate of like tenor and date representing in the aggregate the right to
purchase the same number of Warrant Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
Underwriter's Warrant Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to it and reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Underwriter's Warrant, if mutilated, the Company will make
and deliver a new Warrant Certificate of like tenor, in lieu thereof.
13
<PAGE>
12. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common stock
upon the exercise of the Underwriter's Warrant, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock or other
securities, properties or rights.
13. Reservation and Listing of Securities. The Company shall at all
times reserve and keep available out of its authorized shares of Common stock,
solely for the purpose of issuance upon the exercise of the Underwriter's
Warrant, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. Every transfer agent
("Transfer Agent") for the Common Stock and other securities of the Company
issuable upon the exercise of the Underwriter's Warrant will be irrevocably
authorized and directed at all times to reserve such number of authorized shares
of Common Stock and other securities as shall be requisite for such purpose. The
Company will keep a copy of this Agreement on file with every Transfer Agent for
the Common Stock and other securities of the Company issuable upon the exercise
of the Underwriter's Warrant. The Company will supply every such Transfer Agent
with duly executed stock and other certificates, as appropriate, for such
purpose. The Company covenants and agrees that, upon exercise of the
Underwriter's Warrant and payment of the Exercise Price therefor, all shares of
Common Stock and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Underwriter's Warrant shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Underwriter's Warrant to be
listed (subject to official notice of issuance) on all securities exchanges on
which the Common Stock issued to the public in connection herewith may then be
listed and/or quoted on Nasdaq.
14. Notices to Underwriter's Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Underwriter's Warrants and their exercise, any of
the following events shall occur:
(a) the Company shall take a record of the holders
of its shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
14
<PAGE>
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a sale
all or substantially all of its property, assets and business as an entirety
shall be proposed; then in any one or more of said events, the Company shall
give written notice of such event at least fifteen (15) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the stockholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, or entitled to
vote on such proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
15. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have be unduly made and
sent when delivered, or mailed by registered or certified mail, return receipt
requested:
(a) if to the registered Holder of the Underwriter's
Warrant, to the address of such Holder as shown on the books of the Company; or
(b) if to the Company, to the address set forth in
Section 4 hereof or to such other address as the Company may designate by notice
to the Holders.
16. Supplements; Amendments; Entire Agreement. This Agreement
(including the Underwriting Agreement to the extent portions thereof are
referred to herein) contains the entire understanding between the parties hereto
with respect to the subject matter hereof and may not be modified or amended
except by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought. The Company and the Underwriter may from
time to time supplement or amend this Agreement without the approval of any
holders of Underwriter's Warrant Certificates (other than the Underwriter) in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
the Company and the Underwriter deem shall not adversely affect the interests of
the Holders of Underwriter's Warrant Certificates.
17. Successors. All of the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the holders and
their respective successors and assigns hereunder.
18. Survival of Representations and Warranties. All statements in any
schedule, exhibit or certificate or other instrument delivered by or on behalf
of the parties hereto, or in connection with the transactions contemplated by
this Agreement, shall be deemed to be representations and warranties hereunder.
Notwithstanding any investigations made by or on
15
<PAGE>
behalf of the parties to this Agreement, all representations, warranties and
agreements made by the parties to this Agreement or pursuant hereto shall
survive.
19. Governing Law. This Agreement and each Underwriter's Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
20. Severability. If any provision of this Agreement shall beheld to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Underwriter's Warrant
Certificates or Warrant Shares any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Underwriter and any other Holder(s) of the
Underwriter's Warrant Certificates or Warrant Shares.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
16
<PAGE>
IN WITNESS OF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
ATTEST: INFINITE TECHNOLOGY GROUP LTD.
____________________ By:________________________
Name:
Title:
AUERBACH, POLLAK & RICHARDSON, INC.
By:______________________
Name:
Title:
17
<PAGE>
EXHIBIT A
[FORM OF UNDERWRITER'S WARRANT CERTIFICATE]
THE UNDERWRITER'S WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE UNDERWRITER'S WARRANT REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
EXERCISABLE ON OR BEFORE 5:30 P.M., NEW YORK TIME, ______ __, 2004.
Underwriter's Warrant No.
140,000 Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______, or registered assigns, is the
registered holder of Warrants to purchase initially, at any time from ______
___, 2000 until 5:30 p.m., New York time on _____ ___, 2004 ("Expiration Date"),
up to ____ shares of fully-paid and non-assessable common stock, $.01 par value
("Common Stock") of Infinite Technology Group Ltd.., a New York corporation (the
"Company") at the initial exercise price, subject to adjustment in certain
events, of $_____ per share (the "Exercise Price") upon surrender of this
Underwriter's Warrant Certificate and payment of the Exercise Price at an office
or agency of the Company, but subject to the conditions set forth herein and in
the Underwriter's Warrant Agreement dated as of ____ __, 1999 between the
Company and Auerbach, Pollak & Richardson, Inc. (the "Warrant Agreement").
Payment of the Exercise Price shall be made either (i) by certified or official
bank check in New York Clearing House funds payable to the order of the Company
or (ii) by surrender of this Warrant Certificate in accordance with the
provisions of Section 4.2 of the Warrant Agreement.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Underwriter's Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void. The Underwriter's
Warrants evidenced by this Warrant Certificate are part of a duly authorized
issue of Underwriter's Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and
1
<PAGE>
is hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Underwriter's Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable upon the exercise of the Underwriter's Warrants may, subject to certain
conditions, be adjusted. In such event, the Company will, at the request of the
holder, issue a new Warrant Certificate evidencing the adjustment in the
Exercise Price and the number and/or type of securities issuable upon the
exercise of the Underwriter's Warrants; provided, however, that the failure of
the Company to issue such new Warrant Certificates shall not in any way change,
alter, or otherwise impair, the rights of the holder as set forth in the Warrant
Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Underwriter's Warrant shall be issued to the transferee(s) in exchange for
this Warrant Certificate, subject to the limitations provided herein and in the
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Underwriter's Warrants
evidenced by this Certificate, the Company shall forthwith issue to the holder
hereof a new Warrant Certificate representing such numbered unexercised
Underwriter's Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
This Warrant Certificate does not entitle any holder thereof to any of
the rights of a shareholder of the Company.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ____ __, 1999
ATTEST: INFINITE TECHNOLOGY GROUP LTD.
_________________________ By:__________________________
Name:
Title:
3
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby elects irrevocably to exercise the within
Warrant and to purchase _____ shares of Common Stock of INFINITE TECHNOLOGY
GROUP LTD. and hereby makes payment of $_________ (at the rate of $____ per
share) in payment of the Exercise Price pursuant thereto. Please issue the
Common Stock as to which this Warrant is exercised in accordance with the
instructions given below.
or
The undersigned hereby elects irrevocably to exercise the
within Warrant and to purchase ___________ shares of Common Stock of INFINITE
TECHNOLOGY GROUP LTD. by surrender of the unexercised portion of the within
Warrant Certificate (with a "Value" of $______________ based on a "Market Price"
of $___________). Please issue the Common Stock in accordance with the
instructions given below.
Dated: _________________
Signature: _____________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Address: _______________________________________
_______________________________________
_______________________________________
(Insert Social Security or Other Identifying Number of Holder)
Signature Guaranteed: ______________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name __________________________________________________
(Print in Block Letters)
Address __________________________________________
4
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________ here sells, assigns and transfers unto
[NAME OF TRANSFEREE] this Warrant Certificate, together with all right, title
and interest therein, and does hereby irrevocably constitute and
appoint_________________ Attorney, to transfer the within Warrant Certificate on
the books of the within-named Company, with full power of substitution.
Dated: ____________________
Signature: __________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Address: ___________________________________
_______________________________________
_______________________________________
(Insert Social Security or Other Identifying
Number of Holder)
Signature
Guaranteed: ___________________________________
(Signature must be guaranteed by a bank savings and loan association,
stockbroker, or credit union with membership in an approved signature guaranty
Medallion Program pursuant to Securities Exchange Act Rule 17Ad-15.)
5
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 20, 1999, by and among
Infinite Technology Information Services, Inc., a New York Corporation (the
"COMPANY"), Mercury Internet Services, Inc., a New York corporation and wholly
owned subsidiary of Parent (the "PURCHASER"), and Infinite Technology Group
Ltd., a New York corporation (the "PARENT").
WHEREAS, the Board of Directors of the Company, Purchaser and Parent have
each determined that it is in the best interests of their respective
stockholders for the Purchaser to acquire the Company upon the terms and subject
to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, the Board of Directors of the
Company, Purchaser and Parent have each approved the merger of the Company with
and into the Purchaser (the "MERGER"), in accordance with the New York Business
Corporation Law (the "NYBCL") and upon the terms and subject to the conditions
set forth herein;
WHEREAS, all of the issued and outstanding shares of stock of any class of
the Company consists of One Hundred and Fifty (150) shares of Common Stock, no
par value, (the "ISSUED COMPANY SHARES") which are owned and of record by the
persons named on Schedule A hereto (the "COMPANY SHAREHOLDERS");
WHEREAS, it is the intent of this Agreement that the Merger of the Company
with and into the Purchaser constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company Shareholders have voted a majority of the Issued
Company Shares in favor of the approval of this Agreement and the transactions
contemplated hereby, including the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Purchaser, the Company and the Parent hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the NYBCL, the Company shall be merged with and
into the Purchaser simultaneously with the Parent's consummation of its initial
public offering of its securities (the "IPO"). Following the Merger, the
Purchaser shall continue as the surviving corporation and the separate corporate
existence of the Company shall cease.
SECTION 1.02 EFFECTIVE TIME. Subject to Section 1.01, the Merger shall
become effective upon filing with the New York Secretary of State of a
Certificate of Merger executed in accordance with the relevant provisions of the
NYBCL (the time the Merger becomes effective is referred to herein as the
"EFFECTIVE TIME").
SECTION 1.03 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the NYBCL. Without limitation, upon the effectiveness of the Merger:
(a) the separate existence of the Company shall cease; (b) the Purchaser as the
surviving corporation shall possess all of the rights, privileges, powers,
immunities, purposes and franchises, both public and private, of each of the
Company and the Purchaser; (c) all real and personal property, tangible and
intangible, of every kind and description belonging to the Company and the
Purchaser shall be vested in the Purchaser as the surviving corporation without
further act or deed, and the title to any real estate or any interest therein
vested in either the Company or the Purchaser shall not revert or in any way be
impaired by reason of the Merger; (d) the Purchaser as the surviving corporation
shall be liable for all the obligations and liabilities of each of the Company
and the Purchaser, and any claim existing or action or proceeding pending by or
against either the Company or the Purchaser may be enforced against the
Purchaser as if the Merger had not taken place; and (e) neither the rights of
creditors nor any liens upon or security interests in the property of either the
Company or the Purchaser shall be impaired by the Merger.
SECTION 1.04 CERTIFICATE OF INCORPORATION AND BY-LAWS. Without further
action by the Company or the Purchaser, the Certificate of Incorporation and
By-laws of the Purchaser as in effect at the Effective Time shall continue to be
the Certificate of Incorporation and By-Laws of the Purchaser as the surviving
corporation.
SECTION 1.05 DIRECTORS. The directors of the Purchaser at the Effective
Time shall be the initial directors of the Purchaser as the surviving
corporation, until their successors shall have been duly elected or appointed
and qualified.
SECTION 1.06 OFFICERS. The officers of the Purchaser at the Effective Time
shall be the initial officers of the Purchaser as the surviving corporation,
until their successors have been duly appointed.
2
<PAGE>
SECTION 1.07 EXCHANGE OF IPO PROCEEDS AND SHARES; LOAN AND PLEDGED SHARES;
ASSUMPTION OF OBLIGATION. Upon consummation of the Merger, the Parent shall:
(a) Exchange Three Million Five Hundred Thousand Dollars ($3,500,000) of
the proceeds received by the Parent from the IPO and One Hundred Thousand
(100,000) shares of Common Stock of the Parent (collectively be referred to as
the "MERGER CONDSIDERATION") for all of the Issued Company Shares. The Merger
Consideration shall be delivered by the Parent as instructed by the Company. The
100,000 shares exchanged by the Parent, as set forth herein, shall be
"restricted stock", shall not be registered under the Securities Act of 1933, as
amended (the "ACT") and the Parent shall have no obligation to effect any
registration thereof;
(b) Make a loan to Paul Wolotsky ("WOLOTSKY"), the President and Sole
Member of Wolotsky Enterprise, L.L.C., one of the Company Shareholders, in the
amount of Five Hundred Thousand Dollars ($500,000) (the "LOAN") from the IPO
proceeds. The Loan shall be secured by a pledge by Wolotsky Enterprise, L.L.C.
of the shares delivered by the Parent (the "PLEDGED SHARES"), as set forth in
Section 1.07(a), and the Parent's sole recourse upon an event of default shall
be to foreclose on such Pledged Shares. Wolotsky shall execute a Promissory
Note, dated as of the date of the Loan (the "PROMISSORY NOTE"), and shall cause
Wolotsky Enterprise, L.L.C. to execute a Pledge Agreement, dated as of the date
of the Loan (the "PLEDGE AGREEMENT"), and any additional documentation
reasonably required by the Parent, for and on behalf of the Parent, evidencing
Wolotsky's obligations with respect to repayment of the Loan and securing such
Loan with the Pledged Shares. The Pledged Shares shall be held in escrow in
accordance with the terms and conditions of the Pledge Agreement.
(c) Assume the obligation of the Company set forth in Section 7 of the
Master Internet Services Agreement between the Company and MCSP, Inc., dated
July 1, 1999. The merger discussed therein, if any, shall be a merger of MCSP,
Inc. with and into the Purchaser and the number of shares of Common Stock of the
Parent which shall be exchanged for all of the shares of common stock of MCSP,
Inc., shall be Two Hundred Fifty Thousand (250,000).
SECTION 1.08 SHAREHOLDERS' APPROVAL. The Purchaser, acting through its
Board of Directors, shall in accordance with applicable law duly call, give
notice of, convene and hold a special meeting of its shareholders (or obtain
consent) for the purpose of considering and taking action upon this Agreement
and the transactions contemplated hereby. The Company represents to the
Purchaser that all required shareholder action has been taken by it upon the
execution of this Agreement and the Company has provided the Purchaser with
copies of all consents of Company Shareholders.
SECTION 1.09 FILING OF CERTIFICATE OF MERGER. Upon the terms and subject to
the conditions hereof, as soon as practicable following the satisfaction or
waiver of the conditions set forth in Article VI hereof, the Company and the
Purchaser shall execute and file a Certificate of Merger in the manner required
by the NYBCL and the parties hereto shall take all such other and further
actions as may be required by law to make the Merger effective. Prior to
3
<PAGE>
the filings referred to in this Section, a closing (the "CLOSING DATE") will be
held at the offices of Parker Duryee Rosoff & Haft, P.C., 529 Fifth Avenue, New
York, New York 10017 (or such other place as the parties may agree) for the
purpose of confirming all of the foregoing. At the closing, Purchaser shall
deliver a check, or checks, in the aggregate amount of the Purchase Price,
payable to the Company Shareholders, as set forth on Schedule A, to the
Company's Attorney for delivery to the Company Shareholders and the Company
Shareholders shall deliver certificates representing the Company Shares to the
Purchaser's attorney for delivery to the Purchaser, subject only to confirmation
that the Effective Time has occurred. From and after the Effective Time, the
Company Shares shall cease to exist.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to each of the Purchaser and the Parent
that, except as set forth in the Disclosure Schedule annexed hereto (the
"COMPANY DISCLOSURE SCHEDULE"):
SECTION 2.01 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so existing and in good standing or to have such power and
authority would not in the aggregate have a material adverse effect on the
financial condition, results of operations or business of the Company taken as a
whole. The Company is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not in the aggregate have
a material adverse effect on the financial condition, results of operations or
business of the Company taken as a whole. Schedule 2.01 sets forth each
jurisdiction where the Company is qualified to do business as a foreign
corporation. The Company has heretofore made available to the Purchaser accurate
and complete copies of the Certificate of Incorporation and By-laws, as
currently in effect, of the Company. The Company has no subsidiaries and is not
a party to any partnership, agency or joint venture agreement.
For purposes of this Agreement, the term "subsidiary" shall mean each
corporation or other entity in which a corporation owns or controls, directly
through one or more subsidiaries, 50% or more of the stock or other interests
having general voting power in the election of directors or persons performing
similar functions.
SECTION 2.02 CAPITALIZATION. The authorized capital stock of the Company
consists of 200 shares of Common Stock, no par value, of which 150 shares of
Common Stock
4
<PAGE>
(the "COMPANY SHARES"), were issued and outstanding as of the date hereof. All
of the issued and outstanding Company Shares are validly issued, fully paid and
non-assessable and free of preemptive rights. Except for the Company Shares,
there are no shares of capital stock of the Company issued or outstanding or any
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character obligating the Company to issue,
transfer, sell or pay any amount with respect to any of its securities.
SECTION 2.03 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Company and
the Company Shareholders and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by the Company and constitutes a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
subject to the provisions of any bankruptcy, insolvency, moratorium or similar
law applicable to the rights of creditors generally.
SECTION 2.04 NO VIOLATIONS. Except for the filing and recordation of a
Certificate of Merger as required by the NYBCL, no filing with, and no permit,
authorization, consent or approval of, any public body or authority is necessary
for the consummation by the Company of the transactions contemplated by this
Agreement, except for filings, permits, authorizations, consents or approvals,
the failure to obtain which would not in the aggregate have a material adverse
effect on the financial condition, results of operations or business of the
Company taken as a whole or which would not prevent or delay in any material
respect the consummation of the transactions contemplated hereby. Neither the
execution and delivery of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby nor compliance by the
Company with any provisions hereof will: (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or By-laws of the
Company, (ii) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, lease, contract,
agreement or other instrument or obligation to which the Company is a party or
by which it or its properties or assets may be bound or (iii) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the Company,
or any of its properties or assets.
SECTION 2.05 FINANCIAL STATEMENTS. The Company Disclosure Schedule sets
forth a balance sheet of the Company as at June 30, 1999 (the "COMPANY BALANCE
SHEET") together with statements of operations for the period April 5, 1995
(inception) through December 31, 1998, the six month period ended June 30, 1999,
and for the period April 5, 1995 (inception) through June 30, 1999 (June 30,
1999 is hereinafter referred to as the "BALANCE SHEET DATE"). The Company
Balance Sheet included in the Company Disclosure Schedule fairly presents the
5
<PAGE>
financial position of the Company as at the respective dates thereof, and the
other related statements included therein fairly present the results of
operations of the Company for the respective fiscal periods covered thereby.
Each of the Company's financial statements included in the Company Disclosure
Schedule has been prepared in accordance with generally accepted accounting
principles consistently applied during the periods covered by such statements,
except as otherwise noted therein.
SECTION 2.06 PROPERTIES.
(a) The Company has good and marketable title to, or in the case of leased
property has valid leasehold interests in (which leases are in full force and
effect and with respect to which no event of default has occurred and is
continuing), all properties and assets (whether real or personal, and whether
tangible or intangible) reflected on the Company Balance Sheet or acquired after
the Balance Sheet Date in the ordinary course of business consistent with past
practices.
(b) There is no violation of any law, regulation or ordinance relating to
the properties and assets of the Company or the operation of its business,
except such violations as would not, in the aggregate, have a material adverse
effect on the financial condition, results of operations or business of the
Company.
SECTION 2.07 NO UNDISCLOSED LIABILITIES.
(a) There are no liabilities of the Company of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, and there
is no existing condition situation or set of circumstances which could
reasonably result in such a liability, other than:
(i) liabilities disclosed or provided for in the Company Balance
Sheet;
(ii) liabilities arising under this Agreement; and
(iii) liabilities incurred in the normal course of business which
would not, in the aggregate, have a material adverse effect on the financial
condition, results of operations or business of the Company
SECTION 2.08 LITIGATION. There are no actions, suits, or proceedings
pending against, or to the knowledge of the Company, threatened against the
Company before any court or arbitrator or any governmental body, agency or
official.
SECTION 2.09 TAXES. Except as disclosed in the financial statements
referred to in Section 2.05, the Company has: (i) duly filed with the
appropriate federal, state and local governments or governmental agencies, all
federal, state and local income tax returns and
6
<PAGE>
declarations of estimated tax and all other material tax returns and reports
required to be filed and has paid in full when due all taxes, licenses and fees,
including interest and penalties, shown to be due thereon, and (ii) has
established reserves in the Company Balance Sheet that, in the aggregate, are
adequate for the payment of taxes not yet due with respect to the Company's
operations through the Balance Sheet Date. All material claims for federal,
state and local taxes asserted against the Company have either been paid or
adequately provided for on the Company Balance Sheet. The federal income tax
returns required to be filed by the Company have either been examined by the
Internal Revenue Service or the period during which any assessments may be made
by the Internal Revenue Service has expired without waiver or extension and any
deficiencies or assessments asserted in writing by the Internal Revenue Service
have either been paid, settled or adequately provided for in the Company Balance
Sheet. The Company has withheld from employees and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over.
SECTION 2.10 ABSENCE OF CERTAIN CHANGES. Except for: (i) transactions,
changes, events, obligations and liabilities contemplated by this Agreement;
(ii) transactions, changes, events, obligations and liabilities disclosed in the
financial statements referred to in Section 2.05; and (iii) transactions,
changes, events, obligations and liabilities which individually or in the
aggregate, have not had a material adverse effect on the financial condition,
results of operations or business of the Company, since the Balance Sheet Date:
(a) there have been no changes in the business, condition (financial or
otherwise), assets or liabilities of the Company;
(b) no liability or obligation of the Company has been paid, discharged or
incurred;
(c) there has been no damage, destruction, or loss, whether or not covered
by insurance, materially adversely affecting the business or property of the
Company; and
(d) the Company has not sold, mortgaged, pledged or subjected to any lien
or other encumbrance or otherwise transferred any material assets or properties
used in the conduct of its business.
SECTION 2.11 EMPLOYEE BENEFIT PLANS; ERISA. The Company does not maintain
or contribute to any employee benefit plans, programs, arrangements and
practices (such plans, programs, arrangements and practices of the Company being
referred to as the "COMPANY PLANS"), including employee benefit plans within the
meaning set forth in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended, and all regulations promulgated thereunder, as in effect
from time to time ("ERISA"), or any written employment contracts providing for
an annual base salary in excess of $100,000 and having a term in excess of one
year, which contracts are not immediately terminable without penalty or further
ability, or other similar arrangements for the provision of benefits (excluding
any "Multiemployer Plan" within the
7
<PAGE>
meaning of Section 3(37) of ERISA or a "Multiple Employer Plan" within the
meaning of Section 413(c) of the Code, and all regulations promulgated
thereunder, as in effect from time to time). Schedule 2.12(a) hereto lists all
Multiemployer Plans and Multiple Employer Plans which the Company maintains or
to which it makes contributions. The Company does not have any obligation to
create any additional such plan or to amend any such plan so as to increase
benefits thereunder, except as required under the terms of the Company Plans,
under existing collective bargaining agreements or to comply with applicable
law.
SECTION 2.12 LABOR CONTROVERSIES. The Company is not a party to any
collective bargaining agreements. There are no controversies pending or, to the
knowledge of the Company, threatened between the Company and any representatives
of any of its employees. To the knowledge of the Company, there are no
organizational efforts presently being made involving any of the presently
unorganized employees of the Company. The Company has complied in all material
respects with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, and the payment of social security and similar taxes. No person has,
to the knowledge of the Company, asserted that the Company is liable for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing.
SECTION 2.13 MATERIAL CONTRACTS. Schedule 2.14 hereto consists of a true
and complete list of all contracts, agreements, commitments and other
instruments (whether oral or written) to which the Company is a party that (i)
involve an expenditure by the Company or require the performance of services or
delivery of goods to, by, through, on behalf of or for the benefit of the
Company, which in each case, relates to a contract, agreement, commitment or
instrument that requires payments in excess of $25,000 per year or (ii) involve
an obligation for the performance of services or delivery of goods by the
Company that cannot, or in reasonable probability will not, be performed within
thirty days from the dates as of which these representations are made.
SECTION 2.14 INTELLECTUAL PROPERTY; PROPRIETARY INFORMATION.
(a) Schedule 2.14 contains a complete and correct list of all: (i) patented
or registered intellectual property and pending patent applications or other
applications for registrations of intellectual property owned or filed by or on
behalf of the Company; (ii) all trade names, trademarks and service marks,
whether registered or unregistered, owned or used by the Company; (iii) a
summary description of all copyrightable works (including, but not limited to,
computer software) and mask works, registered or unregistered, owned or used by
the Company and material to the Company Business (the foregoing collectively
referred to as the "INTELLECTUAL PROPERTY"); and (iv) a list of all licenses or
similar agreements or arrangements for any Intellectual Property to which the
Company is a party, either as licensee or licensor (other than any end user
licenses with the customers of the Company).
8
<PAGE>
(b) Except to the extent disclosed in Schedule 2.14: (i) the Company owns
and possesses all right, title and interest in and to, or has a valid and
enforceable license to use, the Intellectual Property and other proprietary
know-how, designs, processes and other unpatented proprietary rights
("KNOW-HOW") necessary for the operation of its business as currently conducted,
in each case free and clear of any Lien, (ii) all of the Company's licenses of
the Intellectual Property are in full force and effect in accordance with their
respective terms, and there does not exist thereunder any material default by
the Company, or to the Company's knowledge, any other party thereto, or any
events or conditions which, after notice or lapse of time or both, would
constitute, individually or in the aggregate, a material default thereunder on
the part of the Company or, to the Company's' knowledge, any other party
thereto; (iii) no claim by any third party contesting the validity,
enforceability, use or ownership of any of the Intellectual Property or Know-how
has been made, is currently outstanding, or, to the Company's knowledge, is
threatened, and the Company does not know of any valid basis for any such claim;
(iv) none of the Intellectual Property is subject to any outstanding order,
ruling, decree, judgment or stipulation by or with any governmental agency; (v)
the Company has not received any notice of any infringement on or
misappropriation of the Intellectual Property or Know-how by any third party;
(vi) the transactions contemplated by this Agreement will have no material
adverse effect on the Company's right, title and interest in and to, or the use
of, any of the Intellectual Property or Know-how; and (vii) the Company has not
infringed, misappropriated or otherwise conflicted with any intellectual
property rights of any third parties, or received any notice of any alleged
infringement, misappropriation or conflict, and the Company is not aware of any
infringement, misappropriation or conflict which will occur as a result of the
continued operation of the Company's business as currently conducted.
SECTION 2.15 CUSTOMERS. Schedule 2.15 attached hereto sets forth a true and
correct list of each customer of the Company that, within the preceding twelve
months, accounted for an aggregate amount of the Company's gross revenue equal
to 10% or more of the Company's revenues. Except as set forth in Schedule 2.15,
the Company has not received any notice that any such customer of the Company
has taken or contemplates taking any steps which could disrupt the business
relationship of the Company with such customer and would result in the material
diminution in the value of the business of the Company as a going concern.
SECTION 2.16 INSURANCE. Schedule 2.16 attached hereto sets forth a true and
correct list of all insurance policies held by the Company (indicating the
insurer, type, amount and term of coverage, deductible, description of vehicles,
latest property insurable values by location, workers' compensation payroll
(separately for clerical, sales and technical employees), and additional named
insureds with respect to each such policy and identifies all claims, then
pending under any of such insurance policies. All of these policies are in full
force and effect and all premiums due thereon have been paid or accrued and
there are no retroactive experience-based premium adjustment features in any
policy. The insurance policies described on Schedule 2.19 adequately insure the
Company against loss and the amount and terms of coverage of such policies are
reasonable and customary for companies similar in size to that of the Company.
9
<PAGE>
SECTION 2.17 ACCOUNTING MATTERS. Neither the Company nor, to its best
knowledge, any of its affiliates has, through the date of this Agreement and as
of the Effective Time, taken or agreed to take any action that would prevent
Parent from accounting for the business combination to be effected by the Merger
as a pooling of interests.
SECTION 2.18 FULL DISCLOSURE. No statement contained herein or in any
certificate, schedule, list, exhibit or other instrument furnished to Purchaser
and Parent pursuant to the provisions hereof contains or will contain any untrue
statement of any material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. Matters disclosed on each Schedule hereto shall be deemed disclosed
only for purposes of the matters to be disclosed on such Schedule and shall not
be deemed to be disclosed for any other purpose unless expressly provided
therein.
SECTION 2.19 INVESTMENT MATTERS. The Company has obtained the
acknowledgment of the Company Shareholders that they are (i) acquiring the
Pledged Shares for investment purposes only and not with a view to distribution,
(ii) either "accredited investors" as that term is defined in Regulation D
promulgated under the Act, or sophisticated investors and have had access to
sufficient information concerning the transactions contemplated by this
Agreement, including, without limitation, information concerning the Parent and
its business, (iii) aware that the Pledged Shares to be issued to them are
restricted securities and as such have not been registered under the Act and
cannot be offered for sale or sold without registration under the Securities Act
and all applicable state securities laws or pursuant to an applicable exemption
from registration, and (iv) that there is no guarantee that a trading market for
the Pledged Shares will develop, or if developed will be maintained.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser represents and warrants to the Company, except as set forth
in the Disclosure Schedule annexed hereto (the "PURCHASER DISCLOSURE SCHEDULE")
as follows:
SECTION 3.01 ORGANIZATION. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so existing and in good standing or to have such power and
authority would not in the aggregate have a material adverse effect on the
financial condition, results of operations or business of the Purchaser taken as
a whole. The Purchaser is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not in
the aggregate
10
<PAGE>
have a material adverse effect on the financial condition, results of operations
or business of the Purchaser. Schedule 3.01 sets forth each jurisdiction where
the Purchaser is qualified to do business as a foreign corporation. The
Purchaser has heretofore made available to the Company accurate and complete
copies of the Certificate of Incorporation and By-laws, as currently in effect,
of the Purchaser. The Purchaser has no subsidiaries and is not a party to any
partnership, agency or joint venture agreement.
SECTION 3.02 CAPITALIZATION. The authorized capital stock of the Purchaser
consists of 1,000 shares of common stock, par value $.01 per share (the
"PURCHASER SHARES"), all of which were issued and outstanding as of the date
hereof and held of record and beneficially by the Parent. All of the issued and
outstanding Purchaser Shares are validly issued, fully paid and non-assessable
and free of preemptive rights. Except for the Purchaser Shares, there are no
shares of capital stock of the Purchaser issued or outstanding or any
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character obligating the Purchaser to issue,
transfer, sell or pay any amount with respect to any of its securities.
SECTION 3.03 AUTHORITY RELATIVE TO THIS AGREEMENT. The Purchaser has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Purchaser and,
except for the approval by Purchaser's shareholder, no other corporate
proceedings on the part of the Purchaser are necessary to authorize this
Agreement or to consummate the transactions so contemplated. Subject to the
approval of the Purchaser's shareholder, this Agreement has been duly and
validly executed and delivered by the Purchaser and constitutes a valid and
binding agreement of the Purchaser, enforceable against the Purchaser in
accordance with its terms, subject to the provisions of any bankruptcy,
insolvency, moratorium or similar law applicable to the rights of creditors
generally.
SECTION 3.04 NO VIOLATIONS. Except for the filing and recordation of a
Certificate of Merger as required by the NYBCL, no filing with, and no permit,
authorization, consent or approval of, any public body or authority is necessary
for the consummation by the Purchaser of the transactions contemplated by this
Agreement, except for filings, permits, authorizations, consents or approvals,
the failure to obtain which would not in the aggregate have a material adverse
effect on the financial condition, results of operations or business of the
Purchaser taken as a whole or which would not prevent or delay in any material
respect the consummation of the transactions contemplated hereby. Neither the
execution and delivery of this Agreement by the Purchaser nor the consummation
by the Purchaser of the transactions contemplated hereby nor compliance by the
Purchaser with any provisions hereof will: (i) conflict with or result in any
breach of any provision of the Certificate of Incorporation or By-laws of the
Purchaser, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
11
<PAGE>
lease, contract, agreement or other instrument or obligation to which the
Purchaser is a party or by which it or its properties or assets may be bound or
(iii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Purchaser, or any of its properties or assets.
SECTION 3.05 FINANCIAL REPRESENTATION. The Purchaser was organized in
September, 1999, has had no operations and has performed no other acts other
than those incident to its organization. Purchaser's only asset is the $10 which
the Parent paid for the 1,000 issued and outstanding shares of the Purchaser's
common stock, par value $.01 per share and the Purchaser has no liabilities.
SECTION 3.06 FULL DISCLOSURE. No representation, warranty or covenant made
by the Purchaser in this Agreement contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements
contained in this Agreement not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARENT
The Parent represents and warrants to the Company, except as set forth in
the Disclosure Schedule annexed hereto (the "Parent Disclosure Schedule") as
follows:
SECTION 4.01 ORGANIZATION. The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, except where
the failure to be so existing and in good standing or to have such power and
authority would not in the aggregate have a material adverse effect on the
financial condition, results of operations or business of the Parent taken as a
whole. The Parent is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not in the aggregate have
a material adverse effect on the financial condition, results of operations or
business of the Parent and its subsidiary taken as a whole. Schedule 4.01 sets
forth each jurisdiction where the Parent is qualified to do business as a
foreign corporation. The Parent has heretofore made available to the Purchaser
accurate and complete copies of the Certificate of Incorporation and By-laws, as
currently in effect, of the Parent. Except for Purchaser, the Parent has no
subsidiaries and is not a party to any partnership, agency or joint venture
agreement.
SECTION 4.02 CAPITALIZATION. The authorized capital stock of the Parent
consists of 10,000,000 shares of Common Stock, par value $.01 per share and
2,000,000 shares of Preferred Stock, par value $.01 per share, of which
5,900,000 shares of Common Stock and no
12
<PAGE>
shares of Preferred Stock, are issued and outstanding as of the date hereof. All
of the issued and outstanding securities of Parent have been validly issued,
fully paid and non-assessable and are free of preemptive rights. Except for the
foregoing shares of Common Stock and Preferred Stock, and except as disclosed in
the Registration Statement, there are no shares of capital stock of the Parent
issued or outstanding or any subscriptions, options, warrants, calls, rights,
convertible securities or other agreements or commitments of any character
obligating the Parent to issue, transfer, sell or pay any amount with respect to
any of its securities. The Common Stock when issued and delivered in accordance
with this Agreement, will be duly and validly issued and such Common Stock will
be fully paid and non-assessable.
SECTION 4.03 AUTHORITY RELATIVE TO THIS AGREEMENT. The Parent has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Parent and the
Parent Shareholders and no other corporate proceedings on the part of the Parent
are necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
the Parent and constitutes a valid and binding agreement of the Parent,
enforceable against the Parent in accordance with its terms, subject to the
provisions of any bankruptcy, insolvency, moratorium or similar law applicable
to the rights of creditors generally.
SECTION 4.04 NO VIOLATIONS. Except for the filing and recordation of a
Certificate of Merger as required by the NYBCL, no filing with, and no permit,
authorization, consent or approval of, any public body or authority is necessary
for the consummation by the Parent of the transactions contemplated by this
Agreement, except for filings, permits, authorizations, consents or approvals,
the failure to obtain which would not in the aggregate have a material adverse
effect on the financial condition, results of operations or business of the
Parent taken as a whole or which would not prevent or delay in any material
respect the consummation of the transactions contemplated hereby. Neither the
execution and delivery of this Agreement by the Parent nor the consummation by
the Parent of the transactions contemplated hereby nor compliance by the Parent
with any provisions hereof will: (i) conflict with or result in any breach of
any provision of the Certificate of Incorporation or By-laws of the Parent, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, lease, contract, agreement or
other instrument or obligation to which the Parent is a party or by which it or
its properties or assets may be bound or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Parent, or any
of its properties or assets.
SECTION 4.05 FINANCIAL STATEMENTS. The Parent Disclosure Schedule sets
forth balance sheets of the Parent as at December 31, 1997 and December 31, 1998
(the "PARENT BALANCE SHEET"), together with statements of results of operations
and cash flows for the two fiscal years ended December 31, 1997 and December 31,
1998, and the report of Ernst &
13
<PAGE>
Young LLP, certified public accountants, on the financial statements for the
years ended December 31, 1997 and December 31, 1998. Except as set forth in the
Parent Disclosure Schedule (which is deemed to include the Registration
Statement and each subsequent Amendment to the Registration Statement which the
Parent shall deliver to the Company), each of the balance sheets (including the
related notes) included in the Parent Disclosure Schedule fairly presents the
consolidated financial position of the Parent as of the respective dates
thereof, and the other related statements (including the related notes) included
therein fairly present the consolidated results of operations and the cash flows
of the Parent for the respective fiscal periods covered thereby. Each of such
financial statements has been prepared in accordance with generally accepted
accounting principles consistently applied during the periods covered, except as
otherwise noted therein.
SECTION 4.06 PROPERTIES.
(a) The Parent has good and marketable title to, or in the case of leased
property has valid leasehold interests in (which leases are in full force and
effect and with respect to which no event of default has occurred and is
continuing), all properties and assets (whether real or personal, and whether
tangible or intangible) reflected on the Parent Balance Sheet or acquired after
the Balance Sheet Date in the ordinary course of business consistent with past
practices.
(b) There is no violation of any law, regulation or ordinance relating to
the properties and assets of the Parent except such violations as would not, in
the aggregate, have a material adverse effect on the financial condition,
results of operations or business of the Parent.
SECTION 4.07 NO UNDISCLOSED LIABILITIES. There are no liabilities of the
Parent of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition or set
of circumstances which could reasonably result in such a liability, other than:
(a) liabilities disclosed or provided for in the Parent Balance Sheet or in
the notes thereto or in the Parent Disclosure Schedule;
(b) liabilities incurred in the ordinary course of business consistent with
past practices since the Balance Sheet Date;
(c) liabilities arising under this Agreement; and
(d) liabilities which would not, in the aggregate, have a material adverse
effect on the Parent.
SECTION 4.08 LITIGATION. Except as set forth in the Parent Disclosure
Schedule, there are no actions, suits, or proceedings pending against, or to the
knowledge of the
14
<PAGE>
Parent, threatened against the Parent before any court or arbitrator or any
governmental body, agency or official.
SECTION 4.09 TAXES. Except as disclosed in the financial statements
referred to in Section 4.05, the Parent has (i) duly filed (or appropriate
extensions have been filed) with the appropriate federal, state and local
governments or governmental agencies, all federal, state and local income tax
returns and declarations of estimated tax and all other material tax returns and
reports required to be filed and have paid in full when due all taxes, licenses
and fees, including interest and penalties, shown to be due thereon, and (ii)
has established reserves in the Parent Balance Sheet that, in the aggregate, are
adequate for the payment of taxes not yet due with respect to the Parent's
operations through the Balance Sheet Date. All material claims for federal,
state and local taxes asserted against the Parent have either been paid or
adequately provided for on the Parent Balance Sheet. The federal income tax
returns required to be filed by the Parent have either been examined by the
Internal Revenue Service or the period during which any assessments may be made
by the Internal Revenue Service has expired without waiver or extension and any
deficiencies or assessments asserted in writing by the Internal Revenue Service
have either been paid, settled or adequately provided for in the Parent Balance
Sheet. The Parent has withheld from employees and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over.
SECTION 4.10 ABSENCE OF CERTAIN CHANGES. Except for: (i) transactions,
changes, events, obligations and liabilities contemplated by this Agreement;
(ii) transactions, changes, events, obligations and liabilities disclosed in the
financial statements referred to in Section 4.05 or in the Parent Disclosure
Schedule; (iii) transactions, changes, events, obligations and liabilities which
individually or in the aggregate, have not had a material adverse effect on the
Parent, since the Balance Sheet Date:
(a) there have been no changes in the business, condition (financial or
otherwise), operations, manner of conduct of business or operations, assets or
liabilities of the Parent, other than changes in the ordinary course of
business;
(b) no liability or obligation of the Parent has been paid, discharged or
incurred other than in the ordinary course of business;
(c) there has been no damage, destruction, or loss, whether or not covered
by insurance, materially adversely affecting the business or property of the
Parent;
(d) the Parent has not sold, mortgaged, pledged or subjected to any lien or
other encumbrance or otherwise transferred any material assets or properties
used in the conduct of its business; and
(e) the Parent has not entered into any transaction other than in the
ordinary course of business.
15
<PAGE>
ARTICLE V
COVENANTS
SECTION 5.01 CONDUCT OF THE BUSINESS OF THE COMPANY AND PURCHASER. Except
as contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, each of the Company and Purchaser will conduct
its respective operations according to its ordinary course of business and
consistent with past practice, and will each use its reasonable efforts to
preserve intact its business organization. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Effective Time, the Company will not, without the prior written
consent of the Purchaser and Parent:
(a) amend its Certificate of Incorporation or By-laws;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
shares of stock of any class or any other securities, except as may be required
by option agreements in effect on the date hereof;
(c) 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 redeem
or otherwise acquire any of its securities;
(d) except in the ordinary course of business consistent with past
practices: (i) incur or assume any long-term or short-term debt; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person; or (iii)
make any loans, advances or capital contributions to, or investments in, any
other person;
(e) except pursuant to written agreements in effect on the date hereof,
acquire, sell, lease, create liens with respect to or dispose of any material
assets outside the ordinary course of business or enter into any material
commitment or transaction outside the ordinary course of business;
(f) except as may be required by law, take any action to initiate,
terminate or amend any of its employee benefit plans; and
(g) take, or agree in writing or otherwise to take, any of the foregoing
actions or any action which would make any representation or warranty of the
Company contained in this Agreement untrue or incorrect in any material respect
as of the date when made or as of a future date.
16
<PAGE>
SECTION 5.02 ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the Effective Time, the Company
will give the Purchaser, the Parent and its authorized representatives, access
to its respective facilities, books and records as the other may reasonably
request, will permit the other to make such inspections as it may reasonably
require and will cause its officers to furnish the other with such financial
data and other information with respect to its business and properties as the
other may from time to time reasonably request.
(b) Each of Purchaser and the Parent will hold and will cause its
representatives to hold in strict confidence all documents and information
concerning the Company furnished in connection with the transactions
contemplated by this Agreement (except to the extent that such information can
be shown to have been: (i) in the public domain through no fault of the
disclosing party, or (ii) required to be disclosed by Parent in its Registration
Statement relating to its IPO or (iii) later lawfully acquired by the disclosing
party (or its affiliates) from other sources) and will not release or disclose
such information to any other person, except in connection with this Agreement
to (i) its representatives and (ii) to the Underwriter (including its counsel)
of the Parent's IPO (it being understood that such persons shall be informed by
Purchaser of the confidential nature of such information and shall be directed
by Purchaser to treat such information confidentially); provided that each party
and its representatives may provide such documents or information in response to
judicial or administrative process or applicable governmental laws, rules,
regulations, orders or ordinances, but only that portion of the documents or
information which, on the advice of counsel, is legally required to be
furnished. If the transactions contemplated by this Agreement are not
consummated, such confidence shall continue to be maintained in accordance with
the terms and conditions above set forth.
SECTION 5.03 BEST EFFORTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action.
SECTION 5.04 CONSENTS. The Purchaser, Company and Parent each will use its
best efforts to obtain consents of all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, unless the failure to obtain such consents will not, in the
aggregate, have a material adverse effect on the financial condition, results of
operations or business in respect of either the Purchaser, Company or Parent.
SECTION 5.05 NOTIFICATION OF CERTAIN MATTERS. The Company, Purchaser and
Parent agree to give prompt notice to each other of (i) the occurrence, or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any
17
<PAGE>
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 (including any such occurrence or failure of which either party
is or becomes aware with respect to the other) and (ii) any material failure on
its part to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.05 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
ARTICLE VI
CONDITIONS TO CONSUMMATION
OF THE MERGER
SECTION 6.01 CONDITIONS TO CONSUMMATION OF THE MERGER. The obligations of
the Purchaser and the Parent are, at Purchaser's and the Parent's option,
subject to the fulfillment of the conditions hereinafter set forth:
(a) The Company shall have performed and complied with all of the
conditions and agreements required by this Agreement to be performed or complied
with by it prior to the Effective Time in all material respects.
(b) The Purchaser's shareholder shall have approved the Merger in
accordance with New York law. The approval of the Merger by the Company's
shareholders in accordance with New York law shall be in full force and effect.
(c) There shall have been no material change in the business, properties or
financial condition of the Company from such condition on the date hereof.
(d) On the Closing Date (i) there shall be no injunction, restraining
order, or order of any nature issued by a court of competent jurisdiction which
directs that any transaction contemplated by this Agreement shall not be
consummated and (ii) there shall be no suit, action, investigation or other
proceeding pending or threatened by any governmental agency or private party
seeking to restrain or prohibit the consummation of any material transaction
contemplated hereby or the obtaining of any material amount of damages from any
party hereto or any officer or director of any such party, in connection with
the consummation of the transactions contemplated hereby.
(e) The Parent shall have consummated the IPO upon the terms and provisions
set forth in the Registration Statement.
SECTION 6.02 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company are, at the Company's option, subject to the fulfillment of the
conditions hereinafter set forth.
18
<PAGE>
(a) Purchaser and Parent shall have performed and complied with all of the
conditions and agreements required by this Agreement to be performed or complied
with by it prior to the Effective Time in all material respects.
(b) The Purchaser's shareholder shall have approved the Merger in
accordance with Delaware law.
(c) The Parent shall have consummated the IPO.
(d) There shall have been no material adverse change in the business,
properties or financial condition of the Parent from such condition on the date
hereof.
(e) On the Closing Date (i) there shall be no injunction, restraining
order, or order of any nature issued by a court of competent jurisdiction which
directs that any transaction contemplated by this Agreement shall not be
consummated and (ii) there shall be no suit, action, investigation or other
proceeding pending or threatened by any governmental agency or private party
seeking to restrain or prohibit the consummation of any material transaction
contemplated hereby or the obtaining of any material amount of damages from any
party hereto or any officer or director of any such party, in connection with
the consummation of the transaction contemplated hereby.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.01 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the shareholders of the Purchaser and the Company, but prior to the
Effective Time:
(a) by mutual written consent of the Purchaser, the Company and the Parent;
(b) by the Purchaser, the Company or the Parent if the Effective Time shall
not have occurred on or before January 31, 2001; provided, however, that the
right to terminate this Agreement under this Section 7.01(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 such date;
(c) by the Purchaser, the Company or the Parent if any United States or
state governmental authority or other agency or commission or United States or
state court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other order
which is in effect and is permanent and non-appealable and has the effect of
prohibiting consummation of the Merger or the provision of the financing
necessary for such transactions; or
19
<PAGE>
(d) by the Purchaser: (i) if, prior to the Closing Date, the Board of
Directors of the Purchaser determines that it will not recommend approval of the
Merger by the stockholder of Purchaser (or if such recommendation is withdrawn)
or (ii) in the event of a breach by Company of any material term or condition
hereof.
Any unilateral termination of this Agreement permitted by this Section 7.01
shall be effective upon the giving of the written notice by the terminating
party in the manner provided herein.
SECTION 7.02 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.01 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party or its directors, officers or shareholders. Nothing contained
in this Section 7.02 shall relieve any party from liability for any breach of
this Agreement; that with respect to breaches of this Agreement the Purchaser
shall not be responsible for, or have any liability in respect of, any action or
intended failure to act by the Company or the Company Shareholders.
SECTION 7.03 EFFECT OF TERMINATION ON THE PLEDGED SHARES. Termination of
this Agreement, for any reason, shall be deemed an Event of Default (as defined
in the Pledge Agreement) and none of the Pledged Shares shall be transferred by
the Pledgeholder (as defined in the Pledge Agreement) to Wolotsky. In such case,
the Pledgeholder shall immediately transfer all of the Pledged Shares to the
Parent.
SECTION 7.03 AMENDMENT. This Agreement may be amended by action taken by
all of the parties at any time before or after adoption of this Agreement by the
shareholders of the Purchaser and the Company, but, after any such approval, no
amendment shall be made which changes the amount or form of consideration to be
paid in the Merger or adversely affects the rights of the shareholders of
Purchaser and the Company hereunder without the approval of such shareholders.
It is acknowledged and agreed that an amendment which extends the time by which
the Effective Time must occur in order to obtain any required third party or
governmental consent or to comply with any judicial or administrative ruling or
order shall not be deemed to adversely affect such rights. This Agreement may
not be amended except by an instrument in writing signed on behalf of the
parties.
SECTION 7.04 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (ii) waive any inaccuracies
in the representations and warranties contained herein or in any document,
certificate or writing delivered pursuant hereto or (iii) waive compliance with
any of the agreements or conditions contained herein. Any agreements on the part
of any party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party.
20
<PAGE>
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01 INDEMNIFICATION.
(a) The Company, agrees to indemnify and defend Parent and Purchaser,
including their officers, directors, employees, agents and representatives, and
to hold such parties harmless from and against any and all damages, claims,
losses and expenses (including reasonable attorneys' fees) arising from or
relating to (i) any misrepresentation or breach of any representation and
warranty hereunder by Company; or (ii) any breach of any of the Company's
covenants under this Agreement.
(b) Purchaser and Parent agree to indemnify and defend the Company
Shareholders and to hold the Company Shareholders harmless from and against any
and all damages, claims, losses and expenses (including reasonable attorneys'
fees) arising from or relating to (i) any misrepresentation or breach of any
representation and warranty hereunder by Parent or Purchaser; or (ii) any breach
of any of Parent's or Purchaser's covenants under this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 SURVIVAL. The representations, warranties, covenants and
agreements made herein or in any certificate or document executed in connection
herewith shall survive the execution and delivery of this Agreement.
SECTION 9.02 BROKERAGE FEES AND COMMISSIONS. The Purchaser and Parent
hereby represent and warrant to the Company with respect to the Purchaser and
Parent, and the Company hereby represents and warrants to the Purchaser and
Parent with respect to the Company, that no person or entity is entitled to
receive from the Purchaser or Parent or the Company, respectively, any
investment banking, brokerage or finder's fee or fees for financial consulting
or advisory services in connection with this Agreement or the transactions
contemplated hereby.
SECTION 9.03 EXPENSES. Each party hereto shall pay its own expenses
incidental to the preparing for, entering into and carrying out of this
Agreement and to the consummation of the Merger, whether or not the Merger shall
be consummated.
SECTION 9.04 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including any
other agreements referred to herein) (a) constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all other
prior agreements and
21
<PAGE>
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and (b) shall not be assigned by operation of law or
otherwise, provided that the Purchaser may assign its rights and obligations to
Parent or any subsidiary of the Purchaser, but no such assignment shall relieve
the Purchaser of its obligations hereunder if such assignee does not perform
such obligations.
SECTION 9.05 VALIDITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
SECTION 9.06 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram or telex, or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties as follows:
If to the Company: Infinite Technology Information Services, Inc.
77 Jericho Turnpike
Mineola, New York 11501
If to the Purchaser: Mercury Internet Services, Inc.
65 Washington Street
Mineola, New York 11501
If to the Parent: Infinite Technology Group Ltd.
77 Jericho Turnpike
Mineola, New York 11501
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
SECTION 9.07 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York as they are
applied to contracts to be performed entirely within such state, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws.
SECTION 9.08 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.09 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
22
<PAGE>
SECTION 9.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which shall
constitute one and the same agreement.
SECTION 9.11 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not to be performed in accordance with the terms hereto and that
the parties shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement and Plan
of Merger as of the date first set forth above.
INFINITE TECHNOLOGY GROUP LTD.
By: /s/ James McGowan
-----------------------------------
Name: James McGowan
Title: President and Chief Executive Officer
MERCURY INTERNET SERVICES, INC.
By: /s/ James McGowan
-----------------------------------
Name: James McGowan
Title: President
INFINITE TECHNOLOGY INFORMATION
SERVICES, INC.
By: /s/ Mark Dresner
-----------------------------------
Name: Mark Dresner
Title: President and Chief Executive Officer
AS TO SECTION 1.07 AND SCHEDULE A:
/s/ Mark Dresner
- ----------------------------------
Mark Dresner
/s/ James McGowan
- ----------------------------------
James McGowan
WOLOTSKY ENTERPRISE, L.L.C.
By: /s/ Paul Wolotsky
-------------------------------
Name: Paul Wolotsky
Title: President and Sole Member
23
<PAGE>
SCHEDULE A
INFINITE TECHNOLOGY INFORMATION SERVICES, INC. SHAREHOLDERS
<TABLE>
<CAPTION>
NUMBER OF INFINITE
TECHNOLOGY
INFORMATION SERVICES,
NAME INC. SHARES HELD
- ------------------------------------- ----------------------------
<S> <C>
Mark Dresner 50
James McGowan 50
Wolotsky Enterprise, L.L.C. 50
</TABLE>
24
<PAGE>
COMPANY DISCLOSURE STATEMENT
[SEE ATTACHED FINANCIAL STATEMENTS]
25
<PAGE>
PURCHASER DISCLOSURE STATEMENT
[NOT APPLICABLE]
26
<PAGE>
PARENT DISCLOSURE STATEMENT
[SEE ATTACHED FINANCIAL STATEMENTS]
27
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INFINITE TECHNOLOGY GROUP LTD.
-----------------------------
(Under Section 807 of the Business Corporation Law)
We, the undersigned, being the President and Secretary, respectively,
of Infinite Technology Group Ltd., do hereby certify that:
1. The name of the Corporation is Infinite Technology Group Ltd.
2. The Certificate of Incorporation of the Corporation was filed with
the Department of State on January 13, 1993.
3. The certificate of incorporation, as amended heretofore, is hereby
further amended to effect the following amendments authorized by the Business
Corporation Law:
a. To increase the number of authorized Common Shares from
10,000,000 to 20,000,000; and
b. To eliminate the existing relative rights and preferences of the
Class A Convertible Preferred Shares, none of which have been
issued or are outstanding, and to relegate the one million shares
previously designated as Class A Convertible Preferred Shares to
have the same "blank check" provisions as the existing Additional
Preferred Shares, so that the Corporation is authorized to issue
2,000,000 Preferred Shares, which may be issued from time to time
in one or more series, as determined by the Board of Directors.
4. To accomplish the foregoing, the text of the certificate of
incorporation, as amended heretofore, is hereby restated as further amended to
read as herein set forth in full:
FIRST: The name of the corporation is INFINITE TECHNOLOGY
GROUP LTD.
SECOND: The purpose for which it is formed is as follows:
<PAGE>
To engage in any lawful act or activity for which corporations may be
formed under the Business Corporation Law provided that the Corporation is not
formed to engage in any act or activity requiring the consent or approval of any
state official, department, board, agency or other body without such consent or
approval first being obtained.
For the accomplishment of the aforesaid purposes, and in furtherance
thereof, the corporation shall have and may exercise all of the powers conferred
by the Business Corporation Law upon corporations formed thereunder, subject to
any limitations contained in Article 2 of said law or in accordance with the
provisions of any other statute of the State of New York.
THIRD: The office of the corporation is to be located in the
County of Nassau, State of New York.
FOURTH: The total number of shares which the Corporation shall
have authority to issue is Twenty-Two Million (22,000,000) shares, which shall
consist of Twenty Million (20,000,000) shares, $.01 par value, designated as
Common Shares, and Two Million (2,000,000) shares, $.01 par value, designated as
Preferred Shares. Subject to the provisions of this Certificate of
Incorporation, Shares of the Corporation regardless of class, may be issued for
such consideration and for such corporate purposes as the Board of Directors may
from time to time determine.
All cross-references in each Part of this Article FOURTH refer to other
Sections in this Article unless otherwise indicated.
The following is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions in
respect of each class of stock of the corporation.
I. PREFERRED SHARES
Preferred Shares may be issued from time to time in one or more series
of any number of shares provided that the aggregate number of shares issued and
not canceled of any and all such series shall not exceed the total number of
Preferred Shares hereinabove authorized, and with distinctive serial
designations, all as shall hereafter be stated and expressed in the resolution
or resolutions providing for the issue of such Preferred Shares from time to
time adopted by the Board of Directors pursuant to authority so to do which is
hereby vested in the Board of Directors. Each series of Preferred Shares may:
(a) have such voting powers;
(b) be subject to redemption at such time or times and at such
prices;
(c) be entitled to receive dividends (which may be cumulative or
non-cumulative) at such rate or rates, on such conditions, and at such times,
and payable in preference to, or in such relation to, the dividends payable on
any other class or classes or series of shares;
2
<PAGE>
(d) have such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation;
(e) be made convertible into or exchangeable for, shares of any
other class or classes or of any other series of the same or other class or
classes or of any other series of the same or any other class or classes of
shares of the Corporation at such price or prices or at such rates of exchange
and with such adjustments;
(f) be entitled to the benefit of a sinking fund to be applied
to the purchase or redemption of shares of such series in such amount or
amounts;
(g) be entitled to the benefit of conditions and restrictions
upon the creation of indebtedness of the Corporation or any subsidiary, upon
the issue of any shares (including additional shares of such series or of any
other series) and upon the payment of dividends or the making of other
distributions on, and the purchase, redemption or other acquisition by the
Corporation or any subsidiary of any outstanding shares of the Corporation; and
(h) have such other relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof; all as
shall be stated in said resolution or resolutions providing for the issue of
such Preferred Shares. Shares of any series of Preferred Shares which have been
redeemed (whether through the operation of a sinking fund or otherwise) or
which, if convertible or exchangeable, have been converted into or exchanged for
shares of any other class or classes shall have the status of authorized and
unissued Preferred Shares of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of Preferred Shares to be created by resolution
or resolutions of the Board of Directors or as part of any other series of
Preferred Shares, all subject to the conditions or restrictions on issuance set
forth in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of Preferred Shares.
II. COMMON SHARES
1. Voting Rights. Subject to the provisions of this Certificate of
Incorporation, of any applicable law, or of the By-Laws of the Corporation as
from time to time amended, with respect to the closing of the transfer books or
the fixing of a record date for the determination of shareholders entitled to
vote and except as otherwise provided herein or by law or by the resolution or
resolutions providing for the issue of any class or series of Preferred Shares,
the holders of outstanding Common Shares shall exclusively possess voting power
for the election of directors and for all other purposes, each holder of record
of Common Shares being entitled to one vote for each Common Share standing in
his, her or its name on the books of the Corporation.
2. Dividends. Except as otherwise provided by the resolution or
resolutions providing for the issue of any class or series of Preferred Shares,
the holders of Common Shares shall be
3
<PAGE>
entitled, to the exclusion of the holders of Preferred Shares of any and all
series, to receive such dividends as from time to time may be declared by the
Board of Directors.
3. Dissolution. In the event of any dissolution, liquidation or winding
up of the Corporation, whether voluntary or involuntary, after payment shall
have been made to the holders of Preferred Shares of the full amount for which
they shall be entitled pursuant to the resolution or resolutions providing for
the issue of any class or series of Preferred Shares, the holders of Common
Shares shall be entitled, to the exclusion of the holders of Preferred Shares of
any and all series, to share, ratably according to the number of Common Shares
held by them, in all remaining assets of the Corporation available for
distribution to its shareholders."
FIFTH: The Secretary of State is designated as the agent of
the corporation upon whom process against the corporation may be served. The
post office address within the State of New York to which the Secretary of State
shall mail a copy of any process against the corporation served upon him is:
c/o Parker Duryee Rosoff & Haft PC
529 Fifth Avenue
8th Floor
New York, NY 10017
SIXTH: The duration of the corporation is to be perpetual.
SEVENTH: No holder of shares of any class of the Corporation
shall be entitled as such, as a matter of right, to subscribe for, purchase, or
otherwise acquire any shares of any class of the Corporation, or any securities
convertible into, exchangeable for, or carrying a right or option to purchase
its shares of any class, whether now or hereafter authorized and whether issued,
sold, or offered for sale by the Corporation for cash or other consideration or
by way of dividend, split of shares, or otherwise.
EIGHTH: No director of the Corporation shall be personally
liable to the Corporation or to any shareholder for damages for any breach of
duty as a director, except for any matter in respect of which such director
shall be liable under Section 719 of the Business Corporation Law of the State
of New York, or any amendment or successor provision thereto, or shall be liable
by reason that, in addition to any and all other requirements for such
liability, he or she (i) shall have acted in bad faith, (ii) shall have acted in
a manner involving intentional misconduct or knowing violation of the law, or
(iii) shall have personally gained in fact a financial profit or other advantage
to which he or she was not legally entitled. For purposes of the prior sentence,
the term "damages" shall, to the extent permitted by law, include, without
limitation, any judgment, fine, amount paid in settlement, penalty, punitive
damages, excise or other tax assessed with respect to an employee benefit plan,
or expense of any nature (including, without limitation, counsel fees and
disbursements). Each person who serves as a director of the Corporation while
this Article Eighth is in effect shall be deemed to be doing so in reliance on
the provisions of this Article Eighth. Neither the amendment
4
<PAGE>
or repeal of this Article Eighth, nor the adoption of any provision of the
Certificate of Incorporation inconsistent with this Article Eighth, shall
eliminate or reduce the effect of this Article Eighth in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article
Eighth, would accrue or arise, prior to such amendment, repeal or adoption of
any inconsistent provision. The provisions of this Article Eighth are cumulative
and shall be in addition to and independent of any other limitations on or
eliminations of the liabilities of directors of the Corporation, as such,
whether such limitations or eliminations arise under or are created by any law,
rule, regulation, by-law, agreement, vote of shareholders or disinterested
directors, or otherwise.
NINTH: The Corporation shall, to the fullest extent permitted
by Article 7 of the Business Corporation Law of the State of New York, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under such Article from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by such
Article, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which any person may be entitled under any
By-Law, resolution of shareholders, resolution of directors, agreement, or
otherwise, as permitted by such Article, as to action in any capacity in which
he served at the request of the Corporation. Any repeal or modification of this
Article Ninth shall not adversely affect any right or protection of any person
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
5. This restatement of the certificate of incorporation was authorized
by the unanimous written consent of the Board of Directors on September 22,
1999, followed by the unanimous written consent of the Shareholders entitled to
vote thereon on September 23, 1999.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands this
27th day of September, 1999, and affirm that the statements made herein are true
under the penalties of perjury.
/s/ James McGowan
-----------------------------------
James McGowan, President
/s/ Mark Dresner
-----------------------------------
Mark Dresner, Secretary
5
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
INFINITE TECHNOLOGY GROUP LTD.
(A New York corporation)
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise requires, the
term:
1.1 "Assistant Secretary" means an Assistant Secretary of the
Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the
Corporation.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "Business Corporation Law" means the Business Corporation Law of
the State of New York, as amended from time to time.
1.5 "By-laws" means the initial By-laws of the Corporation, as amended
from time to time.
1.6 "Certificate of Incorporation" means the initial Certificate of
Incorporation of the Corporation, as amended, supplemented or restated from time
to time.
1.7 "Corporation" means Infinite Technology Group Ltd., a New York
corporation.
1.8 "Directors" means Directors of the Corporation.
1.9 "Entire Board" means the total number of Directors which the
Corporation would have if there were no vacancies.
1.10 "Office of the Corporation" means the executive Office of the
Corporation, anything in Section 102(10) of the Business Corporation Law to the
contrary notwithstanding.
1.11 "President" means the President of the Corporation.
1.12 "Secretary" means the Secretary of the Corporation.
1
<PAGE>
1.13 "Shareholders" means Shareholders of the Corporation.
1.14 "Treasurer" means the Treasurer of the Corporation.
1.15 "Vice President" means a Vice President of the Corporation.
ARTICLE 2
SHAREHOLDERS
2.1 Place of Meetings. Every meeting of Shareholders shall be held at
the Office of the Corporation or at such other place within or without the State
of New York as shall be specified or fixed in the notice of such meeting or in
the waiver of notice thereof.
2.2 Annual Meeting. A meeting of Shareholders shall be held annually
for the election of Directors and the transaction of other business at such hour
and on such business day in April or May or such other day as may be determined
by the Board and designated in the notice of meeting.
2.3 Special Meeting for Election of Directors, etc. If the annual
meeting of Shareholders for the election of Directors and the transaction of
other business is not held within the months specified in Section 2.2, the Board
may call a special meeting of Shareholders for the election of Directors and the
transaction of other business at any time thereafter.
2.4 Other Special Meetings. A special meeting of Shareholders (other
than a special meeting for the election of Directors), unless otherwise
prescribed by statute, may be called at any time by the Board or by the
President or by the Secretary. At any special meeting of Shareholders only such
business may be transacted as is related to the purpose or purposes of such
meeting set forth in the notice thereof given pursuant to Section 2.6 of the
By-laws or in any waiver of notice thereof given pursuant to Section 2.7 of the
By-laws.
2.5 Fixing Record Date. For the purpose of determining the Shareholders
entitled to notice of or to vote at any meeting of Shareholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining Shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board may fix, in advance, a date as the record
date for any such determination of Shareholders. Such date shall not be more
than fifty nor less than ten days before the date of such meeting, nor more than
fifty days prior to any other action. If no such record date is fixed, (i) the
record date for the determination of Shareholders entitled to notice of or to
vote at a meeting of Shareholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if no notice is given, the
day on which the meeting is held, and (ii) the record date for determining
Shareholders for any purpose other than that specified in Section 2.5(i) shall
be at the close of business on the day on which the resolution of the Board
relating thereto is adopted. When a determination of Shareholders entitled to
notice of or to vote at any meeting of Shareholders has
2
<PAGE>
been made as provided in this Section 2.5, such determination shall apply to any
adjournment thereof, unless the Board fixes a new record date for the adjourned
meeting.
2.6 Notice of Meetings of Shareholders.
2.6.1 Except as otherwise provided in Sections 2.5 and 2.7 of
these By-laws, whenever under the Business Corporation Law or the Certificate of
Incorporation or the By-laws, Shareholders are required or permitted to take any
action at a meeting, written notice shall be given stating the place, date and
hour of the meeting and, unless it is the annual meeting, indicating that it is
being issued by or at the direction of the person or persons calling the
meeting. Notice of a special meeting shall also state the purpose or purposes
for which the meeting is called. If, at any meeting, action is proposed to be
taken which would, if taken, entitle Shareholders fulfilling the requirements of
Section 623 of the Business Corporation Law to receive payment for their shares,
the notice of such meeting shall include a statement of that purpose and to that
effect. A copy of the notice of any meeting shall be given, personally or by
mail, not less than ten nor more than fifty days before the date of the meeting,
to each shareholder entitled to notice of or to vote at such meeting. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail, with postage thereon prepaid, directed to the shareholder at his address
as it appears on the record of Shareholders, or, if he shall have filed with the
Secretary of the Corporation a written request that notices to him be mailed to
some other address, then directed to him at such other address. An affidavit of
the Secretary or other person giving the notice or of the transfer agent of the
Corporation that the notice required by this section has been given shall, in
the absence of fraud, be prima facie evidence of the facts therein stated. When
a meeting is adjourned to another time or place, it shall not be necessary to
give any notice of the adjourned meeting if the time and place to which the
meeting is adjourned are announced at the meeting at which the adjournment is
taken, and at the adjourned meeting any business may be transacted that might
have been transacted at the meeting as originally called. However, if after the
adjournment the Board fixes a new record date for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of record on
the new record date who is entitled to notice.
2.6.2 For business to be properly brought before a Shareholder
meeting by a Shareholder, the Shareholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a Shareholder's
notice must be delivered to, or mailed and received at, the principal executive
offices of the Corporation not more than 90 days and not less than 60 days prior
to the first anniversary of the previous year's annual meeting; provided,
however, that if no annual meeting of Shareholders was held in the previous year
or if the date of the annual meeting is advanced by more than 30 days prior to,
or delayed by more than 60 days after, such anniversary date, or if the election
of Directors is to occur at a special meeting of the Shareholders, notice by the
Shareholder to be timely must be so delivered, or mailed and received, not later
than the close of business on the 10th day following the day on which the date
of such meeting has been first publicly disclosed. A Shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(b) the name and address, as they appear on the Corporation's books, of the
Shareholder proposing such business, (c)
3
<PAGE>
the class and number of shares of the Corporation which are beneficially owned
by the Shareholder, and (d) any material interest of the Shareholder in such
business.
2.6.3 The Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of these By-laws, and
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 2.6, a Shareholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder with respect
to the matters set forth in this Section. For purposes of these By-laws,
"publicly disclosed" or "public disclosure" shall mean disclosure in a press
release reported by the Dow Jones News Service, Associated Press or a comparable
national news service or in a document publicly filed by the Corporation with
the Securities and Exchange Commission.
2.7 Waivers of Notice. Notice of meeting need not be given to any
shareholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any shareholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him.
2.8 List of Shareholders at Meeting. A list of Shareholders as of the
record date, certified by the officer of the Corporation responsible for its
preparation, or by a transfer agent, shall be produced at any meeting of
Shareholders upon the request thereat or prior thereto of any shareholder. If
the right to vote at any meeting is challenged, the inspectors of election, or
person presiding thereat, shall require such list of Shareholders to be produced
as evidence of the right of the persons challenged to vote at such meeting, and
all persons who appear from such list to be Shareholders entitled to vote
thereat may vote at such meeting.
2.9 Quorum of Shareholders; Adjournment. The holders of a majority of
the shares entitled to vote at any meeting of Shareholders, present in person or
represented by proxy, shall constitute a quorum for the transaction of any
business at any such meeting, provided that when a specified item of business is
required to be voted on by a class or series (if the Corporation shall then have
outstanding shares of more than one class or series) voting as a class, the
holders of a majority of the shares of such class or series shall constitute a
quorum (as to such class or series) for the transaction of such item of
business. When a quorum is once present to organize a meeting of shareholders,
it is not broken by the subsequent withdrawal of any Shareholders or their
proxies. The holders of a majority of shares present in person or represented by
proxy at any meeting of Shareholders, including an adjourned meeting, whether or
not a quorum is present, may adjourn such meeting to another time and place.
2.10 Voting; Proxies. Unless otherwise provided in the Certificate of
Incorporation, every shareholder of record shall be entitled at every meeting of
Shareholders to one vote for each share standing in his name on the record of
Shareholders determined in accordance with Section 2.5 of the By-laws. The
provisions of Section 612 of the Business Corporation Law shall apply in
determining
4
<PAGE>
whether any shares may be voted and the persons, if any, entitled to vote such
shares; but the Corporation shall be protected in treating the persons in whose
names shares stand on the record of Shareholders as owners thereof for all
purposes. At any meeting of Shareholders (at which a quorum was once present to
organize the meeting), all matters, except as otherwise provided by law or by
the Certificate of Incorporation or by the By-laws, shall be decided by a
majority of the votes cast at such meeting by the holders of shares present in
person or represented by proxy and entitled to vote thereon, whether or not a
quorum is present when the vote is taken. In voting on any question on which a
vote by ballot is required by law or is demanded by any shareholder entitled to
vote, the voting shall be by ballot. Each ballot shall be signed by the
shareholder voting or by his proxy, and shall state the number of shares voted.
On all other questions, the voting may be viva voce. Every shareholder entitled
to vote at a meeting of Shareholders or to express consent or dissent without a
meeting may authorize another person or persons to act for him by proxy. The
validity and enforceability of any proxy shall be determined in accordance with
Section 609 of the Business Corporation Law.
2.11 No Cumulative Voting. Cumulative voting shall not be allowed, but
each Shareholder shall be entitled at all elections of Directors, to cast the
number of votes equal to the number of shares owned by him or her for as many
Directors as there are to be elected.
2.12 Selection and Duties of Inspectors at Meeting of Shareholders. The
Board, in advance of any meeting of Shareholders, may appoint one or more
inspectors to act at the meeting or any adjournment thereof. If inspectors are
not so appointed, the person presiding at such meeting may, and on the request
of any shareholder entitled to vote thereat shall, appoint one or more
inspectors. In case any person appointed fails to appear or act, the vacancy may
be filled by appointment made by the Board in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and according
to the best of his ability. The inspector or inspectors shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and shall do such
acts as are proper to conduct the election or vote with fairness to all
Shareholders. On request of the person presiding at the meeting or any
shareholder entitled to vote thereat, the inspector or inspectors shall make a
report in writing of any challenge, question or matter determined by him or them
and execute a certificate of any fact found by him or them. Any report or
certificate made by the inspector or inspectors shall be prima facie evidence of
the facts stated and of the vote as certified by him or them.
2.13 Organization. At every meeting of Shareholders, the President, or
in the absence of the President a Vice President, and in case more than one Vice
President shall be present that Vice President having the duty to do so by
virtue of the order of precedence prescribed pursuant to Section 5.7 of the
By-laws, shall act as Chairman of the meeting. The Secretary, or in his absence
one of the Assistant Secretaries, shall act as Secretary of the meeting. In case
none of the officers above designated to act as Chairman or Secretary of the
meeting, respectively, shall be present, a Chairman
5
<PAGE>
or a Secretary of the meeting, as the case may be, shall be chosen by a majority
of the votes cast at such meeting by the holders of shares present in person or
represented by proxy and entitled to vote at the meeting.
2.14 Order of Business. The order of business at all meetings of
Shareholders shall be as determined by the Chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is present may
be changed by a majority of the votes cast at such meeting by the holders of
shares present in person or represented by proxy and entitled to vote at the
meeting.
2.15 Written Consent of Shareholders without a Meeting. Whenever the
Shareholders are required or permitted to take any action by vote, such action
may be taken without a meeting on written consent, setting forth the action so
taken or to be taken, signed by the holders of all outstanding shares entitled
to vote thereon. Such consent shall have the same effect as a unanimous vote of
Shareholders.
ARTICLE 3
DIRECTORS
3.1 General Powers. Except as otherwise provided in the Certificate of
Incorporation, the business of the Corporation shall be managed under the
direction of its Board. The Board may adopt such rules and regulations, not
inconsistent with the Certificate of Incorporation or the By-laws or applicable
laws, as it may deem proper for the conduct of its meetings and the management
of the Corporation. In addition to the powers expressly conferred by the
By-laws, the Board may exercise all powers and perform all acts which are not
required, by the By-laws or the Certificate of Incorporation or by law, to be
exercised and performed by the Shareholders.
3.2 Number; Classes; Qualification; Term of Office. The number of
Directors of the Corporation that shall constitute the Board of Directors shall
not be less than three nor more than fifteen and shall be specified from time to
time by resolution adopted by the affirmative vote of a majority of the
Directors in office at the time of adoption of such resolution. The Board of
Directors shall be divided into 3 classes: Class I, Class II and Class III. The
terms of office of the Directors initially classified shall be as follows: that
of Class I shall expire at the next annual meeting of Shareholders in 2000,
Class II at the second succeeding annual meeting of Shareholders in 2001, and
Class III at the third succeeding annual meeting of the Shareholders in 2002. At
each succeeding annual meeting of Shareholders, successors to the class of
Directors whose terms expire at that annual meeting shall be elected for
three-year terms. If the number of Directors changes, any increase or decrease
shall be apportioned among the classes so as to maintain the number of Directors
in each class as nearly equal as possible. Any additional Director of any class
elected to fill a vacancy resulting from an increase in such class or otherwise
shall hold office for a term that shall coincide with the remaining term of that
class. In no case will a decrease in the number of Directors shorten the term of
any incumbent Director. A Director shall hold office until the annual meeting
for the year in which his or her term expires and until his or her successor
shall be elected and shall qualify,
6
<PAGE>
subject, however, to prior death, resignation, retirement, disqualification or
removal for cause from office.
3.3 Newly Created Directorships and Vacancies. Except as otherwise
required by law, or by any provisions established pursuant to the Certificate of
Incorporation, newly created directorships resulting from any increase in the
authorized number of Directors of the Corporation and any vacancies on the Board
of Directors resulting from death, resignation, retirement, disqualification or
removal for cause from office of a Director of the Corporation shall be filled
only by the affirmative vote of at least a majority of the remaining Directors
of the Corporation then in office, even if such remaining Directors constitute
less than a quorum of the Board of Directors, or by the sole remaining Director.
3.4 Removal. Subject to the provisions of Section 706 of the Business
Corporation Law, any Director may be removed from office only for cause and only
by the affirmative vote of not less than two-thirds of the outstanding shares of
share of the Corporation entitled to vote in the election of Directors, voting
as a single class, given at a meeting of the Shareholders for that purpose.
3.5 Election. Directors shall, except as otherwise required by law or
by the Certificate of Incorporation, be elected by a majority of the votes cast
at a meeting of Shareholders by the holders of shares entitled to vote in the
election.
3.6 Resignations. Any Director may resign at any time by written notice
to the President or the Secretary. Such resignation shall take effect at the
time therein specified, and, unless otherwise specified, the acceptance of such
resignation shall not be necessary to make it effective.
3.7 Compensation. Each Director, in consideration of his service as
such, shall be entitled to receive from the Corporation such amount per annum or
such fees for attendance at Directors' meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable expenses
incurred by him in connection with the performance of his duties. Each Director
who shall serve as a member of any committee of Directors in consideration of
his serving as such shall be entitled to such additional amount per annum or
such fees for attendance at committee meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable expenses
incurred by him in the performance of his duties. Nothing in this section
contained shall preclude any Director from serving the Corporation or its
subsidiaries in any other capacity and receiving proper compensation therefor.
3.8 Place and Time of Meetings of the Board. Meetings of the Board,
regular or special, may be held at any place within or without the State of New
York. The times and places for holding meetings of the Board may be fixed from
time to time by resolution of the Board or (unless contrary to resolution of the
Board) in the notice of the meeting.
3.9 Annual Meetings. On the day when and at the place where the annual
meeting of Shareholders for the election of Directors is held, and as soon as
practicable thereafter, the Board may hold its annual meeting, without notice of
such meeting, for the purposes of organization, the
7
<PAGE>
election of officers and the transaction of other business. The annual meeting
of the Board may be held at any other time and place specified in a notice given
as provided in Section 3.11 of the By-laws for special meetings of the Board or
in a waiver of notice thereof.
3.10 Regular Meetings. Regular meetings of the Board may be held at
such times and places as may be fixed from time to time by the Board. Unless
otherwise required by the Board, regular meetings of the Board may be held
without notice. If any day fixed for a regular meeting of the Board shall be a
Saturday or Sunday or a legal holiday at the place where such meeting is to be
held, then such meeting shall be held at the same hour at the same place on the
first business day thereafter which is not a Saturday, Sunday or legal holiday.
3.11 Special Meetings. Special meetings of the Board shall be held
whenever called by the President or the Secretary or by any two or more
Directors. Notice of each special meeting of the Board shall, if mailed, be
addressed to each Director at the address designated by him for that purpose or,
if none is designated, at his last known address at least four days before the
date on which the meeting is to be held; or such notice shall be sent to each
Director at such address by telegraph, Telex, TWX, cable, wireless, or similar
means of communication, or be delivered to him personally, not later than the
day before the date on which such meeting is to be held. Every such notice shall
state the time and place of the meeting but need not state the purposes of the
meeting, except to the extent required by law. If mailed, each notice shall be
deemed given when deposited, with postage thereon prepaid, in a post office or
official depository under the exclusive care and custody of the United States
post office department. Such mailing shall be by first class mail.
3.12 Adjourned Meetings. A majority of the Directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. Notice of any
adjourned meeting of the Board need not be given to any Director whether or not
present at the time of the adjournment. Any business may be transacted at any
adjourned meeting that might have been transacted at the meeting as originally
called.
3.13 Waivers of Notice of Meetings. Anything in these By-laws or in any
resolution adopted by the Board to the contrary notwithstanding, notice of any
meeting of the Board need not be given to any Director who submits a signed
waiver of such notice, whether before or after such meeting, or who attends such
meeting without protesting, prior thereto or at its commencement, the lack of
notice to him.
3.14 Organization. At each meeting of the Board, the President of the
Corporation, or in the absence of the President, a chairman chosen by the
majority of the Directors present, shall preside. The Secretary shall act as
Secretary at each meeting of the Board. In case the Secretary shall be absent
from any meeting of the Board, an Assistant Secretary shall perform the duties
of Secretary at such meeting; and in the absence from any such meeting of the
Secretary and Assistant Secretaries, the person presiding at the meeting may
appoint any person to act as Secretary of the meeting.
3.15 Quorum of Directors. One-third of the Entire Board shall
constitute a quorum for the transaction of business or of any specified item of
business at any meeting of the Board.
8
<PAGE>
3.16 Action by the Board. Except as otherwise provided in Section 3.16
or 3.17 of the By-laws, all corporate action taken by the Board shall be taken
at a meeting of the Board. Except as otherwise provided by the Certificate of
Incorporation or by law, the vote of a majority of the Directors present at the
time of the vote, if a quorum is present at such time, shall be the act of the
Board.
3.17 Written Consent of Directors Without a Meeting. Any action
required or permitted to be taken by the Board may be taken without a meeting if
all members of the Board consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written con sents thereto by the
members of the Board shall be filed with the minutes of the proceedings of the
Board.
3.18 Participation in Meeting of Board by Means of Conference Telephone
or Similar Communications Equipment. Any one or more members of the Board may
participate in a meeting of the Board by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
ARTICLE 4
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
4.1 How Constituted and Powers. The Board, by resolution adopted by a
majority of the Entire Board, may designate from among its members an executive
committee and other committees, each consisting of three or more Directors, and
each of which, to the extent provided in the resolution, shall have all the
authority of the Board, except that no such committee shall have authority as to
the following matters:
4.1.1 The submission to Shareholders of any matter that needs
Shareholders' approval;
4.1.2 The filling of vacancies in the Board or in any
committee;
4.1.3 The fixing of compensation of the Directors for serving
on the Board or on any committee;
4.1.4 The amendment or repeal of the By-laws, or the adoption
of new By-laws; or
4.1.5 The amendment or repeal of any resolution of the Board
which includes among its terms a provision that it is not so amendable or
repealable.
4.2 General. Any committee designated by the Board pursuant to Section
4.1 of the By-laws, and each of the members and alternate members thereof, shall
serve at the pleasure of the Board. The Board may designate one or more
Directors as alternate members of any such committee,
9
<PAGE>
who may replace any absent member or members at any meeting of such committee.
All corporate action taken by any committee designated by the Board pursuant to
Section 4.1 of the By- laws shall be taken at a meeting of such committee except
that any action required or permitted to be taken by any committee may be taken
without a meeting if all members of the committee consent in writing to the
adoption of a resolution authorizing the action; in such event the resolution
and the written consents thereto by the members of the committee shall be filed
with the minutes of the proceedings of the committee. Any one or more members of
any committee may participate in a meeting of such committee by means of
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting. Any committee
may adopt such rules and regulations, not inconsistent with the Certificate of
Incorporation or the By-laws or applicable laws or the resolution of the Board
designating such committee, as it may deem proper for the conduct of its
meetings and the exercise by it of the authority of the Board conferred upon
such committee by the resolution of the Board designating such committee.
ARTICLE 5
OFFICERS
5.1 Officers. The Board may elect or appoint a President, one or more
Vice Presidents, a Secretary and a Treasurer, and such other officers as it may
determine. All officers shall be elected or appointed to hold office until the
meeting of the Board following the next annual meeting of Shareholders. The
Board may designate one or more Vice Presidents as Executive Vice Presidents,
and may use descriptive words or phrases to designate the standing, seniority or
area of special competence of the Vice Presidents elected or appointed by it.
Each officer shall hold office for the term for which he is elected or
ap-pointed, and until his successor shall have been elected or appointed and
qualified or until his death, his resignation or his removal in the manner
provided in Section 5.2 of the By-laws. Any two or more offices may be held by
the same person, except the offices of President and Secretary; provided,
however, that if all of the issued and outstanding shares of the Corporation are
owned by one person, such person may hold all or any combination of offices. The
Board may require any officer to give a bond or other security for the faithful
performance of his duties, in such amount and with such sureties as the Board
may determine. All officers as between themselves and the Corporation shall have
such authority and perform such duties in the manage-ment of the Corporation as
may be provided in the By-laws or as the Board may from time to time determine.
5.2 Removal of Officers. Any officer elected or appointed by the Board
may be removed by the Board with or without cause. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights.
5.3 Resignations. Any officer may resign at any time by notifying the
Board or the President or the Secretary in writing. Such resignation shall take
effect at the date of receipt of such notice or at such later time as is therein
specified, and, unless otherwise specified, the acceptance of
10
<PAGE>
such resignation shall not be necessary to make it effective. The resignation of
an officer shall be without prejudice to the contract rights of the Corporation,
if any.
5.4 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause may be filled for the unexpired
portion of the term by the Board at any regular or special meeting of the Board.
5.5 Compensation. Salaries or other compensation of the officers may be
fixed from time to time by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that he is also a
Director.
5.6 President. The President shall be the chief executive officer of
the Corporation and shall have general supervision over the business of the
Corporation, subject, however, to the control of the Board and of any duly
authorized committee of Directors. The President shall, if present, preside at
all meetings of the Shareholders and at all meetings of the Board. He may, with
the Secretary or the Treasurer or an Assistant Secretary or an Assistant
Treasurer, sign certificates for shares of the Corporation. He may sign and
execute, in the name of the Corporation, deeds, mortgages, bonds, contracts and
other instruments, except in cases where the signing and execution thereof shall
be expressly delegated by the Board or by the By-laws to some other officer or
agent of the Corporation, or shall be required by law otherwise to be signed or
executed; and, in general, he shall perform all duties incident to the office of
President and such other duties as from time to time may be assigned to him by
the Board.
5.7 Vice Presidents. At the request of the President, or in his
absence, at the request of the Board, the Vice President shall (in such order as
may be designated by the Board or in the absence of any such designation in
order of seniority based on age) perform all of the duties of the President and
so acting shall have all the powers of and be subject to all restrictions upon
the President. Any Vice President may also, with the Secretary or the Treasurer
or an Assistant Secretary or an Assistant Treasurer, sign certificates for
shares of the Corporation; may sign and execute, in the name of the Corporation,
deeds, mortgages, bonds, contracts or other instruments authorized by the Board,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board or by the By-laws to some other officer or agent of the
Corporation, or shall be required by law otherwise to be signed or executed; and
shall perform such other duties as from time to time may be assigned to him by
the Board or by the President.
5.8 Secretary. The Secretary, if present, shall act as Secretary of all
meetings of the Shareholders and of the Board, and shall keep the minutes
thereof in the proper book or books to be provided for that purpose; he shall
see that all notices required to be given by the Corporation are duly given and
served; he may, with the President or a Vice President, sign certificates for
shares of the Corporation; he shall be custodian of the seal of the Corporation
and may seal with the seal of the Corporation or a facsimile thereof, all
certificates for shares of the Corporation and all documents the execution of
which on behalf of the Corporation under its corporate seal is authorized in
accordance with the provisions of the By-laws; he shall have charge of the share
records and also of the other books, records and papers of the Corporation
relating to its organization and management as a
11
<PAGE>
Corporation, and shall see that the reports, statements and other documents
required by law are properly kept and filed; and shall, in general, perform all
the duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him by the Board or by the President.
5.9 Treasurer. The Treasurer shall have charge and custody of, and be
responsible for, all funds, securities and notes of the Corporation; receive
and give receipts for moneys due and payable to the Corporation from any sources
whatsoever; deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositaries as shall be selected in accordance
with these By-laws; against proper vouchers, cause such funds to be disbursed by
checks or drafts on the authorized depositaries of the Corporation signed in
such manner as shall be determined in accordance with any provisions of the
By-laws, and be responsible for the accuracy of the amounts of all moneys so
disbursed; regularly enter or cause to be entered in books to be kept by him or
under his direction full and adequate account of all moneys received or paid by
him for the account of the Corporation; have the right to require, from time to
time, reports or statements giving such information as he may desire with
respect to any and all financial transactions of the Corporation from the
officers or agents transacting the same; render to the President or the Board,
whenever the President or the Board, respectively, shall require him so to do,
an account of the financial condition of the Corporation and of all his
transactions as Treasurer; exhibit at all reasonable times his books of account
and other records to any of the Directors upon application at the Office of the
Corporation where such books and records are kept; and, in general, perform all
the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the Board or by the President; and he may
sign with the President or a Vice President certificates for shares of the
Corporation.
5.10 Assistant Secretaries and Assistant Treasurers. Assistant
Secretaries and Assistant Treasurers shall perform such duties as shall be
assigned to them by the Secretary or by the Treasurer, respectively, or by the
Board or by the President. Assistant Secretaries and Assistant Treasurers may,
with the President or a Vice President, sign certificates for shares of the
Corporation.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 Execution of Contracts. The Board may authorize any officer,
employee or agent, in the name and on behalf of the Corporation, to enter into
any contract or execute and satisfy any instrument, and any such authority may
be general or confined to specific instances, or otherwise limited.
6.2 Loans. The President or any other officer, employee or agent
authorized by the By-laws or by the Board may effect loans and advances at any
time for the Corporation from any bank, trust company or other institutions or
from any firm, Corporation or individual and for such loans and advances may
make, execute and deliver promissory notes, bonds or other certificates or
evidences of indebtedness of the Corporation, and when authorized so to do may
pledge and hypothecate or transfer any securities or other property of the
Corporation as security for any such
12
<PAGE>
loans or advances. Such authority conferred by the Board may be general or
confined to specific instances or otherwise limited.
6.3 Checks, Drafts, Etc. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all notes or other
evidences of indebtedness of the Corporation shall be signed on behalf of the
Corporation in such manner as shall from time to time be determined by
resolution of the Board.
6.4 Deposits. The funds of the Corporation not otherwise employed shall
be deposited from time to time to the order of the Corporation in such banks,
trust companies or other depositaries as the Board may select or as may be
selected by an officer, employee or agent of the Corporation to whom such power
may from time to time be delegated by the Board.
ARTICLE 7
SHARES AND DIVIDENDS
7.1 Certificates Representing Shares. The shares of the Corporation
shall be represented by certificates in such form (consistent with the
provisions of Section 508 of the Business Corporation Law) as shall be approved
by the Board. Such certificates shall be signed by the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer, and may be sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles, if the certificate is countersigned by a transfer agent or
registered by a registrar other than the Corporation itself or its employee. In
case any officer who has signed or whose facsimile signature has been placed
upon any certificate shall have ceased to be such officer before such
certificate is issued, such certificate may, unless otherwise ordered by the
Board, be issued by the Corporation with the same effect as if such person were
such officer at the date of issue.
7.2 Transfer of Shares. Transfers of shares shall be made only on the
books of the Corporation by the holder thereof or by his duly authorized
attorney appointed by a power of attorney duly executed and filed with the
Secretary or a transfer agent of the Corporation, and on surrender of the
certificate or certificates representing such shares properly endorsed for
transfer and upon payment of all necessary transfer taxes. Every certificate
exchanged, returned or surrendered to the Corporation shall be marked
"Cancelled," with the date of cancellation, by the Secretary or an Assistant
Secretary or the transfer agent of the Corporation. A person in whose name
shares shall stand on the books of the Corporation shall be deemed the owner
thereof to receive dividends, to vote as such owner and for all other purposes
as respects the Corporation. No transfer of shares shall be valid as against the
Corporation, its Shareholders and creditors for any purpose, except to render
the transferee liable for the debts of the Corporation to the extent provided by
law, until such transfer shall have been entered on the books of the Corporation
by an entry showing from and to whom transferred.
13
<PAGE>
7.3 Transfer and Registry Agents. The Corporation may from time to time
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board.
7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of
any shares shall immediately notify the Corporation of any loss, destruction,
theft or mutila-tion of the certificate representing such shares, and the
Corporation may issue a new certificate to replace the certificate alleged to
have been lost, destroyed, stolen or mutilated. The Board may, in its
discretion, as a condition to the issue of any such new certificate, require the
owner of the lost, destroyed, stolen or mutilated certificate, or his legal
representatives, to make proof satisfactory to the Board of such loss,
destruction, theft or mutilation and to advertise such fact in such manner as
the Board may require, and to give the Corporation and its transfer agents and
registrars, or such of them as the Board may require, a bond in such form, in
such sums and with such surety or sureties as the Board may direct, to indemnify
the Corporation and its transfer agents and registrars against any claim that
may be made against any of them on account of the continued existence of any
such certificate so alleged to have been lost, destroyed, stolen or mutilated
and against any expense in connection with such claim.
7.5 Regulations. The Board may make such rules and regulations as it
may deem expedient, not inconsistent with the By-laws or with the Certificate of
Incorporation, concerning the issue, transfer and registration of certificates
representing shares.
7.6 Limitation on Transfers. If any two or more Shareholders or
subscribers for shares shall enter into any agreement whereby the rights of any
one or more of them to sell, assign, transfer, mortgage, pledge, hypothecate, or
transfer on the books of the Corporation, any or all of such shares held by them
shall be abridged, limited or restricted, and if a copy of such agreement shall
be filed with the Corporation and shall contain a provision that the
certificates representing shares subject to it shall bear a reference to such
agreement, then all certificates repre-senting shares covered or affected by
said agreement shall have such reference thereto endorsed thereon; and such
shares shall not thereafter be transferred on the books of the Corporation
except in accordance with the terms and provisions of such agreement.
7.7 Dividends, Surplus, Etc. Subject to the provisions of the
Certificate of Incorporation and of law, the Board:
7.7.1 May declare and pay dividends or make other
distributions on the outstanding shares in such amounts and at such time or
times as, in its discretion, the condition of the affairs of the Corporation
shall render advisable;
7.7.2 May use and apply, in its discretion, any of the surplus
of the Corporation in purchas-ing or acquiring any shares of the Corporation, or
purchase warrants therefor, in accordance with law, or any of its bonds,
debentures, notes, scrip or other securities or evidences of indebtedness;
7.7.3 May set aside from time to time out of such surplus or
net profits such sum or sums as, in its discretion, it may think proper, as a
reserve fund to meet contingencies, or for equalizing
14
<PAGE>
dividends or for the purpose of maintaining or increasing the property or
business of the Corporation, or for any other purpose it may think conducive to
the best interests of the Corporation.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification of Directors and Officers. The Corporation shall,
to the fullest extent now or here-after permitted by the New York Business
Corporation Law, indemnify any Director or officer who is or was made, or
threatened to be made, a party to an action, suit or proceeding including,
without limitation, an action by or in the right of the Corporation to procure a
judgment in its favor, whether civil or criminal, whether involving any actual
or alleged breach of duty, neglect or error, any accountability, or any actual
or alleged misstatement, misleading statement or other act or omission and
whether brought or threatened in any court or administrative or legislative body
or agency, including an action by or in the right of any other Corporation of
any type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of the
Corporation is serving or served in any capacity at the request of the
Corporation, by reason of the fact that he, his testator or intestate, is or was
a Director or officer of the Corporation, or is serving or served such other
Corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, amounts paid in
settlement, and costs, charges and expenses, including attorneys' fees, actually
and necessarily incurred in connection with the defense of such action, suit or
proceeding or any appeal therein; provided, however, that no indemnification
shall be provided to any such Director or officer if a judgment or other final
adjudication adverse to the Director or officer establishes that (i) his acts
were committed in bad faith or were the result of active and deliberate
dishonesty and, in either case, were material to the cause of action so
adjudicated, or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled. Such right of indemnification
shall not be deemed exclusive of any other rights to which such Director or
officer may be entitled apart from the foregoing provisions. The foregoing
provisions of this Section 8.1 shall be deemed to be a contract between the
Corporation and each Director and officer who serves in such capacity at any
time while this Article 8 and the relevant provisions of the New York Business
Corporation Law and other applicable law, if any, are in effect, and any repeal
or modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought or threatened based in
whole or in part upon any such state of facts.
8.2 Indemnification of Other Persons. The Corporation may indemnify any
other person (including, without limitation, corporate personnel other than
Directors or officers) to the extent permitted by and in accordance with the New
York Business Corporation Law and any applicable law, as the same may be amended
from time to time and pursuant to (i) a resolution of stockholders, (ii) a
resolution of Directors, or (iii) an agreement providing for such
indemnification, it being expressly intended that these By-laws authorize the
creation of other rights in any such manner.
15
<PAGE>
8.3 Advancement of Expenses. The Corporation shall, from time to time,
reimburse or advance to any person referred to in Section 8.1, and may reimburse
or advance to any person referred to in Section 8.2, the funds necessary for
payment of expenses, including attorneys' fees, incurred in connection with any
action or proceeding referred to in Sections 8.1 and 8.2, upon receipt of a
written undertaking by or on behalf of such person to repay such amount(s) if a
judgment or other final adjudication adverse to the Director, officer or other
person establishes that (i) his acts were committed in bad faith or were the
result of active and deliberate dishonesty and, in either case, were material to
the cause of action so adjudicated, or (ii) he personally gained in fact a
financial profit or other advantage to which he was not legally entitled.
8.4 Insurance. The Board in its discretion shall have the power to
purchase and maintain insurance in accordance with, and subject to, the
provisions of Section 726 of the New York Business Corporation Law.
ARTICLE 9
BOOKS AND RECORDS
9.1 Books and Records. The Corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of the
Shareholders, Board and executive committee, if any. The Corporation shall keep
at the office designated in the Certificate of Incorporation or at the office of
the transfer agent or registrar of the Corporation in New York State, a record
containing the names and addresses of all Shareholders, the number and class of
shares held by each and the dates when they respectively became the owners of
record thereof. Any of the foregoing books, minutes or records may be in written
form or in any other form capable of being converted into written form within a
reasonable time.
9.2 Inspection of Books and Records. Except as otherwise provided by
law, the Board shall determine from time to time whether, and, if allowed, when
and under what conditions and regulations, the accounts, books, minutes and
other records of the Corporation, or any of them, shall be open to the
inspection of the Shareholders.
ARTICLE 10
SEAL
The Board may adopt a corporate seal which shall be in the form of a
circle and shall bear the full name of the Corporation and the year of its
inCorporation.
16
<PAGE>
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall be determined, and may be
changed, by resolution of the Board.
ARTICLE 12
VOTING OF SHARES HELD
Unless otherwise provided by resolution of the Board, the President
may, from time to time, appoint one or more attorneys or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as a shareholder or otherwise in
any other corporation, any of whose shares or securities may be held by the
Corporation, at meetings of the holders of the shares or other securities of
such other corporation, and to consent in writing to any action, by any such
other corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed on behalf of the Corporation and under its corporate seal, or
otherwise, such written proxies, consents, waivers or other instruments as he
may deem necessary or proper in the premises; or the President may himself
attend any meeting of the holders of the shares or other securities of any such
other corporation and thereat vote or exercise any or all other powers of the
Corporation as the holder of such shares or other securities of such other
corporation.
ARTICLE 13
AMENDMENTS
These By-laws may be altered or repealed or new By-laws may be adopted
by the Board of Directors at any regular meeting of the Board of Directors or at
any special meeting of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new By-laws is contained in the notice of such
special meeting, The Shareholders may amend these By-laws only by the
affirmative vote of two-thirds of the shares outstanding of the Corporation
entitled to vote.
17
<PAGE>
1997 STOCK OPTION PLAN
OF
INFINITE TECHNOLOGY GROUP LTD.,
AS AMENDED
Infinite Technology Group Ltd., a corporation organized under the laws of
the State of New York, hereby adopts this 1997 Stock Option Plan, as amended
(the "Plan"). The purpose of this Plan is to further the growth, development and
financial success of the Company by providing additional incentives to certain
of its key Employees by assisting them to become owners of the Company's common
stock ("Common Stock"), par value $.01 per share, and thus to benefit directly
from its growth, development and financial success.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have the
respective meanings specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular shall include the plural, where the context so indicates.
SECTION 1.1 - BOARD
"Board" shall mean the Board of Directors of the Company.
SECTION 1.2 - CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.3 - COMMITTEE
"Committee" shall mean the Stock Option Committee of the Board, appointed
as provided in Section 6.1 hereof.
SECTION 1.4 - COMPANY
"Company" shall mean Infinite Technology Group Ltd., a New York
corporation. In addition, "Company" shall mean any corporation assuming, or
issuing new employee stock options in substitution for, Options outstanding
under this Plan, in a transaction to which Section 424(a) of the Code applies.
<PAGE>
SECTION 1.5 - DIRECTOR
"Director" shall mean a member of the Board.
SECTION 1.6 - EMPLOYEE
"Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401(c) of the
Code) of the Company, or of any corporation which is then a Parent Corporation
or a Subsidiary, whether such employee is so employed at the time this Plan is
adopted or becomes so employed subsequent to the adoption of this Plan. To the
extent not included in the foregoing, "Employee" shall also mean any officer,
director, employee or consultant of, or other advisor to, the Company or any
entity that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the Company, as the
Committee shall from time to time select in its sole and absolute discretion.
SECTION 1.7 - EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
SECTION 1.8 - FAIR MARKET VALUE
"Fair Market Value" of a share of the Company's Common Stock as of a given
date shall be: (i) the closing price of a share of Common Stock on the principal
exchange, if any, on which shares of Common Stock are then trading on the day
previous to such date or, if shares were not traded on the day previous to such
date, then on the next preceding trading day during which a sale occurred; or
(ii) if such Common Stock is not traded on an exchange but is quoted on NASDAQ
or a successor quotation system, (1) the last sales price (if the Common Stock
is then listed as a National Market Issue under the NASD National Market System)
or (2) the mean between the closing representative bid and asked prices (in all
other cases) for the Common Stock, in each case, as of the day previous to such
date as reported by NASDAQ or such successor quotation system; or (iii) if the
Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and asked prices
for the Common Stock on the day previous to such date, as determined in good
faith by the Committee; or (iv) if the Common Stock is not publicly traded, the
fair market value established by the Committee acting in good faith.
SECTION 1.9 - INCENTIVE STOCK OPTION
"Incentive Stock Option" shall mean an Option that qualifies under Section
422 of the Code and that is designated as an Incentive Stock Option by the
Committee.
SECTION 1.10 - NON-QUALIFIED OPTION
"Non-Qualified Option" shall mean any Option that is not an Incentive Stock
Option and that is designated as a Non-Qualified Option by the Committee.
2
<PAGE>
SECTION 1.11 - OFFICER
"Officer" shall mean an officer of the Company, as defined in Rule 16a-1(f)
under the Exchange Act, as such Rule may be amended in the future.
SECTION 1.12 - OPTION
"Option" shall mean an option to purchase shares of Common Stock, granted
under this Plan. "Options" includes both Incentive Stock Options and
Non-Qualified Options.
SECTION 1.13 - OPTIONEE
"Optionee" shall mean an Employee to whom an Option is granted under this
Plan.
SECTION 1.14 - PARENT CORPORATION
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company then owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
SECTION 1.15 - PLAN
"Plan" shall mean this 1997 Stock Option Plan of Infinite Technology Group
Ltd., as amended.
SECTION 1.16 - RULE 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended in the future.
SECTION 1.17 - SECRETARY
"Secretary" shall mean the Secretary of the Company.
SECTION 1.18 - SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as amended.
SECTION 1.19 - SUBSIDIARY
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
3
<PAGE>
SECTION 1.20 - TERMINATION OF EMPLOYMENT
"Termination of Employment" shall mean the time when an Optionee ceases to
be an Employee for any reason, with or without cause, including, but not by way
of limitation, by resignation, discharge, death or retirement, but excluding any
termination where there is a simultaneous reemployment by the Company, a Parent
Corporation, a Subsidiary or any entity that, directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the Company. The Committee, in its sole and absolute discretion,
and with respect to all Options hereunder, shall determine all matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the question of whether a Termination of Employment is for "cause"
and what actions constitute "cause," and all questions of whether any particular
leave of absence constitutes a Termination of Employment; provided, however,
that, with respect to Incentive Stock Options, a leave of absence shall
constitute a Termination of Employment if, and to the extent that, such leave of
absence interrupts employment for the purposes of Section 422(a)(2) of the Code
and the then applicable regulations and revenue rulings under said Section.
ARTICLE II
SHARES SUBJECT TO PLAN
SECTION 2.1 - SHARES SUBJECT TO PLAN
The shares of stock subject to Options shall be shares of Common Stock. The
aggregate number of such shares that may be issued upon exercise of Options
shall be 600,000 shares. The shares to be issued upon exercise of Options may be
newly-issued shares or treasury shares.
SECTION 2.2 - UNEXERCISED OPTIONS
If any Option expires or is canceled without having been fully exercised,
the number of shares subject to such Option but as to which such Option was not
exercised prior to its expiration or cancellation may again be optioned
hereunder.
SECTION 2.3 - CHANGES IN COMPANY'S SHARES
In the event the outstanding shares of Common Stock are hereafter changed
into or exchanged for a different number or kind of shares or other securities
of the Company, or of another corporation, by reason of reorganization, merger,
consolidation, reclassification, or combination of shares, appropriate
adjustments shall be made by the Committee in the number and kind of shares for
the purchase of which Options may be granted, including adjustments of the
limitations in Section 2.1 hereof on the maximum number and kind of shares that
may be issued on exercise of Options.
4
<PAGE>
ARTICLE III
GRANTING OF OPTIONS
SECTION 3.1 - ELIGIBILITY
Any key Employee shall be eligible to be granted Options, subject to such
rules and conditions as the Committee may establish from time to time in its
sole and absolute discretion.
SECTION 3.2 - QUALIFICATION OF INCENTIVE STOCK OPTIONS
Subject to the provisions of Section 7.7 hereof, no Incentive Stock Option
shall be granted unless such Option, when granted, qualifies as an "incentive
stock option" under Section 422 of the Code.
SECTION 3.3 - GRANTING OF OPTIONS
(a) Subject to the provisions hereof, the Committee shall from time to
time, in its sole and absolute discretion:
(i) determine which Employees are key Employees and select from among
the key Employees (including those to whom Options have been previously granted
under this Plan or any other plan of the Company) such of them as in its opinion
should be granted Options; and
(ii) determine the number of shares to be subject to such Options
granted to such selected key Employees, and determine whether such Options are
to be Incentive Stock Options or Non-Qualified Options; and
(iii) determine the terms and conditions of such Options, consistent
with this Plan.
(b) In selecting the key Employees to whom Options shall be granted
hereunder, the number of shares to be subject to such Options and the terms and
conditions of such Options, the Committee shall have sole and absolute
discretion and shall be free to make non-uniform and selective determinations
based upon such factors as it deems relevant.
(c) Upon the selection of a key Employee to be granted an Option, the
Committee shall instruct the Secretary to issue such Option and may impose such
conditions on the grant of such Option as it deems appropriate. Without limiting
the generality of the preceding sentence, the Committee may, in its sole and
absolute discretion and on such terms as it deems appropriate, require as a
condition on the grant of an Option to an Employee that such Employee surrender
for cancellation some or all of the unexercised Options that have been
previously granted to him. An Option the grant of which is conditioned upon such
surrender may have an option price lower (or higher) than the option price of
the surrendered Option, may cover the same (or a lessor or greater) number of
shares as the surrendered Option, may contain such other terms as the Committee
deems
5
<PAGE>
appropriate and shall be exercisable in accordance with its terms, without
regard to the number of shares, price, option period or any other term or
condition of the surrendered Option.
ARTICLE IV
TERMS OF OPTIONS
SECTION 4.1 - OPTION AGREEMENT
Each Option shall be evidenced by a written Stock Option Agreement, which
shall be executed by the Optionee and an authorized Officer of the Company and
which shall contain such terms and conditions as the Committee shall determine,
consistent with this Plan. Stock Option Agreements evidencing Incentive Stock
Options shall contain such terms and conditions as may be necessary to qualify
such Options as "incentive stock options" under Section 422 of the Code.
SECTION 4.2 - OPTION PRICE
The price of the shares subject to each Option shall be not less than 100%
of the Fair Market Value of such shares on the date such Option is granted;
provided, however, that, in the case of an Incentive Stock Option, the price per
share shall not be less than 110% of the Fair Market Value of such shares on the
date such Option is granted if such Option is granted to an individual then
owning (within the meaning of Section 424(d) of the Code) more than 10% of the
total combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Corporation.
SECTION 4.3 - COMMENCEMENT OF EXERCISABILITY
(a) No Option may be exercised in whole or in part during the six months
after such Option is granted, except as otherwise set forth herein.
(b) Each Option granted hereunder shall be subject to such vesting schedule
(which may be cumulative or non-cumulative), conditions, restrictions and other
provisions as the Committee shall, in its sole and absolute discretion, deem
necessary or appropriate, which determinations may be non-uniform and selective
and based upon such factors as it deems relevant in its sole and absolute
discretion.
(c) Subject to the provisions hereof governing Incentive Stock Options, the
Committee shall have the right to accelerate the vesting of any outstanding
Option, or any portion thereof, at any time and from time to time, and upon such
terms and conditions as it shall determine in its sole and absolute discretion.
(d) Notwithstanding any other provision of this Plan, to the extent that
the aggregate fair market value (determined at the time the Incentive Stock
Option is granted) of the shares of the Company's stock with respect to which
"incentive stock options" (within the meaning of Section 422 of the Code) are
exercisable by any Optionee for the first time by such Optionee during any
calendar
6
<PAGE>
year (under this Plan and all other incentive stock option plans of the Company,
any Subsidiary and any Parent Corporation) exceeds $100,000, such Options shall
be treated as Non-Qualified Options. For purposes of this Section, Options shall
be taken into account in the order in which they were granted.
(e) Notwithstanding the provisions of paragraph (a) above, the Committee
shall have the right to issue Options hereunder that are immediately exercisable
on the date of grant; provided, however, that in such event, the shares of
Common Stock to be issued thereunder shall be subject to such restrictions on
transfer and forfeiture as the Committee shall, in its sole and absolute
discretion, deem appropriate, which determinations may be non-uniform and
selective and based upon such factors as it deems appropriate in its sole and
absolute discretion.
SECTION 4.4 - EXPIRATION OF OPTIONS
No Option may be exercised to any extent by anyone after the first to occur
of the following events:
(i) the expiration of ten years from the date such Option was
granted;
(ii) with respect to an Incentive Stock Option, in the case of an
Optionee owning (within the meaning of Section 424(d) of the Code), at the time
such Option was granted, more than 10% of the total combined voting power of all
classes of stock of the Company, any Subsidiary or any Parent Corporation, the
expiration of five years from the date such Option was granted;
(iii) the date of the Optionee's Termination of Employment for any
reason, other than such Optionee's death or disability (within the meaning of
Section 22(e)(3) of the Code), unless the Committee otherwise elects to permit
the exercise of such Option for a period of time thereafter; provided, however,
that (a) such period of time shall end no later than ten years from the date
such Option was granted, (b) with respect to any Incentive Stock Option, such
period of time shall not exceed three months from such Termination of Employment
and (c) the Committee may make such elections in such manner as it deems
appropriate, which may be non-uniform and selective, and based upon such factors
as it, in its sole and absolute discretion, deems relevant; provided, however,
that the foregoing restrictions with respect to an Optionee's Termination of
Employment (as well as the restrictions set forth in clauses (iv) and (vi) below
with respect to an Optionee's Termination of Employment) shall not apply to any
Optionee who is merely a consultant or other advisor to the Company or any
entity that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the Company, as the
Committee shall from time to time select in its sole and absolute discretion,
rather than a director, officer or other employee of the Company or any entity
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company, as the Committee
shall from time to time select in its sole and absolute discretion;
(iv) with respect to an Option held by an Optionee who is disabled
(within the meaning of Section 22(e)(3) of the Code), the expiration of one year
from the date of such Optionee's Termination of Employment for any reason other
than such Optionee's death unless the Optionee dies
7
<PAGE>
within said one-year period;
(v) the expiration of one year from the date of the Optionee's death
with respect to all Options held by such Optionee; and
(vi) with respect to all Options, and notwithstanding any other
provision contained herein, the date of the Optionee's Termination of Employment
in the event such Termination is for "cause" (as contemplated by Section 1.19
above).
SECTION 4.5 - CONSIDERATION
In consideration of the granting of an Option, the Committee may require
that the Optionee agree to remain in the employ of the Company, a Parent
Corporation or a Subsidiary for a period of one or more years after such Option
is granted. Nothing in this Plan or in any Stock Option Agreement hereunder
shall confer upon any Optionee any right to continue in the employ of the
Company, any Parent Corporation or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company, any Parent Corporation or any
Subsidiary, all of which rights are hereby expressly reserved, to discharged any
Optionee at any time for any reason whatsoever, with or without cause.
SECTION 4.6 - ADJUSTMENTS IN OUTSTANDING OPTIONS
In the event the outstanding shares of the stock subject to Options are
changed into or exchanged for a different number and/or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
reclassification, or combination of shares, the Committee shall make an
appropriate and equitable adjustment in the number and/or kind of shares as to
which all outstanding Options, or portions thereof then unexercised, shall be
exercisable, to the end that after such event the Optionees' proportionate
interests shall be maintained as before the occurrence of such event. Such
adjustment in an outstanding Option shall be made without change in the total
price applicable to such Option or the unexercised portion of such Option
(except for any change in the aggregate price resulting from rounding-off of
share quantities or prices) and with any necessary corresponding adjustment in
Option price per share; provided, however, that, in the case of Incentive Stock
Options, each such adjustment shall be made in such manner as not to constitute
a "modification" within the meaning of Section 424(h)(3) of the Code. Any such
adjustment made by the Committee shall be final and binding upon all Optionees,
the Company and all other interested persons.
SECTION 4.7 - MERGER, CONSOLIDATION, ACQUISITION, LIQUIDATION OR DISSOLUTION
By its acceptance of each Option, each Optionee agrees that the Board shall
have the power and right to declare and determine, by a duly adopted resolution
of the Board, that each Option may not be exercised after (i) the merger or
consolidation of the Company with or into another corporation (if the Company is
not the surviving corporation of such merger or consolidation), (ii) the
acquisition by another corporation or person of all or substantially all of the
Company's assets or 80% or more of the Company's then outstanding voting stock
or (iii) the liquidation or dissolution
8
<PAGE>
of the Company; provided, that such resolution shall be adopted prior to the
occurrence of such merger, consolidation, acquisition, liquidation or
dissolution.
ARTICLE V
EXERCISE OF OPTIONS
SECTION 5.1 - PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise any Option (or
any portion thereof) granted to him. After the death of the Optionee, any
exercisable portion of any Option granted to such Optionee may, prior to the
time when such portion becomes unexercisable under this Plan or the applicable
Stock Option Agreement, be exercised by his personal representative or by any
person empowered to do so under such Optionee's will or under the then
applicable laws of descent and distribution. Notwithstanding the foregoing, the
Committee may, in its sole and absolute discretion, permit the transfer of any
Non-Qualified Option, in whole or in part, and the exercise thereof by any
transferee thereof.
SECTION 5.2 - PARTIAL EXERCISE
At any time and from time to time prior to the time when any exercisable
Option or exercisable portion thereof becomes unexercisable under this Plan or
the applicable Stock Option Agreement, such Option or portion thereof may be
exercised in whole or in part; provided, however, that the Company shall not be
required to issue fractional shares and the Committee may require any partial
exercise to be with respect to a specified minimum number of shares.
SECTION 5.3 - MANNER OF EXERCISE
An exercisable Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when such Option or such portion becomes unexercisable under this
Plan or the applicable Stock Option Agreement:
(a) notice in writing signed by the Optionee or other person then entitled
to exercise such Option or portion, stating that such Option or portion is
exercised, such notice complying with all applicable rules established by the
Committee and/or contained in the applicable Stock Option Agreement; and
(b) (i) full payment (in cash or by check) for the shares with respect to
which such Option or portion is thereby exercised; or
(ii) with the consent of the Committee, (A) shares of Common Stock
owned by the Optionee duly endorsed for transfer to the Company or (B) subject
to the requirements of Section 5.4 hereof, shares of Common Stock issuable to
the Optionee upon exercise of the Option, in each case, with a fair market value
(as determined under Section 4.2(b) hereof) on the date of Option
9
<PAGE>
exercise equal to the aggregate Option price of the shares with respect to which
such Option or portion is thereby exercised; or
(iii) with the consent of the Committee, a promissory note duly
executed and delivered by the Optionee in the principal amount of the exercise
price thereof, or any portion thereof, in each case upon such terms and
conditions (including without limitation, terms regarding rates of interest,
payment schedule, collateral or other security) as the Committee may establish
in its sole and absolute discretion; or
(iv) with the consent of the Committee, any combination of the
consideration provided in the foregoing clauses (i), (ii) and (iii);
(c) payment to the Company (or other employer corporation) of all amounts
that it is required to withhold under federal, state or local law in connection
with the exercise of the Option; provided, that, with the consent of the
Committee, any combination of the consideration provided in the foregoing
clauses (i), (ii) and (iii) of the preceding paragraph (b) may be used to make
all or part of such payment;
(d) such representations and documents as the Committee, in its sole and
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its sole and absolute
discretion, also take whatever additional actions it deems appropriate to effect
such compliance, including, without limitation, placing legends on share
certificates and issuing stop-transfer orders to transfer agents and registrars;
and
(e) in the event that any Option or portion thereof shall be exercised
pursuant to Section 5.1 hereof by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise such Option
or portion thereof.
SECTION 5.4 - CERTAIN REQUIREMENTS
The Committee may, in its sole and absolute discretion, limit or restrict
the use of shares of Common Stock issuable to the Optionee upon exercise of his
Option to satisfy the Option price or the tax withholding consequences of such
exercise (i) to such periods following the date of release of the quarterly or
annual summary statement of sales and earnings of the Company and/or to such
other periods as the Committee shall, in its sole and absolute discretion, deem
appropriate, (ii) to its receipt of an irrevocable written election by the
Optionee to use shares of Common Stock issuable to the Optionee upon exercise of
the Option to pay all or part of the Option price or the withholding taxes
(subject to the approval of the Committee) made at least six months (or such
other period as the Committee, in its sole and absolute discretion, may
determine) prior to the payment of such Option price or withholding taxes or
(iii) in accordance with such other rules and regulations as the Committee may,
in its sole and absolute discretion, determine to be necessary or appropriate
from time to time.
10
<PAGE>
SECTION 5.5 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares that have then been reacquired by the Company. The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to the fulfillment of all of the following conditions:
(a) the admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) the completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
that the Committee shall, in its sole and absolute discretion, deem necessary or
advisable; and
(c) the obtaining of any approval or other clearance from any state or
federal governmental agency that the Committee shall, in its sole and absolute
discretion, determine to be necessary or advisable; and
(d) the payment to the Company (or other employer corporation) of all
amounts that it is required to withhold under federal, state or local law in
connection with the exercise of the Option; and
(e) the lapse of such reasonable period of time following the exercise of
the Option as the Committee, in its sole and absolute discretion, may establish
from time to time for reasons of administrative convenience.
SECTION 5.6 - RIGHTS AS SHAREHOLDERS
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.
SECTION 5.7 - TRANSFER RESTRICTIONS
If required at any time by the Committee, no shares acquired upon exercise
of any Option by any Officer may be sold, assigned, pledged, encumbered or
otherwise transferred until at least six months have elapsed from (but
excluding) the date that such Option was granted. The Committee, in its sole and
absolute discretion, may impose such other restrictions on the transferability
of the shares purchasable upon the exercise of an Option as it deems
appropriate. Any such other restriction shall be set forth in the respective
Stock Option Agreement and may be referred to on the certificate or certificates
evidencing such shares. The Committee may require the Employee to give the
Company prompt notice of any disposition of shares of stock that are or have
been acquired by
11
<PAGE>
exercise of an Incentive Stock Option within two years from the date of granting
such Option or one year after the transfer of such shares to such Employee. The
Committee may direct that the certificates evidencing shares acquired by
exercise of an Incentive Stock Option refer to such requirement to give prompt
notice of disposition.
ARTICLE VI
ADMINISTRATION
SECTION 6.1 - STOCK OPTION COMMITTEE
The Committee shall consist of two or more Directors, appointed by and
holding office at the pleasure of the Board. The Board may limit the members of
the Committee to directors who are both "non-employee directors," as defined in
Rule 16b-3, and "outside directors," as defined in Section 162(m) of the Code.
Subject to the limitations set forth in the preceding sentence, the powers of
the Committee may, if so determined by resolution of the Board, be exercised by
the Compensation Committee of the Board. Appointment of Committee members shall
be effective upon acceptance of appointment. Committee members may be removed by
the Board at any time and may resign at any time. Vacancies in the Committee
shall be filled by the Board. The Board reserves the right to serve as the
Committee if it so elects, and, in such event, the term "Committee" shall mean
the Board.
SECTION 6.2 - DUTIES AND POWERS OF COMMITTEE
It shall be the duty of the Committee to conduct the general administration
of this Plan in accordance with its provisions. The Committee shall have the
power to interpret this Plan and the Options and to adopt such rules for the
administration, interpretation and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules in regard to Incentive Stock Options shall be
consistent with the basic purpose of this Plan to grant "incentive stock
options" within the meaning of Section 422 of the Code.
SECTION 6.3 - MAJORITY RULE
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
SECTION 6.4 - COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS
Members of the Committee shall receive such compensation for their services
as members as may be determined by the Board. All expenses and liabilities
incurred by members of the Committee in connection with the administration of
this Plan shall be borne by the Company. The Committee may employ attorneys,
consultants, accountants, appraisers, brokers or other persons. The Committee,
the Company and its Officers and Directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and
12
<PAGE>
determinations made by the Committee in good faith shall be final and binding
upon all Optionees, the Company and all other interested persons. No member of
the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan or the Options or
for any failure to act, and all members of the Committee shall be fully
protected by the Company in respect to any such action, determination or
interpretation or any failure to make any determination or to otherwise act. The
Committee shall have the unrestricted right to make non-uniform decisions and
determinations in all matters regarding this Plan and all Options issued
hereunder.
ARTICLE VII
OTHER PROVISIONS
SECTION 7.1 - OPTIONS NOT TRANSFERABLE
No Option or interest or right therein or part thereof shall be liable for,
or available for the satisfaction of, the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means, whether such disposition be voluntary or involuntary or by operation of
law or by judgment, levy, attachment, garnishment or any other legal or
equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect; provided, however, that nothing
in this Section 7.1 shall prevent transfers by will or by the applicable laws of
descent and distribution. Notwithstanding the foregoing, the Committee may, in
its sole and absolute discretion, permit the holder of any Non-Qualified Option
to transfer such Option, or any portion thereof, to such holder's spouse, lineal
descendent(s) or trust established for the benefit thereof or any other person
or entity.
SECTION 7.2 - AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Committee,
including, without limitation, any amendment to increase or decrease the number
of shares as to which Options may be granted, except as otherwise set forth
herein hereunder, subject to any requirements of stockholder approval set forth
in Section 16b-3 or the applicable provisions of the Code. Neither the
amendment, suspension nor termination of this Plan shall, without the consent of
the holder of any Option, impair any rights or obligations under such Option (or
the Stock Option Agreement applicable thereto) theretofore granted, except as
otherwise set forth herein (or in the applicable Stock Option Agreement).
Subject to any applicable provisions of Section 16b-3 and the Code, the
Committee and the holder of any Option may at any time, by mutual consent,
amend, modify or otherwise waive any of the terms and provisions, including the
exercise price, of such holder's Option and Stock Option Agreement. No Option
may be granted during any period of suspension nor after termination of this
Plan, and in no event may any Option be granted under this Plan after the first
to occur of (a) January 1, 2010 or (b) the expiration of ten years from the date
this Plan is approved by the Company's stockholders as contemplated under
Section 7.3 hereof.
13
<PAGE>
SECTION 7.3 - EFFECTIVE DATE; APPROVAL OF PLAN BY STOCKHOLDERS
This Plan will be effective at the time it is approved or ratified by a
majority vote of the Company's stockholders (present in person or represented by
proxy) at a duly called and held meeting thereof (including any proper
adjournment thereof), a quorum being present. In the event this Plan is not so
approved, this Plan shall not become effective and shall be null and void, and
any Options issued hereunder shall be terminated.
SECTION 7.4 - EFFECT OF PLAN UPON OTHER OPTION AND COMPENSATION PLANS
Except as otherwise set forth herein, the adoption of this Plan shall not
affect any other compensation or incentive plans in effect for the Company, any
Parent Corporation or any Subsidiary. Nothing in this Plan shall be construed to
limit the right of the Company, any Parent Corporation or any Subsidiary to (a)
establish any other forms of incentives or compensation for employees of the
Company, any Parent Corporation or any Subsidiary or (b) grant or assume options
otherwise than under this Plan in connection with any proper corporate purpose,
including, but not by way of limitation, the grant or assumption of options in
connection with the acquisition, by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, firm or
association.
SECTION 7.5 - TITLES
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Plan or any provision hereof.
SECTION 7.6 - CONFORMITY TO SECURITIES LAWS
This Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding anything
contained herein to the contrary, this Plan shall be administered, and Options
shall be granted and may be exercised, only in such a manner as to conform to
such laws, rules and regulations. To the extent permitted by applicable law,
this Plan and Options granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
SECTION 7.7 - INCENTIVE STOCK OPTIONS
With respect to Incentive Stock Options, if this Plan does not contain any
provision now or hereafter required to be included herein under Section 422 of
the Code, such provision shall be deemed to be incorporated herein with the same
force and effect as if such provision had been set out at length herein.
Notwithstanding anything contained herein to the contrary, to the extent any
Option that is intended to qualify as an Incentive Stock Option cannot so
qualify, such Option, to that extent, shall be deemed to be a Non-Qualified
Option under the Code for all purposes of this Plan.
14
<PAGE>
SECTION 7.8 - EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION
By acceptance of an Option, the Optionee accepting same shall be deemed to
have agreed that the grant of such Option is special incentive compensation that
will not be taken into account, in any manner, as salary, compensation or bonus
in determining the amount of any payment under any pension, retirement or other
employee benefit plan of the Company or any of its Subsidiaries, whether now
existing or hereafter arising. In addition, such Option will not affect the
amount of any life insurance coverage, if any, provided by the Company on the
life of the Optionee or that is payable to any beneficiary of such Optionee
under any life insurance plan covering employees of the Company or any of its
Subsidiaries.
15
<PAGE>
1999 STOCK OPTION PLAN
OF
INFINITE TECHNOLOGY GROUP LTD.
Infinite Technology Group Ltd., a corporation organized under the laws of
the State of New York, hereby adopts this 1999 Stock Option Plan. The purpose of
this Plan is to further the growth, development and financial success of the
Company by providing additional incentives to certain of its key Employees by
assisting them to become owners of the Company's common stock ("Common Stock"),
par value $.01 per share, and thus to benefit directly from its growth,
development and financial success.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have the
respective meanings specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular shall include the plural, where the context so indicates.
SECTION 1.1 - BOARD
"Board" shall mean the Board of Directors of the Company.
SECTION 1.2 - CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.3 - COMMITTEE
"Committee" shall mean the Stock Option Committee of the Board, appointed
as provided in Section 6.1 hereof.
SECTION 1.4 - COMPANY
"Company" shall mean Infinite Technology Group Ltd., a New York
corporation. In addition, "Company" shall mean any corporation assuming, or
issuing new employee stock options in substitution for, Options outstanding
under this Plan, in a transaction to which Section 424(a) of the Code applies.
<PAGE>
SECTION 1.5 - DIRECTOR
"Director" shall mean a member of the Board.
SECTION 1.6 - EMPLOYEE
"Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401(c) of the
Code) of the Company, or of any corporation which is then a Parent Corporation
or a Subsidiary, whether such employee is so employed at the time this Plan is
adopted or becomes so employed subsequent to the adoption of this Plan. To the
extent not included in the foregoing, "Employee" shall also mean any officer,
director, employee or consultant of, or other advisor to, the Company or any
entity that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the Company, as the
Committee shall from time to time select in its sole and absolute discretion.
SECTION 1.7 - EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
SECTION 1.8 - FAIR MARKET VALUE
"Fair Market Value" of a share of the Company's Common Stock as of a given
date shall be: (i) the closing price of a share of Common Stock on the principal
exchange, if any, on which shares of Common Stock are then trading on the day
previous to such date or, if shares were not traded on the day previous to such
date, then on the next preceding trading day during which a sale occurred; or
(ii) if such Common Stock is not traded on an exchange but is quoted on NASDAQ
or a successor quotation system, (1) the last sales price (if the Common Stock
is then listed as a National Market Issue under the NASD National Market System)
or (2) the mean between the closing representative bid and asked prices (in all
other cases) for the Common Stock, in each case, as of the day previous to such
date as reported by NASDAQ or such successor quotation system; or (iii) if the
Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and asked prices
for the Common Stock on the day previous to such date, as determined in good
faith by the Committee; or (iv) if the Common Stock is not publicly traded, the
fair market value established by the Committee acting in good faith.
SECTION 1.9 - INCENTIVE STOCK OPTION
"Incentive Stock Option" shall mean an Option that qualifies under Section
422 of the Code and that is designated as an Incentive Stock Option by the
Committee.
SECTION 1.10 - NON-QUALIFIED OPTION
"Non-Qualified Option" shall mean any Option that is not an Incentive Stock
Option and that is designated as a Non-Qualified Option by the Committee.
2
<PAGE>
SECTION 1.11 - OFFICER
"Officer" shall mean an officer of the Company, as defined in Rule 16a-1(f)
under the Exchange Act, as such Rule may be amended in the future.
SECTION 1.12 - OPTION
"Option" shall mean an option to purchase shares of Common Stock, granted
under this Plan. "Options" includes both Incentive Stock Options and
Non-Qualified Options.
SECTION 1.13 - OPTIONEE
"Optionee" shall mean an Employee to whom an Option is granted under this
Plan.
SECTION 1.14 - PARENT CORPORATION
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than the
Company then owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
SECTION 1.15 - PLAN
"Plan" shall mean this 1999 Stock Option Plan of Infinite Technology Group
Ltd.
SECTION 1.16 - RULE 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended in the future.
SECTION 1.17 - SECRETARY
"Secretary" shall mean the Secretary of the Company.
SECTION 1.18 - SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as amended.
SECTION 1.19 - SUBSIDIARY
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
3
<PAGE>
SECTION 1.20 - TERMINATION OF EMPLOYMENT
"Termination of Employment" shall mean the time when an Optionee ceases to
be an Employee for any reason, with or without cause, including, but not by way
of limitation, by resignation, discharge, death or retirement, but excluding any
termination where there is a simultaneous reemployment by the Company, a Parent
Corporation, a Subsidiary or any entity that, directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the Company. The Committee, in its sole and absolute discretion,
and with respect to all Options hereunder, shall determine all matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the question of whether a Termination of Employment is for "cause"
and what actions constitute "cause," and all questions of whether any particular
leave of absence constitutes a Termination of Employment; provided, however,
that, with respect to Incentive Stock Options, a leave of absence shall
constitute a Termination of Employment if, and to the extent that, such leave of
absence interrupts employment for the purposes of Section 422(a)(2) of the Code
and the then applicable regulations and revenue rulings under said Section.
ARTICLE II
SHARES SUBJECT TO PLAN
SECTION 2.1 - SHARES SUBJECT TO PLAN
The shares of stock subject to Options shall be shares of Common Stock. The
aggregate number of such shares that may be issued upon exercise of Options
shall be 350,000 shares. The shares to be issued upon exercise of Options may be
newly-issued shares or treasury shares.
SECTION 2.2 - UNEXERCISED OPTIONS
If any Option expires or is canceled without having been fully exercised,
the number of shares subject to such Option but as to which such Option was not
exercised prior to its expiration or cancellation may again be optioned
hereunder.
SECTION 2.3 - CHANGES IN COMPANY'S SHARES
In the event the outstanding shares of Common Stock are hereafter changed
into or exchanged for a different number or kind of shares or other securities
of the Company, or of another corporation, by reason of reorganization, merger,
consolidation, reclassification, or combination of shares, appropriate
adjustments shall be made by the Committee in the number and kind of shares for
the purchase of which Options may be granted, including adjustments of the
limitations in Section 2.1 hereof on the maximum number and kind of shares that
may be issued on exercise of Options.
4
<PAGE>
ARTICLE III
GRANTING OF OPTIONS
SECTION 3.1 - ELIGIBILITY
Any key Employee shall be eligible to be granted Options, subject to such
rules and conditions as the Committee may establish from time to time in its
sole and absolute discretion.
SECTION 3.2 - QUALIFICATION OF INCENTIVE STOCK OPTIONS
Subject to the provisions of Section 7.7 hereof, no Incentive Stock Option
shall be granted unless such Option, when granted, qualifies as an "incentive
stock option" under Section 422 of the Code.
SECTION 3.3 - GRANTING OF OPTIONS
(a) Subject to the provisions hereof, the Committee shall from time to
time, in its sole and absolute discretion:
(i) determine which Employees are key Employees and select from among
the key Employees (including those to whom Options have been previously granted
under this Plan or any other plan of the Company) such of them as in its opinion
should be granted Options; and
(ii) determine the number of shares to be subject to such Options
granted to such selected key Employees, and determine whether such Options are
to be Incentive Stock Options or Non-Qualified Options; and
(iii) determine the terms and conditions of such Options, consistent
with this Plan.
(b) In selecting the key Employees to whom Options shall be granted
hereunder, the number of shares to be subject to such Options and the terms and
conditions of such Options, the Committee shall have sole and absolute
discretion and shall be free to make non-uniform and selective determinations
based upon such factors as it deems relevant.
(c) Upon the selection of a key Employee to be granted an Option, the
Committee shall instruct the Secretary to issue such Option and may impose such
conditions on the grant of such Option as it deems appropriate. Without limiting
the generality of the preceding sentence, the Committee may, in its sole and
absolute discretion and on such terms as it deems appropriate, require as a
condition on the grant of an Option to an Employee that such Employee surrender
for cancellation some or all of the unexercised Options that have been
previously granted to him. An Option the grant of which is conditioned upon such
surrender may have an option price lower (or higher) than the option price of
the surrendered Option, may cover the same (or a lessor or greater) number of
shares as the surrendered Option, may contain such other terms as the Committee
deems
5
<PAGE>
appropriate and shall be exercisable in accordance with its terms, without
regard to the number of shares, price, option period or any other term or
condition of the surrendered Option.
ARTICLE IV
TERMS OF OPTIONS
SECTION 4.1 - OPTION AGREEMENT
Each Option shall be evidenced by a written Stock Option Agreement, which
shall be executed by the Optionee and an authorized Officer of the Company and
which shall contain such terms and conditions as the Committee shall determine,
consistent with this Plan. Stock Option Agreements evidencing Incentive Stock
Options shall contain such terms and conditions as may be necessary to qualify
such Options as "incentive stock options" under Section 422 of the Code.
SECTION 4.2 - OPTION PRICE
The price of the shares subject to each Option shall be not less than 100%
of the Fair Market Value of such shares on the date such Option is granted;
provided, however, that, in the case of an Incentive Stock Option, the price per
share shall not be less than 110% of the Fair Market Value of such shares on the
date such Option is granted if such Option is granted to an individual then
owning (within the meaning of Section 424(d) of the Code) more than 10% of the
total combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Corporation.
SECTION 4.3 - COMMENCEMENT OF EXERCISABILITY
(a) No Option may be exercised in whole or in part during the six months
after such Option is granted, except as otherwise set forth herein.
(b) Each Option granted hereunder shall be subject to such vesting schedule
(which may be cumulative or non-cumulative), conditions, restrictions and other
provisions as the Committee shall, in its sole and absolute discretion, deem
necessary or appropriate, which determinations may be non-uniform and selective
and based upon such factors as it deems relevant in its sole and absolute
discretion.
(c) Subject to the provisions hereof governing Incentive Stock Options, the
Committee shall have the right to accelerate the vesting of any outstanding
Option, or any portion thereof, at any time and from time to time, and upon such
terms and conditions as it shall determine in its sole and absolute discretion.
(d) Notwithstanding any other provision of this Plan, to the extent that
the aggregate fair market value (determined at the time the Incentive Stock
Option is granted) of the shares of the Company's stock with respect to which
"incentive stock options" (within the meaning of Section 422 of the Code) are
exercisable by any Optionee for the first time by such Optionee during any
calendar
6
<PAGE>
year (under this Plan and all other incentive stock option plans of the Company,
any Subsidiary and any Parent Corporation) exceeds $100,000, such Options shall
be treated as Non-Qualified Options. For purposes of this Section, Options shall
be taken into account in the order in which they were granted.
(e) Notwithstanding the provisions of paragraph (a) above, the Committee
shall have the right to issue Options hereunder that are immediately exercisable
on the date of grant; provided, however, that in such event, the shares of
Common Stock to be issued thereunder shall be subject to such restrictions on
transfer and forfeiture as the Committee shall, in its sole and absolute
discretion, deem appropriate, which determinations may be non-uniform and
selective and based upon such factors as it deems appropriate in its sole and
absolute discretion.
SECTION 4.4 - EXPIRATION OF OPTIONS
No Option may be exercised to any extent by anyone after the first to occur
of the following events:
(i) the expiration of ten years from the date such Option was granted;
(ii) with respect to an Incentive Stock Option, in the case of an Optionee
owning (within the meaning of Section 424(d) of the Code), at the time such
Option was granted, more than 10% of the total combined voting power of all
classes of stock of the Company, any Subsidiary or any Parent Corporation, the
expiration of five years from the date such Option was granted;
(iii) the date of the Optionee's Termination of Employment for any reason,
other than such Optionee's death or disability (within the meaning of Section
22(e)(3) of the Code), unless the Committee otherwise elects to permit the
exercise of such Option for a period of time thereafter; provided, however, that
(a) such period of time shall end no later than ten years from the date such
Option was granted, (b) with respect to any Incentive Stock Option, such period
of time shall not exceed three months from such Termination of Employment and
(c) the Committee may make such elections in such manner as it deems
appropriate, which may be non-uniform and selective, and based upon such factors
as it, in its sole and absolute discretion, deems relevant; provided, however,
that the foregoing restrictions with respect to an Optionee's Termination of
Employment (as well as the restrictions set forth in clauses (iv) and (vi) below
with respect to an Optionee's Termination of Employment) shall not apply to any
Optionee who is merely a consultant or other advisor to the Company or any
entity that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the Company, as the
Committee shall from time to time select in its sole and absolute discretion,
rather than a director, officer or other employee of the Company or any entity
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company, as the Committee
shall from time to time select in its sole and absolute discretion;
(iv) with respect to an Option held by an Optionee who is disabled (within
the meaning of Section 22(e)(3) of the Code), the expiration of one year from
the date of such Optionee's Termination of Employment for any reason other than
such Optionee's death unless the Optionee dies
7
<PAGE>
within said one-year period;
(v) the expiration of one year from the date of the Optionee's death with
respect to all Options held by such Optionee; and
(vi) with respect to all Options, and notwithstanding any other provision
contained herein, the date of the Optionee's Termination of Employment in the
event such Termination is for "cause" (as contemplated by Section 1.19 above).
SECTION 4.5 - CONSIDERATION
In consideration of the granting of an Option, the Committee may require
that the Optionee agree to remain in the employ of the Company, a Parent
Corporation or a Subsidiary for a period of one or more years after such Option
is granted. Nothing in this Plan or in any Stock Option Agreement hereunder
shall confer upon any Optionee any right to continue in the employ of the
Company, any Parent Corporation or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company, any Parent Corporation or any
Subsidiary, all of which rights are hereby expressly reserved, to discharged any
Optionee at any time for any reason whatsoever, with or without cause.
SECTION 4.6 - ADJUSTMENTS IN OUTSTANDING OPTIONS
In the event the outstanding shares of the stock subject to Options are
changed into or exchanged for a different number and/or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
reclassification, or combination of shares, the Committee shall make an
appropriate and equitable adjustment in the number and/or kind of shares as to
which all outstanding Options, or portions thereof then unexercised, shall be
exercisable, to the end that after such event the Optionees' proportionate
interests shall be maintained as before the occurrence of such event. Such
adjustment in an outstanding Option shall be made without change in the total
price applicable to such Option or the unexercised portion of such Option
(except for any change in the aggregate price resulting from rounding-off of
share quantities or prices) and with any necessary corresponding adjustment in
Option price per share; provided, however, that, in the case of Incentive Stock
Options, each such adjustment shall be made in such manner as not to constitute
a "modification" within the meaning of Section 424(h)(3) of the Code. Any such
adjustment made by the Committee shall be final and binding upon all Optionees,
the Company and all other interested persons.
SECTION 4.7 - MERGER, CONSOLIDATION, ACQUISITION, LIQUIDATION OR DISSOLUTION
By its acceptance of each Option, each Optionee agrees that the Board shall
have the power and right to declare and determine, by a duly adopted resolution
of the Board, that each Option may not be exercised after (i) the merger or
consolidation of the Company with or into another corporation (if the Company is
not the surviving corporation of such merger or consolidation), (ii) the
acquisition by another corporation or person of all or substantially all of the
Company's assets or 80% or more of the Company's then outstanding voting stock
or (iii) the liquidation or dissolution
8
<PAGE>
of the Company; provided, that such resolution shall be adopted prior to the
occurrence of such merger, consolidation, acquisition, liquidation or
dissolution.
ARTICLE V
EXERCISE OF OPTIONS
SECTION 5.1 - PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise any Option (or
any portion thereof) granted to him. After the death of the Optionee, any
exercisable portion of any Option granted to such Optionee may, prior to the
time when such portion becomes unexercisable under this Plan or the applicable
Stock Option Agreement, be exercised by his personal representative or by any
person empowered to do so under such Optionee's will or under the then
applicable laws of descent and distribution. Notwithstanding the foregoing, the
Committee may, in its sole and absolute discretion, permit the transfer of any
Non-Qualified Option, in whole or in part, and the exercise thereof by any
transferee thereof.
SECTION 5.2 - PARTIAL EXERCISE
At any time and from time to time prior to the time when any exercisable
Option or exercisable portion thereof becomes unexercisable under this Plan or
the applicable Stock Option Agreement, such Option or portion thereof may be
exercised in whole or in part; provided, however, that the Company shall not be
required to issue fractional shares and the Committee may require any partial
exercise to be with respect to a specified minimum number of shares.
SECTION 5.3 - MANNER OF EXERCISE
An exercisable Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when such Option or such portion becomes unexercisable under this
Plan or the applicable Stock Option Agreement:
(a) notice in writing signed by the Optionee or other person then entitled
to exercise such Option or portion, stating that such Option or portion is
exercised, such notice complying with all applicable rules established by the
Committee and/or contained in the applicable Stock Option Agreement; and
(b) (i) full payment (in cash or by check) for the shares with respect to
which such Option or portion is thereby exercised; or
(ii) with the consent of the Committee, (A) shares of Common Stock
owned by the Optionee duly endorsed for transfer to the Company or (B) subject
to the requirements of Section 5.4 hereof, shares of Common Stock issuable to
the Optionee upon exercise of the Option, in each case, with a fair market value
(as determined under Section 4.2(b) hereof) on the date of Option
9
<PAGE>
exercise equal to the aggregate Option price of the shares with respect to which
such Option or portion is thereby exercised; or
(iii) with the consent of the Committee, a promissory note duly
executed and delivered by the Optionee in the principal amount of the exercise
price thereof, or any portion thereof, in each case upon such terms and
conditions (including without limitation, terms regarding rates of interest,
payment schedule, collateral or other security) as the Committee may establish
in its sole and absolute discretion; or
(iv) with the consent of the Committee, any combination of the
consideration provided in the foregoing clauses (i), (ii) and (iii);
(c) payment to the Company (or other employer corporation) of all amounts
that it is required to withhold under federal, state or local law in connection
with the exercise of the Option; provided, that, with the consent of the
Committee, any combination of the consideration provided in the foregoing
clauses (i), (ii) and (iii) of the preceding paragraph (b) may be used to make
all or part of such payment;
(d) such representations and documents as the Committee, in its sole and
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its sole and absolute
discretion, also take whatever additional actions it deems appropriate to effect
such compliance, including, without limitation, placing legends on share
certificates and issuing stop-transfer orders to transfer agents and registrars;
and
(e) in the event that any Option or portion thereof shall be exercised
pursuant to Section 5.1 hereof by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise such Option
or portion thereof.
SECTION 5.4 - CERTAIN REQUIREMENTS
The Committee may, in its sole and absolute discretion, limit or restrict
the use of shares of Common Stock issuable to the Optionee upon exercise of his
Option to satisfy the Option price or the tax withholding consequences of such
exercise (i) to such periods following the date of release of the quarterly or
annual summary statement of sales and earnings of the Company and/or to such
other periods as the Committee shall, in its sole and absolute discretion, deem
appropriate, (ii) to its receipt of an irrevocable written election by the
Optionee to use shares of Common Stock issuable to the Optionee upon exercise of
the Option to pay all or part of the Option price or the withholding taxes
(subject to the approval of the Committee) made at least six months (or such
other period as the Committee, in its sole and absolute discretion, may
determine) prior to the payment of such Option price or withholding taxes or
(iii) in accordance with such other rules and regulations as the Committee may,
in its sole and absolute discretion, determine to be necessary or appropriate
from time to time.
10
<PAGE>
SECTION 5.5 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares that have then been reacquired by the Company. The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option or
portion thereof prior to the fulfillment of all of the following conditions:
(a) the admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
(b) the completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
that the Committee shall, in its sole and absolute discretion, deem necessary or
advisable; and
(c) the obtaining of any approval or other clearance from any state or
federal governmental agency that the Committee shall, in its sole and absolute
discretion, determine to be necessary or advisable; and
(d) the payment to the Company (or other employer corporation) of all
amounts that it is required to withhold under federal, state or local law in
connection with the exercise of the Option; and
(e) the lapse of such reasonable period of time following the exercise of
the Option as the Committee, in its sole and absolute discretion, may establish
from time to time for reasons of administrative convenience.
SECTION 5.6 - RIGHTS AS SHAREHOLDERS
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.
SECTION 5.7 - TRANSFER RESTRICTIONS
If required at any time by the Committee, no shares acquired upon exercise
of any Option by any Officer may be sold, assigned, pledged, encumbered or
otherwise transferred until at least six months have elapsed from (but
excluding) the date that such Option was granted. The Committee, in its sole and
absolute discretion, may impose such other restrictions on the transferability
of the shares purchasable upon the exercise of an Option as it deems
appropriate. Any such other restriction shall be set forth in the respective
Stock Option Agreement and may be referred to on the certificate or certificates
evidencing such shares. The Committee may require the Employee to give the
Company prompt notice of any disposition of shares of stock that are or have
been acquired by
11
<PAGE>
exercise of an Incentive Stock Option within two years from the date of granting
such Option or one year after the transfer of such shares to such Employee. The
Committee may direct that the certificates evidencing shares acquired by
exercise of an Incentive Stock Option refer to such requirement to give prompt
notice of disposition.
ARTICLE VI
ADMINISTRATION
SECTION 6.1 - STOCK OPTION COMMITTEE
The Committee shall consist of two or more Directors, appointed by and
holding office at the pleasure of the Board. The Board may limit the members of
the Committee to directors who are both "non-employee directors," as defined in
Rule 16b-3, and "outside directors," as defined in Section 162(m) of the Code.
Subject to the limitations set forth in the preceding sentence, the powers of
the Committee may, if so determined by resolution of the Board, be exercised by
the Compensation Committee of the Board. Appointment of Committee members shall
be effective upon acceptance of appointment. Committee members may be removed by
the Board at any time and may resign at any time. Vacancies in the Committee
shall be filled by the Board. The Board reserves the right to serve as the
Committee if it so elects, and, in such event, the term "Committee" shall mean
the Board.
SECTION 6.2 - DUTIES AND POWERS OF COMMITTEE
It shall be the duty of the Committee to conduct the general administration
of this Plan in accordance with its provisions. The Committee shall have the
power to interpret this Plan and the Options and to adopt such rules for the
administration, interpretation and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules in regard to Incentive Stock Options shall be
consistent with the basic purpose of this Plan to grant "incentive stock
options" within the meaning of Section 422 of the Code.
SECTION 6.3 - MAJORITY RULE
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
SECTION 6.4 - COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS
Members of the Committee shall receive such compensation for their services
as members as may be determined by the Board. All expenses and liabilities
incurred by members of the Committee in connection with the administration of
this Plan shall be borne by the Company. The Committee may employ attorneys,
consultants, accountants, appraisers, brokers or other persons. The Committee,
the Company and its Officers and Directors shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and
12
<PAGE>
determinations made by the Committee in good faith shall be final and binding
upon all Optionees, the Company and all other interested persons. No member of
the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan or the Options or
for any failure to act, and all members of the Committee shall be fully
protected by the Company in respect to any such action, determination or
interpretation or any failure to make any determination or to otherwise act. The
Committee shall have the unrestricted right to make non-uniform decisions and
determinations in all matters regarding this Plan and all Options issued
hereunder.
ARTICLE VII
OTHER PROVISIONS
SECTION 7.1 - OPTIONS NOT TRANSFERABLE
No Option or interest or right therein or part thereof shall be liable for,
or available for the satisfaction of, the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means, whether such disposition be voluntary or involuntary or by operation of
law or by judgment, levy, attachment, garnishment or any other legal or
equitable proceedings (including bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect; provided, however, that nothing
in this Section 7.1 shall prevent transfers by will or by the applicable laws of
descent and distribution. Notwithstanding the foregoing, the Committee may, in
its sole and absolute discretion, permit the holder of any Non-Qualified Option
to transfer such Option, or any portion thereof, to such holder's spouse, lineal
descendent(s) or trust established for the benefit thereof or any other person
or entity.
SECTION 7.2 - AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Committee,
including, without limitation, any amendment to increase or decrease the number
of shares as to which Options may be granted, except as otherwise set forth
herein hereunder, subject to any requirements of stockholder approval set forth
in Section 16b-3 or the applicable provisions of the Code. Neither the
amendment, suspension nor termination of this Plan shall, without the consent of
the holder of any Option, impair any rights or obligations under such Option (or
the Stock Option Agreement applicable thereto) theretofore granted, except as
otherwise set forth herein (or in the applicable Stock Option Agreement).
Subject to any applicable provisions of Section 16b-3 and the Code, the
Committee and the holder of any Option may at any time, by mutual consent,
amend, modify or otherwise waive any of the terms and provisions, including the
exercise price, of such holder's Option and Stock Option Agreement. No Option
may be granted during any period of suspension nor after termination of this
Plan, and in no event may any Option be granted under this Plan after the first
to occur of (a) January 1, 2010 or (b) the expiration of ten years from the date
this Plan is approved by the Company's stockholders as contemplated under
Section 7.3 hereof.
13
<PAGE>
SECTION 7.3 - EFFECTIVE DATE; APPROVAL OF PLAN BY STOCKHOLDERS
This Plan will be effective at the time it is approved or ratified by a
majority vote of the Company's stockholders (present in person or represented by
proxy) at a duly called and held meeting thereof (including any proper
adjournment thereof), a quorum being present. In the event this Plan is not so
approved, this Plan shall not become effective and shall be null and void, and
any Options issued hereunder shall be terminated.
SECTION 7.4 - EFFECT OF PLAN UPON OTHER OPTION AND COMPENSATION PLANS
Except as otherwise set forth herein, the adoption of this Plan shall not
affect any other compensation or incentive plans in effect for the Company, any
Parent Corporation or any Subsidiary. Nothing in this Plan shall be construed to
limit the right of the Company, any Parent Corporation or any Subsidiary to (a)
establish any other forms of incentives or compensation for employees of the
Company, any Parent Corporation or any Subsidiary or (b) grant or assume options
otherwise than under this Plan in connection with any proper corporate purpose,
including, but not by way of limitation, the grant or assumption of options in
connection with the acquisition, by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, firm or
association.
SECTION 7.5 - TITLES
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Plan or any provision hereof.
SECTION 7.6 - CONFORMITY TO SECURITIES LAWS
This Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding anything
contained herein to the contrary, this Plan shall be administered, and Options
shall be granted and may be exercised, only in such a manner as to conform to
such laws, rules and regulations. To the extent permitted by applicable law,
this Plan and Options granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
SECTION 7.7 - INCENTIVE STOCK OPTIONS
With respect to Incentive Stock Options, if this Plan does not contain any
provision now or hereafter required to be included herein under Section 422 of
the Code, such provision shall be deemed to be incorporated herein with the same
force and effect as if such provision had been set out at length herein.
Notwithstanding anything contained herein to the contrary, to the extent any
Option that is intended to qualify as an Incentive Stock Option cannot so
qualify, such Option, to that extent, shall be deemed to be a Non-Qualified
Option under the Code for all purposes of this Plan.
14
<PAGE>
SECTION 7.8 - EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION
By acceptance of an Option, the Optionee accepting same shall be deemed to
have agreed that the grant of such Option is special incentive compensation that
will not be taken into account, in any manner, as salary, compensation or bonus
in determining the amount of any payment under any pension, retirement or other
employee benefit plan of the Company or any of its Subsidiaries, whether now
existing or hereafter arising. In addition, such Option will not affect the
amount of any life insurance coverage, if any, provided by the Company on the
life of the Optionee or that is payable to any beneficiary of such Optionee
under any life insurance plan covering employees of the Company or any of its
Subsidiaries.
15
<PAGE>
INFINITE TECHNOLOGY GROUP LTD.
1999 DIRECTORS' STOCK OPTION PLAN
SECTION 1
INTRODUCTION
1.1 ESTABLISHMENT. Infinite Technology Group Ltd., a New York corporation,
hereby establishes the Infinite Technology Group Ltd. 1999 Directors' Stock
Option Plan (the "Plan") for the directors of Infinite Technology Group Ltd.
("Company").
1.2 PURPOSES. The purposes of the Plan are to provide Eligible Directors
(as defined in Section 2.1(e) below) selected for participation in the Plan with
added incentives to continue as directors of the Company and to create in such
persons a more direct interest in the future success of the operations of the
Company by relating incentive compensation to increases in stockholder value, so
that the income of the Eligible Directors is more closely aligned with the
income of the Company's stockholders.
SECTION 2
DEFINITIONS
2.1 DEFINITIONS. The following terms shall have the meanings set forth
below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
(c) "Disability" means a physical or mental condition which, in the
judgment of the Company, based on medical reports or other evidence satisfactory
to the Company, permanently prevents an individual from satisfactorily
performing his or her duties as a director for the Company.
(d) "Effective Date" means the effective date of the Plan, which will
be July 1, 1999, subject to the approval of the Plan by the Company's
stockholders.
(e) "Eligible Director" means each member of the Board and any
individual elected as a new director to the Board or elected or appointed to the
Board to fill a vacancy on the Board. "Eligible Employee Director" means an
Eligible Director who is also an employee or officer of the Company or any of
its affiliates. "Eligible Non-Employee Director" means an Eligible Director who
is not an employee or officer of the Company or any of its affiliates.
(f) "Fair Market Value" means the officially quoted closing price of
the Stock on the National Market System of the National Association of
Securities Dealers, Inc. Automated
1
<PAGE>
Quotation ("Nasdaq") System on a particular date, or if no such prices are
reported on Nasdaq, then Fair Market Value shall mean the average of the high
and low sale prices for the Stock (or if no sales prices are reported, the
average of the high and low bid prices) as reported by the principal regional
stock exchange, or if not so reported, as reported by a quotation system of
general circulation to brokers and dealers. If there are no Stock transactions
on such date, the Fair Market Value shall be determined as of the immediately
preceding date on which there were Stock transactions. If the Stock is not
publicly traded, the Fair Market Value of the Stock on any date shall be
determined in good faith by the Administrative Committee after such consultation
with outside legal, accounting and other experts as the Administrative Committee
may deem advisable.
(g) "Administrative Committee" means a committee or committees, each
consisting of a member or members of the Board and/or such other person or
persons as may be appointed from time to time by the Board, or the entire Board
if no such Committee has been appointed. With respect to the administration of a
grant or grants under the Plan to Eligible Directors subject to Rule 16b-3, such
Administrative Committee shall be constituted so as to comply with Rule 16b-3
and shall consist of (i) two non-employee directors or (ii) the entire Board
("16b-3 Committee"); provided, that if a 16b-3 Committee is not required for
such grant or grants to meet the exemption requirements under Rule 16b-3, then
this sentence shall not be applicable.
(h) "Non-statutory Option" means options that do not qualify as
"incentive stock options" under Code Section 422.
(i) "Option" means a right to purchase Stock at a stated price for a
specified period of time.
(j) "Option Price" means the price at which Shares of Stock subject to
an Option may be purchased, determined in accordance with Section 5.2(c).
(k) "Option Holder" means an Eligible Director of the Company who
receives one or more Options under the Plan.
(l) "Optioned Shares" means the Shares subject to an Option.
(m) "Plan Year" means each 12-month period beginning January 1 and
ending the following December 31, except that for the first year of the Plan,
the Plan Year shall begin on the Effective Date and extend to the first December
31 following the Effective Date.
(n) "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act or any
successor rule.
(o) "Share" or "Shares" means a share or shares of Stock.
2
<PAGE>
(p) "Stock" means the common stock of the Company.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the content, the
masculine gender also shall include the feminine gender, and the definition of
any term herein in the singular also shall include the plural.
SECTION 3
PLAN ADMINISTRATION
3.1 ADMINISTRATIVE COMMITTEE. The Plan shall be administered by the Board
or by a committee consisting of a member or members of the Board or other
person(s) as may be appointed by the Board (the "Administrative Committee"). The
Administrative Committee or the Board, as the case may be, shall have full
authority to administer the Plan, including the authority to interpret and
construe any provision of the Plan and any Option granted thereunder, and to
adopt such rules and regulations for administering the Plan as it may deem
necessary in order to comply with the requirements of the Code or in order to
conform to any regulation or to any change in any law or regulation applicable
thereto, or as it may otherwise deem proper and in the best interests of the
Company. The Administrative Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any agreement entered
into hereunder in the manner and to the extent it shall deem expedient and it
shall be the sole and final judge of such expediency. However, the
Administrative Committee shall have no authority, discretion or power to select
the Eligible Directors who will receive any Option, determine the number of
Shares to be issued hereunder, determine the time at which such Options are to
be granted, establish the duration of the Options or alter any other terms or
conditions specified in the Plan, except in the sense of administering the Plan
pursuant to the provisions of the Plan. The Board may reserve to itself any of
the authority granted to the Administrative Committee as set forth herein, and
it may perform and discharge all of the functions and responsibilities of the
Administrative Committee at any time that a duly constituted Administrative
Committee is not appointed and serving. All references in this Plan to the
"Administrative Committee" shall be deemed to refer to the Board whenever the
Board is discharging the powers and responsibilities of the Administrative
Committee.
3.2 ACTIONS OF ADMINISTRATIVE COMMITTEE. No member of the Administrative
Committee shall be liable for any action, interpretation or determination made
in good faith (including determinations of Fair Market Value), and all members
of the Administrative Committee shall, in addition to their rights as directors,
be fully protected by the Company with respect to any such action,
interpretation or determination. All actions taken and all interpretations and
determinations made by the Administrative Committee pursuant to the provisions
of the Plan shall be final, binding and conclusive for all purposes and on
Option Holders, the Company and all other persons. Any determination reduced in
writing and signed by all of the members shall be fully effective as if it had
been made by a majority vote at a meeting duly called and held.
3
<PAGE>
SECTION 4
STOCK RESERVED FOR THE PLAN
4.1 NUMBER OF SHARES. Subject to the provisions of Section 4.3 below,
400,000 Shares are authorized for issuance under the Plan in accordance with the
provisions of the Plan. Shares which may be issued upon the exercise of Options
shall be applied to reduce the maximum number of Shares remaining available
under the Plan. The 400,000 Shares reserved for issuance under the Plan may be
either authorized and unissued or held in the treasury of the Company.
4.2 UNUSED AND FORFEITED STOCK. Any Shares that are subject to an Option
under this Plan which are not used because the terms and conditions of the
Option are not met, including any Shares that are subject to an Option which
expires or is terminated for any reason, any Shares which are used for full or
partial payment of the purchase price of Shares with respect to which an Option
is exercised and any Shares retained by the Company pursuant to Section 5
automatically shall become available for use under the Plan.
4.3 ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC. If the Company shall
at any time increase or decrease the number of its outstanding Shares of Stock,
or change in any way the rights and privileges of such Shares by means of the
payment of a stock dividend or any other distribution upon such Shares payable
in Stock, or through a stock split, subdivision, consolidation, combination,
reclassification or recapitalization involving the Stock, except in connection
with an initial public offering, then in relation to the Stock that is affected
by one or more of the above events, such that an adjustment is required in order
to preserve the benefits or potential benefits intended to be made available
under this Plan, then the Administrative Committee shall, in such manner as the
Administrative Committee may deem equitable and appropriate, make such
adjustments to any or all of (i) the number and kind of Shares which thereafter
may be made subject to the benefits contemplated by the Plan, (ii) the number
and kind of Shares subject to outstanding Options, and (iii) the purchase or
exercise price with respect to any of the foregoing, provided, however, that the
number of Shares subject to any Option shall always be a whole number.
4.4 GENERAL ADJUSTMENT RULES. If any adjustment or substitution provided
for in this Section 4 shall result in the creation of a fractional Share under
any Option, the Company shall, in lieu of issuing such fractional Share, pay to
the Option Holder a cash sum in an amount equal to the product of such fraction
multiplied by the Fair Market Value of a Share on the date the fractional Share
otherwise would have been issued.
SECTION 5
STOCK OPTIONS
5.1 FORM OF OPTIONS. The Options granted under the Plan shall be automatic
and non-discretionary and shall be Nonstatutory Stock Options ("NSOs").
4
<PAGE>
5.2 OPTION AGREEMENTS. Each Option granted under the Plan shall be
evidenced by a written stock option agreement which shall be entered into by the
Company and the Option Holder, and which shall contain the following terms and
conditions. In the event of any inconsistency between the provisions of the Plan
and any such agreement entered into hereunder, the provisions of the Plan shall
govern.
(a) Scheduled Option Grants. Eligible Directors shall be eligible to
receive Options as follows, which options shall be subject to the vesting
schedule set forth in Subsection 5.2(b) below and subject to adjustment pursuant
to Section 4.3 hereof:
(i) (A) Upon the Effective Date of this Plan each existing Eligible
Non-Employee Director as of said date shall be granted an Option to purchase
30,000 Shares of Stock. Additionally, an option to purchase 25,000 Shares of
Stock will be granted under the Plan to each non-employee who, after the
Effective Date of the Plan, is first elected or appointed to serve as a Director
of the Company, such grant to be effective at the date of such first election or
appointment.
(B) At the close of business on the day of the Company's annual
meeting of stockholders at which Directors (or a class of Directors if the
Company then has a classified Board of Directors) are re-elected by the
Company's stockholders, an Option to purchase 20,000 Shares of Stock will be
granted to each Eligible Non-Employee Director.
(ii) (A) Upon the Effective Date of this Plan each existing
Eligible Employee Director as of said date shall be granted an Option to
purchase 20,000 Shares of Stock. Additionally, an option to purchase 15,000
Shares of Stock will be granted under the Plan to each employee who, after the
Effective Date of the Plan, is first elected or appointed to serve as a Director
of the Company, such grant to be effective at the date of such first election or
appointment.
(B) At the close of business on the day of the Company's annual
meeting of stockholders at which Directors (or a class of Directors if the
Company then has a classified Board of Directors) are re-elected by the
Company's stockholders, an Option to purchase 10,000 Shares of Stock will be
granted to each Eligible Employee Director.
(iii) The foregoing notwithstanding, no Director may be granted an
Option more than once during any one calendar year under the Plan. In addition,
any Eligible Director who is elected to a committee of the Board of Directors
shall be granted an additional option to purchase 5,000 Shares of Stock.
(b) Vesting. Each Eligible Director shall vest in his or her Options as
follows:
(i) Eligible Directors granted Options under this Plan shall vest
according to the following schedule: (1) Options to purchase one half (1/2) of
the Shares to which such Option relates shall vest immediately upon grant, (2)
If the Eligible Director has continued to
5
<PAGE>
serve as a director of the Company for the entirety of the Plan Year in which
the grant of an Option is made, he/she shall vest in Options to purchase one
quarter (1/4) of the Shares of Stock to which such options relate; and (3) if
the Eligible Director has continued to serve as a director of the Company for
the entirety of the second Plan Year following the Plan Year in which the Option
grant is made, he/she shall vest in the remaining one quarter (1/4) of the
Shares of Stock to which such Option relates.
(c) Price. The Option Price per Share of Stock for the Shares to be
purchased pursuant to the exercise of any Option shall be 100% of the Fair
Market Value of a Share of Stock on the date on which the Eligible Director is
granted the Option.
(d) Duration of Options. Each stock option agreement shall state the
period of time within which the Option may be exercised by the Option Holder
(the "OPTION PERIOD"). The Option Period must expire, in all cases, not more
than ten (10) years from the date an Option is granted. Notwithstanding any
other provision of the Plan, any Option Holder who is subject to Section 16 of
the 1934 Act may not exercise any portion of an Option during the first six
months following the grant of such Option, except that this limitation shall not
apply in the event of the Option Holder's death or Disability during such
six-month period or unless otherwise allowed by law.
(e) Termination of Director Status, Death, or Disability. Each stock
option agreement shall provide as follows with respect to the exercise of the
Option upon termination of the Option Holder's term as a director of the
Company, or the death or Disability of the Option Holder:
(i) If the Option Holder dies, or if the Option Holder becomes
Disabled during the Option Period while such a director of the Company, or
within the three-month period referred to in (ii) below, the Option may be
exercised by those entitled to do so under the Option Holder's will or by the
laws of descent and distribution within twelve months following the Option
Holder's death or Disability, but not thereafter. In any such case, the Option
may be exercised only as to the Shares as to which the Option had become
exercisable on or before the date of the Option Holder's death or Disability.
(ii) If the Option Holder's term as a director of the Company is
terminated within the Option Period for any reason other than Disability or the
Option Holder's death, the Option may be exercised by the Option Holder within
three months following the date of such termination (provided that such exercise
must occur within the Option Period), but not thereafter.
(f) Transferability. Each stock option agreement shall provide that the
Option granted therein is not transferable by the Option Holder except by will
or pursuant to the laws of descent and distribution, and that such Option is
exercisable during the Option Holder's lifetime only by him or her, or in the
event of Disability or incapacity, by his or her guardian or legal
representative.
6
<PAGE>
(g) Exercise, Payments, etc.
(i) Each stock option agreement shall provide that the method for
exercising the Option granted therein shall be by delivery to the Company of
written notice specifying the particular Option (or portion thereof) which is
being exercised, the number of Shares with respect to which such Option is
exercised and including payment of the Option Price. Such notice shall be in a
form satisfactory to the Administrative Committee. An Option for the purchase of
Shares granted hereunder may be exercised either in whole at any time, or from
time to time in part in lots of no less than 100 Shares or multiples thereof or,
in the event any balance as to which the Option remains unexercised shall be
less than 100 Shares, in a lot equal to such balance. The exercise of the Option
shall be deemed effective upon receipt of such notice by the Company and payment
to the Company of the Option Price. The purchase of such Stock shall take place
at the principal offices of the Company upon delivery of such notice, at which
time the purchase price of the Stock shall be paid in full by any of the methods
or any combination of the methods set forth in (ii) below. A properly executed
certificate or certificates representing the Stock shall be issued by the
Company and delivered to the Option Holder.
(ii) The exercise price shall be paid by any of the following methods
or any combination of the following methods:
(A) in cash;
(B) by cashier's check payable to the order of the Company;
(C) a notice that the holder of the Option surrenders to the
Company, from the total number of Shares as to which the Option is exercised,
that number of Shares having a Fair Market Value on the date of exercise equal
to the exercise price for the total number of Shares as to which the Option is
exercised;
(D) delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price;
(E) by delivery to the Company of certificates representing the
number of Shares then owned by the Option Holder, the Fair Market Value of which
equals the purchase price of the Stock purchased pursuant to the Option,
properly endorsed for transfer to the Company; provided however, that Shares
used for this purpose must have been held by the Option Holder for such minimum
period of time as may be established from time to time by the Administrative
Committee. The Fair Market Value of any Shares delivered in payment of the
purchase price upon exercise of the Option shall be the Fair Market Value as of
the exercise date and the exercise date shall be the day of the delivery of the
certificates for the Stock used as payment of the Option Price.
7
<PAGE>
(h) Date of Grant. An Option shall be considered as having been granted
on the date specified in Section 5.2(a).
5.3 STOCKHOLDER PRIVILEGES. Prior to the exercise of the Option and the
transfer of Shares to the Option Holder, an Option Holder shall have no rights
as a stockholder with respect to any Shares subject to any Option granted to
such person under this Plan, and until the Option Holder becomes the holder of
record of such Stock, no adjustments shall be made for dividends or other
distributions or other rights as to which there is a record date preceding the
date such Option Holder becomes the holder of record of such Stock, except as
provided in Section 4.
SECTION 6
CHANGE IN CONTROL
6.1 CHANGE IN CONTROL. In the event of a change in control of the Company,
as defined in Section 6.2, notwithstanding any contrary vesting schedules or
other restrictions on exercise contained herein each outstanding Option shall
become exercisable in full in respect of the aggregate number of Shares covered
thereby regardless of any restrictions provided herein, upon the occurrence of
the events described in clause (a) and (b) of Section 6.2 or immediately prior
to the consummation of the events described in clause (c) of Section 6.2, and
the Administrative Committee, in its sole discretion, without obtaining
stockholder approval, to the extent permitted in Section 9, may take any or all
of the following actions: (a) grant a cash bonus award to any Option Holder in
an amount necessary to pay the Option Price of all or any portion of the Options
then held by such Option Holder; (b) pay cash to any or all Option Holders in
exchange for the cancellation of their outstanding Options in an amount equal to
the difference between the Option Price of such Options and the greater of the
tender offer price for the underlying Stock or the Fair Market Value of the
Stock on the date of the cancellation of the Options; and (c) make any other
adjustments or amendments to the outstanding Options. Notwithstanding the
foregoing, unless otherwise provided in the applicable stock option agreement,
the Administrative Committee may, in its discretion, determine that any or all
outstanding Options granted pursuant to the Plan will not vest or become
exercisable on an accelerated basis in connection with an event described in
clause (c) of Section 6.2 and/or will not terminate if not exercised prior to
consummation of such event, if the Board or the surviving or acquiring
corporation, as the case may be, shall have taken or made effective provision
for the taking of, such action as in the opinion of the Administrative Committee
is equitable and appropriate to substitute a new Option for such Option or to
assume such Option and in order to make such new or assumed Option, as nearly as
may be practicable, equivalent to the old Option (before giving effect to any
acceleration of the vesting or exercisability thereof), taking into account, to
the extent applicable, the kind and amount of securities, cash or other assets
into or for which the Stock may be changed, converted or exchanged in connection
with such event.
6.2 DEFINITION. A "change in control" shall be deemed to have occurred if
(a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the 1934 Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the
8
<PAGE>
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the 1934 Act), directly or indirectly, of more than 50% of the then outstanding
voting stock of the Company; or (b) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders approve a plan or complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; or (c) a tender
offer or exchange offer to acquire securities of the Company (other than such an
offer made by the Company or any subsidiary), whether or not such offer is
approved or opposed by the Board is made to acquire securities of the Company
entitling the holders thereof to 50% or more of the voting power in the election
of directors of the Company.
6.3 GOLDEN PARACHUTE PAYMENTS. If the provisions of this Section would
result in the receipt by any Option Holder of a payment within the meaning of
Code Section 280G and the regulations thereunder and if the receipt of such
payment would result in the imposition of any excise tax under Code Sections
280G and 4999, then the amount of such payment will be reduced to the extent
required, in the opinion of independent tax counsel, to prevent the imposition
of such excise tax; provided, however, that the Administrative Committee, in its
sole discretion, may authorize the payment of all or any portion of the amount
of such reduction to the Option Holder. In such event, the Company will have no
obligation or liability with respect to the Option Holder for the amount of any
excise tax imposed on the Option Holder under Code Sections 280G and 4999.
SECTION 7
RIGHTS OF ELIGIBLE DIRECTORS' AND OPTION HOLDERS
7.1 EMPLOYMENT. Nothing contained in the Plan or in any Option shall confer
upon any Eligible Director any right or expectation with respect to the
continuation of his or her status as a director of the Company.
7.2 DIRECTORSHIP OF COMPANY. Nothing in this Plan shall interfere in any
way with the right of the stockholders of the Company to remove the Option
Holder from the Board pursuant to applicable state laws and the Company's
Articles of Incorporation and Bylaws.
7.3 NON-TRANSFERABILITY. No right or interest of any Option Holder in an
Option granted pursuant to the Plan shall be assignable or transferable during
the lifetime of the Option Holder, either voluntarily or involuntarily, or be
subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event or an Option Holder's death, an Option Holder's rights
and interests in Options shall, to the extent provided in Section 5, be
transferable by testamentary will or the laws of decent and distribution. In the
opinion of the Administrative Committee, if an
9
<PAGE>
Option Holder is disabled from caring for his or her affairs because of mental
condition, physical condition or age, such Option Holder's Options shall be
exercised by such person's guardian, conservator or other legal personal
representative upon furnishing the Administrative Committee with evidence
satisfactory to the Administrative Committee of such status.
SECTION 8
GENERAL RESTRICTIONS
8.1 INVESTMENT REPRESENTATIONS. The Company may require any Option Holder,
as a condition of exercising such Option or receiving Stock under the Option, to
give written assurances, in the substance and form satisfactory to the Company
and its counsel, to the effect that such person is acquiring the Stock subject
to the Option for his/her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws. Legends evidencing such
restrictions may be placed on the certificates evidencing the Stock.
8.2 COMPLIANCE WITH SECURITIES LAWS. Each Option shall be subject to the
requirement that, if at any time counsel to the Company shall determine that the
listing registration or qualification of the Shares subject to such Option upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, is necessary as a condition of,
or in connection with, the issuance or purchase of Shares thereunder, such
Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Administrative Committee. Nothing
herein shall be deemed to require the Company to apply for or to obtain such
listing, registration or qualification.
8.3 STOCK RESTRICTION AGREEMENT. The Administrative Committee may provide
that Shares of Stock issuable upon the exercise of an Option shall, under
certain conditions, be subject to restrictions whereby the Company has a right
of first refusal with respect to such Shares or a right or obligation to
repurchase all or a portion of such Shares, which restrictions may survive an
Option Holder's term of employment or term of service with the Company.
SECTION 9
PLAN AMENDMENT, MODIFICATION AND TERMINATION
9.1 The Board may at any time terminate, and from time-to-time may amend or
modify, the Plan; provided, however, that no amendment or modification may
become effective without approval of the amendment or modification by the
stockholders if stockholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements, or if the Company, on the
advice of counsel, determines that stockholder approval otherwise is necessary
or desirable.
10
<PAGE>
9.2 No amendment, modification or termination of the Plan shall in any
manner adversely affect any Options theretofore granted under the Plan without
the consent of the Option Holder holding such Options.
SECTION 10
NON-EXCLUSIVITY OF THE PLAN
10.1 Neither the adoption of the Plan by the Board nor the submission of
the Plan to stockholders of the Company for approval shall be construed as
creating any limitations on the power or authority of the Board to adopt such
other or additional incentive or other compensation arrangements of whatever
nature as the Board may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to non-employee directors generally.
SECTION 11
REQUIREMENTS OF LAW
11.1 REQUIREMENTS OF LAW. The issuance of Stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
11.2 FEDERAL SECURITIES LAW REQUIREMENTS. With respect to Eligible
Directors subject to Section 16 of the 1934 Act, transactions under this Plan
are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the 1934 Act. To the extent any provision of the Plan or action
by the Administrative Committee fails to so comply, it shall be deemed null and
void with respect to such Eligible Director, to the extent permitted by law and
deemed advisable by the Administrative Committee.
11.3 GOVERNING LAW. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of New York.
SECTION 12
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board,
and no Option shall be granted after such termination. If not sooner terminated
under the preceding sentence, the Plan shall fully cease and expire at midnight
on the date that is June 30, 2009. Options outstanding at the time of the Plan
termination may continue to be exercised in accordance with their terms.
11
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 1st day of July, 1999 (the
"AGREEMENT"), by and between Infinite Technology Group, Inc., a New York
corporation having its principal office at 77 Jericho Turnpike, Mineola, NY
10501 (the "COMPANY"), and Mark Dresner (the "EXECUTIVE").
R E C I T A L S:
The Company desires to employ the Executive, and the Executive desires
to accept such employment by the Company, upon the terms and conditions
hereinafter set forth.
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties. The Company agrees to employ the Executive as
the Chairman of the Board of the Company and the Executive accepts such
employment and agrees to perform all duties and services consistent with the
Executive's position. The Executive shall be the highest ranking official of the
Company and shall hold the highest executive authority within the Company;
provided, however, that James McGowan, President and Chief Executive Officer of
the Company shall be considered to hold an office of rank and authority equal to
that held by the Executive. The Executive agrees to devote substantially all of
the Executive's business time, attention and energy to perform the Executive's
duties and services hereunder; provided, however, that the Executive may conduct
other projects which do not detract a significant amount of the Executive's time
and attention from his duties and services hereunder. The Executive shall not be
required to perform his duties hereunder at a location other than at the
Company's corporate headquarters, which shall be located in the Counties of
Nassau or Suffolk, in the State of New York, except for reasonable travel which
may be required of the Executive.
The Company agrees that it shall nominate the Executive to be a
director of the Company at each election of directors of the Company to be held
during the Employment Period (as defined below), and to recommend to the
shareholders of the Company to vote their shares in favor of the election of the
Executive as a director of the Company at all such meetings. The Executive
agrees to serve as a director of the Company for no additional consideration,
except as may be provided to all directors generally.
2. Term of Employment. This Agreement shall commence on the date hereof
and end on the fifth anniversary of the date hereof, unless sooner terminated as
provided in Section 5 hereof, and subject to extension as hereinafter provided
(the "EMPLOYMENT PERIOD"). At the expiration of the initial five (5) year
Employment Period, and any extension thereof, the Employment Period shall
automatically be extended, without any action on the part of the Company or the
Executive for an additional period of one (1) year, unless the Company or the
Executive shall have submitted a written notice on non-extension to the other
party not less than six (6) months prior to the expiration of the then scheduled
Employment Period.
<PAGE>
3. Compensation and Benefits.
3.1 Base Salary. The Company shall pay the Executive a base salary
of Two Hundred Fifty Thousand ($250,000) Dollars per annum ("BASE SALARY"). The
Base Salary for each year after the first year may be increased from time to
time in the sole discretion of the Compensation Committee of the Board of
Directors of the Company and in any event will be increased annually to reflect
corresponding increases in the United States Department of Labor, Bureau of
Labor Statistics, Consumer Price Index, All Urban Consumers, United States City
Average. The Base Salary shall be payable at such intervals as salaries are paid
by the Company to its other executive employees.
3.2 Cash Bonuses and Stock Option Grants. In addition to the Base
Salary, with respect to each fiscal year during the Employment Period, the
Company shall compensate the Executive with cash bonuses and stock option grants
in amounts to be determined by the Compensation Committee of the Board of
Directors of the Company, in its sole discretion, based upon, among other
things, the growth of the Company through acquisitions, the Company's economic
performance and, if the Company's Common Stock is publicly traded, increases in
the market price of the Company's Common Stock.
3.3 Benefit Plans. During the Employment Period, the Executive shall
be entitled to participate in all plans adopted for the general benefit of the
Company's employees or executive employees, such as pension plans, medical
plans, investment plans and group or other insurance plans and benefits, to the
extent that the Executive is and remains eligible to participate therein and
subject to the eligibility provisions of such plans in effect from time to time.
The Executive shall be reimbursed for his reasonable out-of-pocket expenses
incurred in the performance of his duties upon submission of appropriate
evidence thereof in conformity with normal Company policy.
3.4 Automobile. The Company shall lease a luxury automobile for the
exclusive use and benefit of the Executive. The automobile shall be of a type
similar to the automobile currently leased by the Company for the benefit of the
Executive. The lease shall contain a clause allowing the Executive to purchase
the automobile at the termination of the term of the lease.
3.5 Indemnification. The Company hereby agrees to indemnify and hold
harmless the Executive to the full extent permitted by the New York Business
Corporation Law and other relevant statutes. The Company agrees to advance to
the Executive, as and when incurred by the Executive, all costs and expenses
arising from any claim as to which the Company is providing indemnification
hereunder.
-2-
<PAGE>
4. Vacation. For each year during the Employment Agreement, the
Executive shall be entitled to paid vacation in accordance with the Company's
standard policy, but in no event shall the Executive be entitled to less than
four (4) weeks vacation per annum.
5. Termination.
5.1 Death. This Agreement shall automatically terminate upon the
death of the Executive, whereupon the Company shall be obligated to pay to the
Executive's estate any unpaid Base Salary through the date of death and Bonus,
if any, as determined by the Board of Directors. Amounts payable under this
Section 5.1 shall be payable at the times and intervals set forth in Sections
3.1 and 3.2 hereof.
5.2 Disability. The Company shall have the right to terminate this
Agreement during the continuance of any Disability of the Executive, as
hereafter defined, upon fifteen (15) days' prior notice to the Executive during
the continuance of the Disability. "Disability" for purposes of this Section 5.2
shall mean an inability by the Executive to perform a substantial por tion of
the Executive's duties hereunder by reason of physical or mental incapacity or
disability for a total of one hundred eighty (180) days or more in any
consecutive period of three hundred and sixty-five (365) days, as determined by
the Board of Directors in its good faith judgment. In the event of a termination
by reason of the Executive's Disability, the Company shall be obligated to pay
the Executive any unpaid Base Salary through the date of termination, and Bonus,
if any, as determined by the Board of Directors. Amounts payable under this
Section 5.2 shall be payable at the times and intervals set forth in Sections
3.1 and 3.2 hereof.
5.3 Termination by the Company for Due Cause. Nothing herein shall
prevent the Company from terminating Executive's employment for Due Cause.
Executive shall continue to receive salary for the period ending with the date
of such termination as provided in this Section 5.3. Any rights and benefits he
may have in respect of any other compensation or employee benefit plans or
programs of the Company shall be determined in accordance with the terms of such
other compensation arrangements or such other plans or programs.
The term "Due Cause", as used herein, shall mean that (a) the
Executive has committed a willful, serious act, such as embezzlement, against
the Company intending to enrich himself at the expense of the Company or (b) the
Executive, in carrying out his duties hereunder, has been guilty of willful,
gross negligence resulting in either case in material harm to the Company (this
provision shall not apply to any particular instance which is merely the result
of any good faith error in judgment), (c) the willful and continued failure by
Executive to substantially perform his duties with the Company (other than any
such failure resulting from Executive's incapacity due to physical or mental
illness), after a demand for substantial performance is delivered to Executive
by the Board which specifically identifies the manner in which the Board
believes that Executive has not substantially performed his duties, or (d) the
willful engaging by Executive in gross misconduct materially and demonstrably
injurious to the Company. For purposes of this paragraph, no act, or failure to
act, on Executive's part shall be
-3-
<PAGE>
considered "willful" unless done, or omitted to be done, by Executive, not in
good faith and without reasonable belief that Executive's action or omission was
in the best interest of the Company.
Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Due Cause unless and until there shall have been delivered
to him a copy of a resolution duly adopted by the affirmative vote of not less
than two-thirds (2/3) of the entire membership of the Board at a meeting of the
Board called and held for the purpose (after reasonable notice to Executive and
an opportunity for Executive, together with his counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, Executive was
guilty of conduct set forth above and specifying the particulars thereof in
detail.
5.4 Termination by the Company other than for Due Cause. The
foregoing notwithstanding, the Company may terminate the Executive's employment
for whatever reason it deems appropriate, provided, however, that in the event
such termination is not due to permanent disability as provided in Section 5.2,
or based on Due Cause as provided in Section 5.3, the Executive will continue to
receive his Base Salary as provided in Section 3 for the remaining Term of the
Agreement (as it may be extended), but in no event for more than thirty-five
(35) months or less than twenty-four (24) months from the date of such
termination. During the period of salary continuation hereunder, the Executive
will be entitled to continued benefit coverage and benefit credits as provided
in Section 3 hereof or the economic equivalent. Any such benefit coverage, or
economic equivalent thereto, will be offset by comparable coverage provided to
the Executive in connection with any subsequent employment.
5.5 Termination by the Executive for Good Reason. Executive may
terminate his employment under this Agreement for Good Reason in which event the
Company shall still have the same obligations to Executive under this Agreement
as provided for in Section 5.4.
(a) "Good Reason" shall mean:
(i) Without Executive's express written consent, the
assignment to Executive of any duties
inconsistent with his positions, duties,
responsibilities and status with the Company or
a change in his reporting responsibilities,
title or offices, or any removal of Executive
from or any failure to re-elect him to any of
such positions, except in connection with the
termination of his employment for Due Cause,
Disability or Retirement or as a result of his
death, or by Executive other than for Good
Reason;
(ii) A reduction in Executive's Base Salary or
benefits or a breach of the Company's
obligations undertaken in this Agreement;
-4-
<PAGE>
(iii) In the event of the occurrence of a Change in
Control, this Agreement may be terminated by
Executive upon the occurrence thereafter of one
or more of the following events (in addition to
those enumerated above):
(A) Any failure to elect or re-elect
Executive, or removal of Executive, as a
director of the Company (or any successor
thereto), if Executive shall have been a
director of the Company immediately prior
to the Change in Control, or the office of
the Company which Executive held
immediately prior to a Change in Control;
(B) A significant adverse change in the nature
or scope of the authorities, powers,
functions, responsibilities or duties
attached to the position with the Company
which Executive had immediately prior to
the Change in Control, or the termination
of Executive's rights to any Benefits to
which he was entitled immediately prior to
the Change in Control or a reduction in
scope or value thereof without the prior
written consent of Executive, any of which
is not remedied with ten (10) calendar
days after receipt by the Company of
written notice from Executive of such
change, reduction or termination, as the
case may be;
(C) A determination by Executive made in good
faith that as a result of a Change in
Control and a change in circumstances
thereafter significantly affecting his
position, he has been rendered
substantially unable to carry out, or has
been substantially hindered in the
performance of, any of the authorities,
powers, functions, responsibilities or
duties attached to his position
immediately prior to the Change in
Control, which situation is not remedied
within ten (10) calendar days after
receipt by the Company of written notice
from Executive of such determination;
(D) The liquidation, dissolution, merger,
consolidation or reorganization of the
Company or transfer of all or a
significant portion of its business and/or
assets unless the successor or successors
(by liquidation,
-5-
<PAGE>
merger, consolidation, reorganization or
otherwise) to which all or a significant
portion of its business and/or assets have
been transferred (directly or by operation
of law) shall have assumed all duties and
obligations of the Company under this
Agreement hereof; or
(E) The Company shall relocate its principal
executive offices or require Executive to
have as his principal location of work any
location which is in excess of 100 miles
from the location thereof immediately
prior to the Termination Date or to travel
away from his office in the course of
discharging his responsibilities or duties
hereunder more than thirty (30)
consecutive calendar days or an aggregate
of more than sixty (60) calendar days in
any consecutive 365-calendar day period
without in either case his prior consent.
(iv) Executive is not elected a director or
appointed Chairman of the Board of the
Company.
(b) Change in Control. For purposes of this Agreement, a
"Change in Control" shall have occurred if at any time during the term (as that
term is hereafter defined), any of the following events shall occur:
(i) The Company is merged, or consolidated, or
reorganized into or with another corporation or
other legal person, and as a result of such
merger, consolidation or reorganization less
than 51% of the combined voting power of the
then- outstanding securities of such corporation
or person immediately after such transaction are
held in the aggregate by the holders of voting
securities of the Company immediately prior to
such transaction;
(ii) The Company sells all or substantially all of
its assets to any other corporation or other
legal person and thereafter, less than 51% of
the combined voting power of the then-
outstanding voting securities of the acquiring
or consolidated entity, which are held in the
aggregate by the holders of voting securities of
the Company immediately prior to such sale;
-6-
<PAGE>
(iii) There is a report filed after the date of this
Agreement on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as
promulgated pursuant to the Securities Exchange
Act of 1934 (the "Exchange Act") disclosing that
any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner
(as the term "beneficial owner" is defined under
Rule 13 d-3 or any successor rule or regulation
promulgated under the Exchange Act) representing
25% or more of the combined voting power of the
then-outstanding voting securities of the
Company;
(iv) The Company shall file a report or proxy
statement with the Securities and Exchange
Commission pursuant to the Exchange Act
disclosing in response to Item 1 of Form 8-K
thereunder or Item 5(f) of Schedule 14A
thereunder (or any successor schedule, form or
report or item therein) that the change in
control of the Company has or may have occurred
or will or may occur in the future pursuant to
any then-existing contract or transaction; or
(v) During any period of two consecutive years,
individuals who at the beginning of any such
period constitute the directors of the Company
cease for any reason to constitute at least a
majority thereof, unless the election or the
nomination for election by the Company's
shareholders of each director of the Company
first elected during such period was approved by
a vote of at least two-thirds of the directors
of the Company then still in office who were
directors of the Company at the beginning of
such period.
5.6 Notice of Termination. Any Notice of Termination by the Company
pursuant to Section 5.4 or by Executive pursuant to Section 5.5 shall be
communicated by written Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
5.7 Date of Termination. "Date of Termination" shall mean:
(a) If Executive's employment is terminated pursuant to Section
5.5, the date specified in the Notice of Termination, and
-7-
<PAGE>
(b) If Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given; provided that if
within thirty (30) days after any Notice of Termination is given, one party
notifies the other party that a dispute exists concerning the termination, the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding and
final arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal thereof having expired and no appeal
having been perfected).
6. Restrictions.
6.1 Confidentiality.
(a) The Executive recognizes that the Executive's position with
the Company is one of trust and confidence. The Executive acknowledges that,
during the course of the Executive's employment with the Company, the Executive
will necessarily become acquainted with confidential information relating to the
customers (including names, addresses and telephone numbers) of the Company, and
trade secrets, processes, methods of operation and other information, which the
Company regards as confidential and in the nature of trade secrets (collectively
"Confidential Information"). The Executive acknowledges and agrees that the
Confidential Information is of incalculable value to the Company and that the
Company would suffer damage if any of the Confidential Information was
improperly disclosed.
(b) The Executive covenants and agrees that the Executive will
not, at any time during or after the termination of the Executive's relationship
with the Company, reveal, divulge, or make known to any person, firm or
corporation, any Confidential Information made known to the Executive or of
which the Executive has become aware, regardless of whether developed, prepared,
devised or otherwise created in whole or in part by the efforts of the
Executive, except and to the extent that such disclosure is necessary to carry
out the Executive's duties for the Company. The Executive further covenants and
agrees that the Executive shall retain all Confidential Information in trust for
the sole benefit of the Company, and will not divulge or deliver or show any
Confidential Information to any unauthorized person including, without
limitation, any other employer of the Executive, and the Executive will not make
use thereof in an independent business related to the business of the Company.
6.2 Non-Competition. The Company is in the business of developing,
marketing, licensing and supporting network software and hardware products and
also provides consulting and services in network security, network design,
Internet solutions, troubleshooting and integration (the "BUSINESS"). Executive
acknowledges and recognizes that the Business has been conducted, and sales of
its products have been made, throughout the United States, and Executive further
acknowledges and recognizes the highly competitive nature of the industry in
which the Business is involved. Accordingly, in consideration of the premises
contained herein, the consideration to be received hereunder, stock options to
be granted Executive, Executive shall not, during the Non-Competition Period (as
defined below): (i) directly or indirectly engage,
-8-
<PAGE>
whether or not such engagement shall be as a partner, stockholder, affiliate or
other participant, in any Competitive Business (as defined below), or represent
in any way any Competitive Business, whether or not such engagement or
representation shall be for profit providing services to customers of the
Company or its affiliates; (ii) interfere with, disrupt or attempt to disrupt
the relationship, contractual or otherwise, between the Company and any other
person or entity, including, without limitation, any customer, supplier,
employee or consultant of the Company; (iii) induce any employee of the Company
to terminate his employment with the Company or to engage in any Competitive
Business in any manner described in the foregoing clause (i) (as well as an
officer or director of any Competitive Business); or (iv) affirmatively assist
or induce any other person or entity to engage in any Competitive Business in
any manner described in the foregoing clause (i) (as well as an officer or
director of any Competitive Business). Anything contained in this Section 6.2 to
the contrary notwithstanding, an investment by Executive in any publicly-traded
company in which Executive and his affiliates exercise no operational or
strategic control and which constitutes less than 5% of the capital of such
entity shall not constitute a breach of this Section 6.2.
As used herein, "Non-Competition Period" shall mean the period
commencing on the date hereof and terminating on the Termination Date; provided,
however, that if the Term of Employment shall have been terminated by the
Company, pursuant to Section 5.3, or by the Executive other than pursuant to
Section 5.5, then "Non-Competition Period" shall mean the period commencing on
the date hereof and ending on the first anniversary of the Termination Date.
"Competitive Business" shall mean any business in any State of the United States
in any line of business in which the Company or Subsidiary was engaged or had a
formal plan to enter as of the Termination Date.
Executive understands that the foregoing restrictions may
limit his ability to earn a livelihood in a business similar to the business of
the Company, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the Company and as
otherwise provided hereunder and pursuant to other agreements between the
Company and Executive to justify clearly such restrictions which, in any event
(given his education, skills and ability), Executive does not believe would
prevent him from earning a living.
If at any time the provisions of this Section 6 shall be
determined to be invalid or unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 6 shall be
considered divisible and shall become and be immediately amended to only such
area, duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 6 as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been included
herein.
7. Enforcement. The Executive acknowledges that the Company will suffer
substantial and irreparable damages not readily ascertainable or compensable in
terms of money in the event of the breach of any of the Executive's obligations
under Section 6 and hereof. The
-9-
<PAGE>
Executive therefore agrees that the provisions of Section 6 shall be construed
as an agreement independent of the other provisions of this Agreement and any
other agreement and that the Company, in addition to any other remedies
(including damages) provided by law, shall have the right and remedy to have
such provisions specifically enforced by any court having equity jurisdiction
thereof. The rights and remedies set forth in this Section 7 shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or equity.
8. Miscellaneous Provisions.
8.1 Entire Agreement. This Agreement sets forth the entire agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes all prior agreements, arrangements, and understandings between
the parties with respect to the subject matter hereof.
8.2 Modification. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties or in
the case of a waiver, by the party waiving compliance.
8.3 Waiver. The failure of either party at any time or times to
require performance of any provision hereof in no manner shall affect the right
at a later time to enforce the same. No waiver by either party of a breach of
any term or covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such breach or a waiver of any other term or
covenant contained in this Agreement.
8.4 Notices. All notices, demands, consents or other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given) upon the earlier of receipt, one business day after being sent
by telecopier or three business days after being sent by registered or certified
mail: (i) if to the Company, at the address first set forth above, (ii) if to
the Executive, at the home address of Executive as set forth on the payroll
records of the Company, or in either case, to such other address as either party
shall hereafter specify by notice to the other party. Copies of all notices
given pursuant to this paragraph shall be simultaneously sent to Craig S.
Libson, Esq., c/o Parker Duryee Rosoff & Haft, 529 Fifth Avenue, 8th Floor, New
York, New York 10017. Irrespective of the foregoing, notice of change of address
shall be effective only upon receipt.
8.5 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York applicable to contracts
made and to be performed wholly within such state.
8.6 Arbitration. Any controversy or claim arising out of or relating
to this Agreement, the making, interpretation or the breach thereof, other than
a claim solely for
-10-
<PAGE>
injunctive relief for any alleged breach of the provisions of Section 6 as to
which the parties shall have the right to apply for specific performance to any
court having equity jurisdiction, shall be resolved by arbitration in New York,
New York in accordance with the Commercial Arbitration Rules of the American
Arbitration Association and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. The powers
for the arbitrator or arbitrators shall include, but not be limited to, the
awarding of injunctive relief. The arbitrator shall include in any award in the
prevailing party's favor the amount of his or its reasonable attorney's fees and
expenses and all other reasonable costs and expenses of the arbitration. In the
event the arbitrator does not rule in favor of the prevailing party in respect
of all the claims alleged by such party, the arbitrator shall include in any
award in favor of the prevailing party the amount of his or its reasonable costs
and expenses of the arbitration as he deems just and equitable under the
circumstances. Except as provided above, each party shall bear his or its own
attorney's fees and expenses and the parties shall bear equally all other costs
and expenses of the arbitration.
8.7 Assignability. This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. The Company may
assign its rights, together with its obligations hereunder, only to a successor
by merger or by the purchase of all or substantially all of the assets and
business of the Company and such rights and obligations shall inure to, and be
binding upon, any such successor.
8.8 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective legal representatives,
heirs, permitted successors and permitted assigns.
8.9 Headings and Word Meanings. Headings and titles in this
Agreement are for convenience of reference only and shall not control the
construction or interpretation of any provisions hereof. The words "herein,"
"hereof," "hereunder" and words of similar import, when used anywhere in this
Agreement, refer to this Agreement as a whole and not merely to a subdivision in
which such words appear, unless the context otherwise requires. The singular
shall include the plural unless the context otherwise requires.
8.10 Separability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
INFINITE TECHNOLOGY GROUP LTD.
By: /s/ James McGowan
--------------------------------
Name: James McGowan
Title: President and Chief Executive Officer
/s/ Mark Dresner
--------------------------------
Mark Dresner
-12-
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 1st day of July, 1999 (the
"AGREEMENT"), by and between Infinite Technology Group, Inc., a New York
corporation having its principal office at 77 Jericho Turnpike, Mineola, NY
10501 (the "COMPANY"), and James McGowan (the "EXECUTIVE").
R E C I T A L S:
The Company desires to employ the Executive, and the Executive desires
to accept such employment by the Company, upon the terms and conditions
hereinafter set forth.
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties. The Company agrees to employ the Executive as
the President and Chief Executive Officer of the Company and the Executive
accepts such employment and agrees to perform all duties and services consistent
with the Executive's position. The Executive shall be the highest ranking
official of the Company and shall hold the highest executive authority within
the Company; provided, however, that Mark Dresner, Chairman of the Board of the
Company shall be considered to hold an office of rank and authority equal to
that held by the Executive. The Executive agrees to devote substantially all of
the Executive's business time, attention and energy to perform the Executive's
duties and services hereunder; provided, however, that the Executive may conduct
other projects which do not detract a significant amount of the Executive's time
and attention from his duties and services hereunder. The Executive shall not be
required to perform his duties hereunder at a location other than at the
Company's corporate headquarters, which shall be located in the Counties of
Nassau or Suffolk, in the State of New York, except for reasonable travel which
may be required of the Executive.
The Company agrees that it shall nominate the Executive to be a
director of the Company at each election of directors of the Company to be held
during the Employment Period (as defined below), and to recommend to the
shareholders of the Company to vote their shares in favor of the election of the
Executive as a director of the Company at all such meetings. The Executive
agrees to serve as a director of the Company for no additional consideration,
except as may be provided to all directors generally.
2. Term of Employment. This Agreement shall commence on the date hereof
and end on the fifth anniversary of the date hereof, unless sooner terminated as
provided in Section 5 hereof, and subject to extension as hereinafter provided
(the "EMPLOYMENT PERIOD"). At the expiration of the initial five (5) year
Employment Period, and any extension thereof, the Employment Period shall
automatically be extended, without any action on the part of the Company or the
Executive for an additional period of one (1) year, unless the Company or the
Executive shall have submitted a written notice on non-extension to the other
party not less than six (6) months prior to the expiration of the then scheduled
Employment Period.
<PAGE>
3. Compensation and Benefits.
3.1 Base Salary. The Company shall pay the Executive a base salary
of Two Hundred Fifty Thousand ($250,000) Dollars per annum ("BASE SALARY"). The
Base Salary for each year after the first year may be increased from time to
time in the sole discretion of the Compensation Committee of the Board of
Directors of the Company and in any event will be increased annually to reflect
corresponding increases in the United States Department of Labor, Bureau of
Labor Statistics, Consumer Price Index, All Urban Consumers, United States City
Average. The Base Salary shall be payable at such intervals as salaries are paid
by the Company to its other executive employees.
3.2 Cash Bonuses and Stock Option Grants. In addition to the Base
Salary, with respect to each fiscal year during the Employment Period, the
Company shall compensate the Executive with cash bonuses and stock option grants
in amounts to be determined by the Compensation Committee of the Board of
Directors of the Company, in its sole discretion, based upon, among other
things, the growth of the Company through acquisitions, the Company's economic
performance and, if the Company's Common Stock is publicly traded, increases in
the market price of the Company's Common Stock.
3.3 Benefit Plans. During the Employment Period, the Executive shall
be entitled to participate in all plans adopted for the general benefit of the
Company's employees or executive employees, such as pension plans, medical
plans, investment plans and group or other insurance plans and benefits, to the
extent that the Executive is and remains eligible to participate therein and
subject to the eligibility provisions of such plans in effect from time to time.
The Executive shall be reimbursed for his reasonable out-of-pocket expenses
incurred in the performance of his duties upon submission of appropriate
evidence thereof in conformity with normal Company policy.
3.4 Automobile. The Company shall lease a luxury automobile for the
exclusive use and benefit of the Executive. The automobile shall be of a type
similar to the automobile currently leased by the Company for the benefit of the
Executive. The lease shall contain a clause allowing the Executive to purchase
the automobile at the termination of the term of the lease.
3.5 Indemnification. The Company hereby agrees to indemnify and hold
harmless the Executive to the full extent permitted by the New York Business
Corporation Law and other relevant statutes. The Company agrees to advance to
the Executive, as and when incurred by the Executive, all costs and expenses
arising from any claim as to which the Company is providing indemnification
hereunder.
-2-
<PAGE>
4. Vacation. For each year during the Employment Agreement, the
Executive shall be entitled to paid vacation in accordance with the Company's
standard policy, but in no event shall the Executive be entitled to less than
four (4) weeks vacation per annum.
5. Termination.
5.1 Death. This Agreement shall automatically terminate upon the
death of the Executive, whereupon the Company shall be obligated to pay to the
Executive's estate any unpaid Base Salary through the date of death and Bonus,
if any, as determined by the Board of Directors. Amounts payable under this
Section 5.1 shall be payable at the times and intervals set forth in Sections
3.1 and 3.2 hereof.
5.2 Disability. The Company shall have the right to terminate this
Agreement during the continuance of any Disability of the Executive, as
hereafter defined, upon fifteen (15) days' prior notice to the Executive during
the continuance of the Disability. "Disability" for purposes of this Section 5.2
shall mean an inability by the Executive to perform a substantial por tion of
the Executive's duties hereunder by reason of physical or mental incapacity or
disability for a total of one hundred eighty (180) days or more in any
consecutive period of three hundred and sixty-five (365) days, as determined by
the Board of Directors in its good faith judgment. In the event of a termination
by reason of the Executive's Disability, the Company shall be obligated to pay
the Executive any unpaid Base Salary through the date of termination, and Bonus,
if any, as determined by the Board of Directors. Amounts payable under this
Section 5.2 shall be payable at the times and intervals set forth in Sections
3.1 and 3.2 hereof.
5.3 Termination by the Company for Due Cause. Nothing herein shall
prevent the Company from terminating Executive's employment for Due Cause.
Executive shall continue to receive salary for the period ending with the date
of such termination as provided in this Section 5.3. Any rights and benefits he
may have in respect of any other compensation or employee benefit plans or
programs of the Company shall be determined in accordance with the terms of such
other compensation arrangements or such other plans or programs.
The term "Due Cause", as used herein, shall mean that (a) the
Executive has committed a willful, serious act, such as embezzlement, against
the Company intending to enrich himself at the expense of the Company or (b) the
Executive, in carrying out his duties hereunder, has been guilty of willful,
gross negligence resulting in either case in material harm to the Company (this
provision shall not apply to any particular instance which is merely the result
of any good faith error in judgment), (c) the willful and continued failure by
Executive to substantially perform his duties with the Company (other than any
such failure resulting from Executive's incapacity due to physical or mental
illness), after a demand for substantial performance is delivered to Executive
by the Board which specifically identifies the manner in which the Board
believes that Executive has not substantially performed his duties, or (d) the
willful engaging by Executive in gross misconduct materially and demonstrably
injurious to the Company. For purposes of this paragraph, no act, or failure to
act, on Executive's part shall be
-3-
<PAGE>
considered "willful" unless done, or omitted to be done, by Executive, not in
good faith and without reasonable belief that Executive's action or omission was
in the best interest of the Company.
Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Due Cause unless and until there shall have been delivered
to him a copy of a resolution duly adopted by the affirmative vote of not less
than two-thirds (2/3) of the entire membership of the Board at a meeting of the
Board called and held for the purpose (after reasonable notice to Executive and
an opportunity for Executive, together with his counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, Executive was
guilty of conduct set forth above and specifying the particulars thereof in
detail.
5.4 Termination by the Company other than for Due Cause. The
foregoing notwithstanding, the Company may terminate the Executive's employment
for whatever reason it deems appropriate, provided, however, that in the event
such termination is not due to permanent disability as provided in Section 5.2,
or based on Due Cause as provided in Section 5.3, the Executive will continue to
receive his Base Salary as provided in Section 3 for the remaining Term of the
Agreement (as it may be extended), but in no event for more than thirty-five
(35) months or less than twenty-four (24) months from the date of such
termination. During the period of salary continuation hereunder, the Executive
will be entitled to continued benefit coverage and benefit credits as provided
in Section 3 hereof or the economic equivalent. Any such benefit coverage, or
economic equivalent thereto, will be offset by comparable coverage provided to
the Executive in connection with any subsequent employment.
5.5 Termination by the Executive for Good Reason. Executive may
terminate his employment under this Agreement for Good Reason in which event the
Company shall still have the same obligations to Executive under this Agreement
as provided for in Section 5.4.
(a) "Good Reason" shall mean:
(i) Without Executive's express written consent, the
assignment to Executive of any duties
inconsistent with his positions, duties,
responsibilities and status with the Company or
a change in his reporting responsibilities,
title or offices, or any removal of Executive
from or any failure to re-elect him to any of
such positions, except in connection with the
termination of his employment for Due Cause,
Disability or Retirement or as a result of his
death, or by Executive other than for Good
Reason;
(ii) A reduction in Executive's Base Salary or
benefits or a breach of the Company's
obligations undertaken in this Agreement;
-4-
<PAGE>
(iii) In the event of the occurrence of a Change in
Control, this Agreement may be terminated by
Executive upon the occurrence thereafter of one
or more of the following events (in addition to
those enumerated above):
(A) Any failure to elect or re-elect
Executive, or removal of Executive, as a
director of the Company (or any successor
thereto), if Executive shall have been a
director of the Company immediately prior
to the Change in Control, or the office of
the Company which Executive held
immediately prior to a Change in Control;
(B) A significant adverse change in the nature
or scope of the authorities, powers,
functions, responsibilities or duties
attached to the position with the Company
which Executive had immediately prior to
the Change in Control, or the termination
of Executive's rights to any Benefits to
which he was entitled immediately prior to
the Change in Control or a reduction in
scope or value thereof without the prior
written consent of Executive, any of which
is not remedied with ten (10) calendar
days after receipt by the Company of
written notice from Executive of such
change, reduction or termination, as the
case may be;
(C) A determination by Executive made in good
faith that as a result of a Change in
Control and a change in circumstances
thereafter significantly affecting his
position, he has been rendered
substantially unable to carry out, or has
been substantially hindered in the
performance of, any of the authorities,
powers, functions, responsibilities or
duties attached to his position
immediately prior to the Change in
Control, which situation is not remedied
within ten (10) calendar days after
receipt by the Company of written notice
from Executive of such determination;
(D) The liquidation, dissolution, merger,
consolidation or reorganization of the
Company or transfer of all or a
significant portion of its business and/or
assets unless the successor or successors
(by liquidation,
-5-
<PAGE>
merger, consolidation, reorganization or
otherwise) to which all or a significant
portion of its business and/or assets have
been transferred (directly or by operation
of law) shall have assumed all duties and
obligations of the Company under this
Agreement hereof; or
(E) The Company shall relocate its principal
executive offices or require Executive to
have as his principal location of work any
location which is in excess of 100 miles
from the location thereof immediately
prior to the Termination Date or to travel
away from his office in the course of
discharging his responsibilities or duties
hereunder more than thirty (30)
consecutive calendar days or an aggregate
of more than sixty (60) calendar days in
any consecutive 365-calendar day period
without in either case his prior consent.
(iv) Executive is not elected a director or appointed
Chairman of the Board of the Company.
(b) Change in Control. For purposes of this Agreement, a
"Change in Control" shall have occurred if at any time during the term (as that
term is hereafter defined), any of the following events shall occur:
(i) The Company is merged, or consolidated, or
reorganized into or with another corporation or
other legal person, and as a result of such
merger, consolidation or reorganization less
than 51% of the combined voting power of the
then-outstanding securities of such corporation
or person immediately after such transaction are
held in the aggregate by the holders of voting
securities of the Company immediately prior to
such transaction;
(ii) The Company sells all or substantially all of
its assets to any other corporation or other
legal person and thereafter, less than 51% of
the combined voting power of the
then-outstanding voting securities of the
acquiring or consolidated entity, which are held
in the aggregate by the holders of voting
securities of the Company immediately prior to
such sale;
-6-
<PAGE>
(iii) There is a report filed after the date of this
Agreement on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as
promulgated pursuant to the Securities Exchange
Act of 1934 (the "Exchange Act") disclosing that
any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner
(as the term "beneficial owner" is defined under
Rule 13 d-3 or any successor rule or regulation
promulgated under the Exchange Act) representing
25% or more of the combined voting power of the
then-outstanding voting securities of the
Company;
(iv) The Company shall file a report or proxy
statement with the Securities and Exchange
Commission pursuant to the Exchange Act
disclosing in response to Item 1 of Form 8-K
thereunder or Item 5(f) of Schedule 14A
thereunder (or any successor schedule, form or
report or item therein) that the change in
control of the Company has or may have occurred
or will or may occur in the future pursuant to
any then-existing contract or transaction; or
(v) During any period of two consecutive years,
individuals who at the beginning of any such
period constitute the directors of the Company
cease for any reason to constitute at least a
majority thereof, unless the election or the
nomination for election by the Company's
shareholders of each director of the Company
first elected during such period was approved by
a vote of at least two-thirds of the directors
of the Company then still in office who were
directors of the Company at the beginning of
such period.
5.6 Notice of Termination. Any Notice of Termination by the Company
pursuant to Section 5.4 or by Executive pursuant to Section 5.5 shall be
communicated by written Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
5.7 Date of Termination. "Date of Termination" shall mean:
(a) If Executive's employment is terminated pursuant to Section
5.5, the date specified in the Notice of Termination, and
-7-
<PAGE>
(b) If Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given; provided that if
within thirty (30) days after any Notice of Termination is given, one party
notifies the other party that a dispute exists concerning the termination, the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding and
final arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal thereof having expired and no appeal
having been perfected).
6. Restrictions.
6.1 Confidentiality.
(a) The Executive recognizes that the Executive's position with
the Company is one of trust and confidence. The Executive acknowledges that,
during the course of the Executive's employment with the Company, the Executive
will necessarily become acquainted with confidential information relating to the
customers (including names, addresses and telephone numbers) of the Company, and
trade secrets, processes, methods of operation and other information, which the
Company regards as confidential and in the nature of trade secrets (collectively
"Confidential Information"). The Executive acknowledges and agrees that the
Confidential Information is of incalculable value to the Company and that the
Company would suffer damage if any of the Confidential Information was
improperly disclosed.
(b) The Executive covenants and agrees that the Executive will
not, at any time during or after the termination of the Executive's relationship
with the Company, reveal, divulge, or make known to any person, firm or
corporation, any Confidential Information made known to the Executive or of
which the Executive has become aware, regardless of whether developed, prepared,
devised or otherwise created in whole or in part by the efforts of the
Executive, except and to the extent that such disclosure is necessary to carry
out the Executive's duties for the Company. The Executive further covenants and
agrees that the Executive shall retain all Confidential Information in trust for
the sole benefit of the Company, and will not divulge or deliver or show any
Confidential Information to any unauthorized person including, without
limitation, any other employer of the Executive, and the Executive will not make
use thereof in an independent business related to the business of the Company.
6.2 Non-Competition. The Company is in the business of developing,
marketing, licensing and supporting network software and hardware products and
also provides consulting and services in network security, network design,
Internet solutions, troubleshooting and integration (the "BUSINESS"). Executive
acknowledges and recognizes that the Business has been conducted, and sales of
its products have been made, throughout the United States, and Executive further
acknowledges and recognizes the highly competitive nature of the industry in
which the Business is involved. Accordingly, in consideration of the premises
contained herein, the consideration to be received hereunder, stock options to
be granted Executive, Executive shall not, during the Non-Competition Period (as
defined below): (i) directly or indirectly engage,
-8-
<PAGE>
whether or not such engagement shall be as a partner, stockholder, affiliate or
other participant, in any Competitive Business (as defined below), or represent
in any way any Competitive Business, whether or not such engagement or
representation shall be for profit providing services to customers of the
Company or its affiliates; (ii) interfere with, disrupt or attempt to disrupt
the relationship, contractual or otherwise, between the Company and any other
person or entity, including, without limitation, any customer, supplier,
employee or consultant of the Company; (iii) induce any employee of the Company
to terminate his employment with the Company or to engage in any Competitive
Business in any manner described in the foregoing clause (i) (as well as an
officer or director of any Competitive Business); or (iv) affirmatively assist
or induce any other person or entity to engage in any Competitive Business in
any manner described in the foregoing clause (i) (as well as an officer or
director of any Competitive Business). Anything contained in this Section 6.2 to
the contrary notwithstanding, an investment by Executive in any publicly-traded
company in which Executive and his affiliates exercise no operational or
strategic control and which constitutes less than 5% of the capital of such
entity shall not constitute a breach of this Section 6.2.
As used herein, "Non-Competition Period" shall mean the period
commencing on the date hereof and terminating on the Termination Date; provided,
however, that if the Term of Employment shall have been terminated by the
Company, pursuant to Section 5.3, or by the Executive other than pursuant to
Section 5.5, then "Non-Competition Period" shall mean the period commencing on
the date hereof and ending on the first anniversary of the Termination Date.
"Competitive Business" shall mean any business in any State of the United States
in any line of business in which the Company or Subsidiary was engaged or had a
formal plan to enter as of the Termination Date.
Executive understands that the foregoing restrictions may limit his
ability to earn a livelihood in a business similar to the business of the
Company, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the Company and as
otherwise provided hereunder and pursuant to other agreements between the
Company and Executive to justify clearly such restrictions which, in any event
(given his education, skills and ability), Executive does not believe would
prevent him from earning a living.
If at any time the provisions of this Section 6 shall be determined
to be invalid or unenforceable, by reason of being vague or unreasonable as to
area, duration or scope of activity, this Section 6 shall be considered
divisible and shall become and be immediately amended to only such area,
duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 6 as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been included
herein.
7. Enforcement. The Executive acknowledges that the Company will suffer
substantial and irreparable damages not readily ascertainable or compensable in
terms of money in the event of the breach of any of the Executive's obligations
under Section 6 and hereof. The
-9-
<PAGE>
Executive therefore agrees that the provisions of Section 6 shall be construed
as an agreement independent of the other provisions of this Agreement and any
other agreement and that the Company, in addition to any other remedies
(including damages) provided by law, shall have the right and remedy to have
such provisions specifically enforced by any court having equity jurisdiction
thereof. The rights and remedies set forth in this Section 7 shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or equity.
8. Miscellaneous Provisions.
8.1 Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements, arrangements, and
understandings between the parties with respect to the subject matter hereof.
8.2 Modification. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties or in
the case of a waiver, by the party waiving compliance.
8.3 Waiver. The failure of either party at any time or times to
require performance of any provision hereof in no manner shall affect the right
at a later time to enforce the same. No waiver by either party of a breach of
any term or covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such breach or a waiver of any other term or
covenant contained in this Agreement.
8.4 Notices. All notices, demands, consents or other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given) upon the earlier of receipt, one business day after being sent
by telecopier or three business days after being sent by registered or certified
mail: (i) if to the Company, at the address first set forth above, (ii) if to
the Executive, at the home address of Executive as set forth on the payroll
records of the Company, or in either case, to such other address as either party
shall hereafter specify by notice to the other party. Copies of all notices
given pursuant to this paragraph shall be simultaneously sent to Craig S.
Libson, Esq., c/o Parker Duryee Rosoff & Haft, 529 Fifth Avenue, 8th Floor, New
York, New York 10017. Irrespective of the foregoing, notice of change of address
shall be effective only upon receipt.
8.5 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York applicable to contracts
made and to be performed wholly within such state.
8.6 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, the making, interpretation or the breach thereof,
other than a claim solely for
-10-
<PAGE>
injunctive relief for any alleged breach of the provisions of Section 6 as to
which the parties shall have the right to apply for specific performance to any
court having equity jurisdiction, shall be resolved by arbitration in New York,
New York in accordance with the Commercial Arbitration Rules of the American
Arbitration Association and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. The powers
for the arbitrator or arbitrators shall include, but not be limited to, the
awarding of injunctive relief. The arbitrator shall include in any award in the
prevailing party's favor the amount of his or its reasonable attorney's fees and
expenses and all other reasonable costs and expenses of the arbitration. In the
event the arbitrator does not rule in favor of the prevailing party in respect
of all the claims alleged by such party, the arbitrator shall include in any
award in favor of the prevailing party the amount of his or its reasonable costs
and expenses of the arbitration as he deems just and equitable under the
circumstances. Except as provided above, each party shall bear his or its own
attorney's fees and expenses and the parties shall bear equally all other costs
and expenses of the arbitration.
8.7 Assignability. This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. The Company may
assign its rights, together with its obligations hereunder, only to a successor
by merger or by the purchase of all or substantially all of the assets and
business of the Company and such rights and obligations shall inure to, and be
binding upon, any such successor.
8.8 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective legal representatives,
heirs, permitted successors and permitted assigns.
8.9 Headings and Word Meanings. Headings and titles in this
Agreement are for convenience of reference only and shall not control the
construction or interpretation of any provisions hereof. The words "herein,"
"hereof," "hereunder" and words of similar import, when used anywhere in this
Agreement, refer to this Agreement as a whole and not merely to a subdivision in
which such words appear, unless the context otherwise requires. The singular
shall include the plural unless the context otherwise requires.
8.10 Separability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
INFINITE TECHNOLOGY GROUP LTD.
By: /s/ Mark Dresner
---------------------------------
Name: Mark Dresner
Title: Chairman of the Board
/s/ James McGowan
---------------------------------
James McGowan
-12-
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 1st day of September, 1999 (the
"AGREEMENT"), by and between Infinite Technology Group, Inc., a New York
corporation having its principal office at 77 Jericho Turnpike, Mineola, NY
10501 (the "COMPANY") and Paul Wolotsky, with an address at 1729 21st Street,
N.W., Washington, D.C. 20009 (the "EXECUTIVE").
R E C I T A L S:
The Company desires to employ the Executive, and the Executive desires to
accept such employment by the Company, upon the terms and conditions hereinafter
set forth.
In consideration of the mutual covenants and agreements set forth herein,
the parties agree as follows:
1. Employment and Duties. The Company agrees to employ the Executive as the
Executive Vice President, Director of Internet Operations of the Company and the
Executive accepts such employment and agrees to perform all duties and services
consistent with the Executive's position. The Executive shall be the highest
ranking executive of the Company's Internet services division and, should the
Company create a separate subsidiary through which to conduct such operations,
Executive shall be appointed the highest ranking officer of such subsidiary.
Executive shall report only to Mark Dresner, the Chairman of the Board of the
Company and James McGowan, the President and Chief Executive Officer of the
Company. The Executive agrees to devote substantially all of the Executive's
business time, attention and energy to perform the Executive's duties and
services hereunder. The Executive shall not be required to perform his duties
hereunder at a location other than at the Company's corporate headquarters,
which shall be located in the Counties of Nassau or Suffolk, in the State of New
York, except for reasonable travel which may be required of the Executive;
provided, however, that the Executive may spend up to fifty (50%) percent of his
business time working from the Washington, D.C. metropolitan area.
The Company agrees that it shall nominate the Executive to be a director of
the Company at each election of directors of the Company to be held during the
Employment Period (as defined below), and to recommend to the shareholders of
the Company to vote their shares in favor of the election of the Executive as a
director of the Company at all such meetings. The Executive agrees to serve as a
director of the Company for no additional consideration, except as may be
provided to all directors generally.
<PAGE>
2. Term of Employment. This Agreement shall commence on the date hereof
(the "COMMENCEMENT DATE") and end on the fifth anniversary of the date hereof,
unless sooner terminated as provided in Section 5 hereof, and subject to
extension as hereinafter provided (the "EMPLOYMENT PERIOD"). At the expiration
of the initial five year Employment Period, and any extensions thereof, the
Employment Period shall automatically be extended, without any action on the
part of the Company or the Executive for an additional period of one year,
unless the Company or the Executive shall have submitted a written notice on
non-extension to the other party not less than six (6) months prior to the
expiration of the then scheduled Employment Period.
3. Compensation and Benefits.
3.1 Base Salary. The Company, or a Subsidiary of the Company, shall pay
the Executive a base salary of Two Hundred and Fifty Thousand ($250,000) Dollars
per annum (the "BASE SALARY"). The Base Salary for each year after the first
year may be increased from time to time in the sole discretion of the Board and
in any event will be increased annually to reflect corresponding increases in
the United States Department of Labor, Bureau of Labor Statistics, Consumer
Price Index, All Urban Consumers, United States City Average. Base Salary shall
be payable at such intervals as salaries are paid by the Company to its other
executive employees.
3.2 Stock Options. The Company shall grant the Executive Non-Qualified
Stock Options to purchase "restricted" shares of Common Stock of the Company,
$.01 par value per share, as follows:
(a) On the Commencement Date, Non-Qualified Stock Options, of ten
(10) years duration, to purchase Three Hundred Thousand (300,000) "restricted"
shares of Common Stock of the Company at an exercise price of $8.50 per share,
in the Form of Option attached hereto as "Exhibit A". Such options shall vest,
in accordance with the following schedule (conditioned only on the Executive's
continued employment by the Company or a Subsidiary of the Company):
(i) Twenty-Five Thousand (25,000) on the Commencement Date;
(ii) Thirty-Five Thousand (35,000) on the first anniversary of
the Commencement Date;
(iii) Forty-Five Thousand (45,000) on the second anniversary of
the Commencement Date;
(iv) Fifty-Five Thousand (55,000) on the third anniversary of the
Commencement Date;
-2-
<PAGE>
(v) Sixty-Five Thousand (65,000) on the fourth anniversary of
the Commencement Date; and
(vi) Seventy-Five Thousand (75,000) on the fifth anniversary of
the Commencement Date.
(b) Non-Qualified Stock Options, of ten (10) years duration, to
purchase up to an additional One Hundred Thousand (100,000) "restricted" shares
of Common Stock of the Company, at an exercise price of $8.50 per share, vesting
Ten Thousand (10,000) shares for each $1 million of net income (as determined by
the Company's independent certified public accountants) generated by the
Company's Internet division, conditioned only on the Executive's continued
employment by the Company or a Subsidiary of the Company.
3.3 Bonus. In addition to the Base Salary, with respect to each fiscal\
year during the Employment Period, the Company or Subsidiary shall pay the
Executive additional bonus compensation, as follows:
(a) A cash bonus based upon net income generated by the Company's
Internet division each year during the Term at the following rates:
(i) 3% of the first $1,000,000 of net income;
(ii) 2% of the next $1,000,000 of net income; and
(iii) 1% of net income in excess of $2,000,000, but less than
$15,000,000; and
(b) A discretionary bonus in an amount to be determined by the Board
of Directors (excluding the Executive if he is a director), in its sole
discretion.
3.4 Automobile. The Company shall lease a luxury automobile for the
exclusive use and benefit of the Executive. The automobile shall be of a type
similar to the automobile currently leased by the Company for the benefit of
other executives. The lease shall contain a clause allowing the Executive to
purchase the automobile at the termination of the term of the lease.
3.5 Benefit Plans; Business Expenses. During the Employment Period, the
Executive shall be entitled to participate in all plans adopted for the general
benefit of the Company's and any subsidiaries' employees or executive employees,
such as pension plans, medical plans, investment plans and group or other
insurance plans and benefits, to the extent that the Executive is and remains
eligible to participate therein and subject to the eligibility provisions of
such plans in effect from time to time. The Executive shall be reimbursed for
his reasonable
-3-
<PAGE>
out-of-pocket expenses incurred in the performance of his duties upon submission
of appropriate evidence thereof in conformity with normal Company policy.
3.6 Indemnification. The Company hereby agrees to indemnify and hold
harmless the Executive to the full extent permitted by the New York Business
Corporation Law and other relevant statutes. The Company agrees to advance to
the Executive, as and when incurred by the Executive, all costs and expenses
arising from any claim as to which the Company is providing indemnification
hereunder.
4. Vacation. For each year during the Employment Agreement, the Executive
shall be entitled to paid vacation in accordance with the Company's standard
policy, but in no event shall the Executive be entitled to less than four (4)
weeks vacation per annum.
5. Termination.
5.1 Death. This Agreement shall automatically terminate upon the death
of the Executive, whereupon the Company shall be obligated to pay to the
Executive's estate any unpaid Base Salary through the date of death and Bonus,
if any, as determined by the Board of Directors. Amounts payable under this
Section 5.1 shall be payable at the times and intervals set forth in Sections
3.1 and 3.3 hereof.
5.2 Disability. The Company shall have the right to terminate this
Agreement during the continuance of any Disability of the Executive, as
hereafter defined, upon fifteen (15) days' prior notice to the Executive during
the continuance of the Disability. "Disability" for purposes of this Section 5.2
shall mean an inability by the Executive to perform a substantial portion of the
Executive's duties hereunder by reason of physical or mental incapacity or
disability for a total of one hundred eighty (180) days or more in any
consecutive period of three hundred and sixty-five (365) days, as determined by
the Board of Directors in its good faith judgment. In the event of a termination
by reason of the Executive's Disability, the Company shall be obligated to pay
the Executive any unpaid Base Salary through the date of termination, and Bonus,
if any, as determined by the Board of Directors. Amounts payable under this
Section 5.2 shall be payable at the times and intervals set forth in Sections
3.1 and 3.3 hereof.
5.3 Termination by the Company for Due Cause. Nothing herein shall
prevent the Company from terminating Executive's employment for Due Cause.
Executive shall continue to receive his Base Salary for the period ending with
the date of such termination as provided in this Section 5.3. Any rights and
benefits he may have in respect of any other compensation or employee benefit
plans or programs of the Company shall be determined in accordance with the
terms of such other compensation arrangements or such other plans or programs.
The term "Due Cause", as used herein, shall mean that (a) the Executive
has committed a willful, serious act, such as embezzlement, against the Company
or Subsidiary
-4-
<PAGE>
intending to enrich himself at the expense of the Company or Subsidiary, or (b)
the Executive, in carrying out his duties hereunder, has been guilty of willful,
gross negligence resulting in either case in material harm to the Company or
Subsidiary (this provision shall not apply to any particular instance which is
merely the result of any good faith error in judgment), (c) the willful and
continued failure by Executive to substantially perform his duties with the
Company or any subsidiary (other than any such failure resulting from
Executive's incapacity due to physical or mental illness), after a demand for
substantial performance is delivered to Executive by the Board which
specifically identifies the manner in which the Board believes that Executive
has not substantially performed his duties, or (d) the willful engaging by
Executive in gross misconduct materially and demonstrably injurious to the
Company or any subsidiary. For purposes of this paragraph, no act, or failure to
act, on Executive's part shall be considered "willful" unless done, or omitted
to be done, by Executive, not in good faith and without reasonable belief that
Executive's action or omission was in the best interest of the Company or any
subsidiary.
Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Due Cause unless and until there shall have been delivered
to him a copy of a resolution duly adopted by the affirmative vote of not less
than two-thirds (2/3) of the entire membership of the Board (excluding
Executive, if he is a member of the Board) at a meeting of the Board called and
held for the purpose (after reasonable notice to Executive and an opportunity
for Executive, together with his counsel, to be heard before the Board), finding
that in the good faith opinion of the Board Executive was guilty of conduct set
forth above and specifying the particulars thereof in detail.
5.4 Termination by the Executive for Good Reason. Executive may
terminate his employment under this Agreement for Good Reason in which event the
Executive will continue to receive his Base Salary as provided in Section 3 for
a period of twelve (12) months from the date of such termination. During the
period of salary continuation hereunder, the Executive will be entitled to
continued benefit coverage and benefit credits as provided in Section 3 hereof
or the economic equivalent. Any such benefit coverage, or economic equivalent
thereto, will be offset by comparable coverage provided to the Executive in
connection with any subsequent employment.
(a) "Good Reason" shall mean:
(i) Without Executive's express written consent, the assignment
to Executive of any duties inconsistent with his positions,
duties, responsibilities and status with the Company or a
change in his reporting responsibilities, title or offices,
or any removal of Executive from or any failure to re-elect
him to any of such positions, except in connection with the
termination of his employment for Due Cause, Disability or
Retirement or as a result of his death, or by Executive
other than for Good Reason;
-5-
<PAGE>
(ii) A reduction in Executive's Base Salary or benefits or a
breach of the Company's obligations undertaken in this
Agreement;
(iii) In the event of the occurrence of a Change in Control, this
Agreement may be terminated by Executive upon the occurrence
thereafter of one or more of the following events (in
addition to those enumerated above):
(A) Any failure to elect or re-elect Executive, or removal
of Executive, as a director of the Company (or any
successor thereto), if Executive shall have been a
director of the Company immediately prior to the Change
in Control, or the office of the Company which
Executive held immediately prior to a Change in
Control;
(B) A significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or
duties attached to the position with the Company or any
subsidiary which Executive had immediately prior to the
Change in Control, or the termination of Executive's
rights to any Benefits to which he was entitled
immediately prior to the Change in Control or a
reduction in scope or value thereof without the prior
written consent of Executive, any of which is not
remedied with ten (10) calendar days after receipt by
the Company of written notice from Executive of such
change, reduction or termination, as the case may be;
(C) A determination by Executive made in good faith that as
a result of a Change in Control and a change in
circumstances thereafter significantly affecting his
position, he has been rendered substantially unable to
carry out, or has been substantially hindered in the
performance of, any of the authorities, powers,
functions, responsibilities or duties attached to his
position immediately prior to the Change in Control,
-6-
<PAGE>
which situation is not remedied within ten (10)
calendar days after receipt by the Company of written
notice from Executive of such determination; or
(D) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or a
significant portion of its business and/or assets
unless the successor or successors (by liquidation,
merger, consolidation, reorganization or otherwise) to
which all or a significant portion of its business
and/or assets have been transferred (directly or by
operation of law) shall have assumed all duties and
obligations of the Company under this Agreement hereof.
(b) Change in Control. For purposes of this Agreement, a "Change in
Control" shall have occurred if at any time during the term (as that term is
hereafter defined), any of the following events shall occur:
(i) The Company is merged, or consolidated, or reorganized into
or with another corporation or other legal person, and as a
result of such merger, consolidation or reorganization less
than 51% of the combined voting power of the
then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate
by the holders of voting securities of the Company
immediately prior to such transaction;
(ii) The Company sells all or substantially all of its assets to
any other corporation or other legal person and thereafter,
less than 51% of the combined voting power of the
then-outstanding voting securities of the acquiring or
consolidated entity, which are held in the aggregate by the
holders of voting securities of the Company immediately
prior to such sale;
(iii) There is a report filed after the date of this Agreement on
Schedule 13D or Schedule 14D-1 (or any successor schedule,
form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934 (the "EXCHANGE
-7-
<PAGE>
ACT") disclosing that any person (as the term "person" is
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange
Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13 d-3 or any
successor rule or regulation promulgated under the Exchange
Act) representing 25% or more of the combined voting power
of the then-outstanding voting securities of the Company;
(iv) The Company shall file a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange
Act disclosing in response to Item 1 of Form 8-K thereunder
or Item 5(f) of Schedule 14A thereunder (or any successor
schedule, form or report or item therein) that the change in
control of the Company has or may have occurred or will or
may occur in the future pursuant to any then-existing
contract or transaction; or
(v) During any period of two consecutive years, individuals who
at the beginning of any such period constitute the directors
of the Company cease for any reason to constitute at least a
majority thereof, unless the election or the nomination for
election by the Company's shareholders of each director of
the Company first elected during such period was approved by
a vote of at least two-thirds of the directors of the
Company then still in office who were directors of the
Company at the beginning of such period.
5.5 Termination by Company or Executive Related to the Company's Initial
Public Offering. The Company or the Executive shall have the right to terminate
this Agreement, upon thirty (30) days written notice to the other party, if the
Company's proposed initial public offering of Common Stock is not consummated on
or prior to January 1, 2000. In the event of termination by either party
pursuant to this Section 5.5, the Executive will enter into a Consulting
Agreement with the Company, pursuant to which the Executive will provide
consulting services to the Company for a term of one (1) year and at a rate of
Two Hundred and Fifty Thousand ($250,000) Dollars per annum.
5.6 Termination other than for Death, Disability, Due Cause, Good Reason
or Related to the Company's Initial Public Offering. The foregoing
notwithstanding, following the third anniversary of this Agreement, either the
Company or the Executive may terminate the Executive's employment for whatever
reason they deem appropriate, upon six (6) months written
-8-
<PAGE>
notice to the other party, or such other notice period as mutually agreed to by
the parties (the "NOTICE PERIOD"). In the event of such termination, the Company
shall be obligated to pay to the Executive his Base Salary throughout the Notice
Period, and unpaid bonus, if any, as determined by the Board of Directors.
Amounts payable under this Section 5.6 shall be payable at the times and
intervals set forth in Sections 3.1 and 3.3 hereof.
5.7 Notice of Termination. Any Notice of Termination pursuant to this
Agreement shall be communicated by written Notice of Termination to the other
party hereof. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
5.8 Date of Termination. "Date of Termination" shall mean:
(a) If Executive's employment is terminated pursuant to Section
5.4, the date specified in the Notice of Termination, and
(b) If Executive's employment is terminated for any other reason,
the date on which a Notice of Termination is given; provided that if within
thirty (30) days after any Notice of Termination is given, one party notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding and final arbitration
award or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal thereof having expired and no appeal having
been perfected).
6. Restrictions.
6.1 Confidentiality.
(a) The Executive recognizes that the Executive's position with the
Company is one of trust and confidence. The Executive acknowledges that, during
the course of the Executive's employment with the Company, the Executive will
necessarily become acquainted with confidential information relating to the
customers (including names, addresses and telephone numbers) of the Company, and
trade secrets, processes, methods of operation and other information, which the
Company regards as confidential and in the nature of trade secrets (collectively
"CONFIDENTIAL INFORMATION"). The Executive acknowledges and agrees that the
Confidential Information is of incalculable value to the Company and that the
Company would suffer damage if any of the Confidential Information was
improperly disclosed.
(b) The Executive covenants and agrees that the Executive will not,
at any time during or after the termination of the Executive's relationship with
the Company, reveal, divulge, or make known to any person, firm or corporation,
any Confidential Information made
-9-
<PAGE>
known to the Executive or of which the Executive has become aware, regardless of
whether developed, prepared, devised or otherwise created in whole or in part by
the efforts of the Executive, except and to the extent that such disclosure is
necessary to carry out the Executive's duties for the Company. The Executive
further covenants and agrees that the Executive shall retain all Confidential
Information in trust for the sole benefit of the Company, and will not divulge
or deliver or show any Confidential Information to any unauthorized person
including, without limitation, any other employer of the Executive, and the
Executive will not make use thereof in an independent business related to the
business of the Company.
(c) The Executive agrees that, upon termination of the Executive's
employment with the Company, for any reason whatsoever, or for no reason, and at
any time, the Executive shall return to the Company all papers, documents and
other property of the Company placed in the Executive's custody or obtained by
the Executive during the course of the Executive's employment which relate to
Confidential Information, and the Executive will not retain copies of any such
papers, documents or other property for any purpose whatsoever.
6.2 Non-Competition. The Company is in the business of developing,
marketing, licensing and supporting network software and hardware products and
also provide consulting and services in network security, network design,
Internet solutions, troubleshooting and integration (the "BUSINESS"). Executive
acknowledges and recognizes that the Business has been conducted, and sales of
its products have been made, throughout the United States, and Executive further
acknowledges and recognizes the highly competitive nature of the industry in
which the Business is involved. Accordingly, in consideration of the premises
contained herein, the consideration to be received hereunder, stock options to
be granted Executive, Executive shall not, during the Non-Competition Period (as
defined below): (i) directly or indirectly engage, whether or not such
engagement shall be as a partner, stockholder, affiliate or other participant,
in any Competitive Business (as defined below), or represent in any way any
Competitive Business, whether or not such engagement or representation shall be
for profit providing services to customers of the Company or its affiliates;
(ii) interfere with, disrupt or attempt to disrupt the relationship, contractual
or otherwise, between the Company and any other person or entity, including,
without limitation, any customer, supplier, employee or consultant of the
Company; (iii) induce any employee of the Company to terminate his employment
with the Company or to engage in any Competitive Business in any manner
described in the foregoing clause (i) (as well as an officer or director of any
Competitive Business); or (iv) affirmatively assist or induce any other person
or entity to engage in any Competitive Business in any manner described in the
foregoing clause (i) (as well as an officer or director of any Competitive
Business). Anything contained in this Section 6.2 to the contrary
notwithstanding, an investment by Executive in any publicly- traded company in
which Executive and his affiliates exercise no operational or strategic control
and which constitutes less than 5% of the capital of such entity shall not
constitute a breach of this Section 6.2.
As used herein, "Non-Competition Period" shall mean the period
commencing on the date hereof and terminating on the Termination Date; provided,
however, that if the Term
-10-
<PAGE>
of Employment shall have been terminated pursuant to Section 5.3, then
"Non-Competition Period" shall mean the period commencing on the date hereof and
ending on the first anniversary of the Termination Date. "Competitive Business"
shall mean any business in any State of the United States in any line of
business in which the Company or Subsidiary was engaged or had a formal plan to
enter as of the Termination Date.
Executive understands that the foregoing restrictions may limit his
ability to earn a livelihood in a business similar to the business of the
Company, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the Company and as
otherwise provided hereunder and pursuant to other agreements between the
Company and Executive to justify clearly such restrictions which, in any event
(given his education, skills and ability), Executive does not believe would
prevent him from earning a living.
If at any time the provisions of this Section 6 shall be determined to
be invalid or unenforceable, by reason of being vague or unreasonable as to
area, duration or scope of activity, this Section 6 shall be considered
divisible and shall become and be immediately amended to only such area,
duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 6 as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been included
herein.
7. Work Product. The Executive agrees that all innovations, inventions,
improvements, developments, methods, designs, analyses, drawings, reports, and
all similar or related information which relates to the Company's actual
business or product lines or any business or product lines which the Company has
taken significant action to pursue, and which are conceived, developed or made
by the Executive while employed by the Company (any of the foregoing,
hereinafter "WORK PRODUCT"), belong to the Company. The Executive will promptly
disclose all such Work Product to the Board of Directors and perform all actions
reasonably requested by the Board (whether during or after the Employment
Period) to establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
8. Enforcement. The Executive acknowledges that the Company will suffer
substantial and irreparable damages not readily ascertainable or compensable in
terms of money in the event of the breach of any of the Executive's obligations
under Sections 6 and 7 hereof. The Executive therefore agrees that the
provisions of Sections 6 and 7 shall be construed as an agreement independent of
the other provisions of this Agreement and any other agreement and that the
Company, in addition to any other remedies (including damages) provided by law,
shall have the right and remedy to have such provisions specifically enforced by
any court having equity jurisdiction thereof. The rights and remedies set forth
in this Section 8 shall be in addition to, and not in lieu of, any other rights
and remedies available to the Company under law or equity.
-11-
<PAGE>
9. Miscellaneous Provisions.
9.1 Entire Agreement. This Agreement sets forth the entire agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior agreements, arrangements, and understandings between the
parties with respect to the subject matter hereof.
9.2 Modification. This Agreement may be amended, modified, superseded,
canceled, renewed or extended, and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties or in the case of a
waiver, by the party waiving compliance.
9.3 Waiver. The failure of either party at any time or times to require
performance of any provision hereof in no manner shall affect the right at a
later time to enforce the same. No waiver by either party of a breach of any
term or covenant contained in this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such breach or a waiver of any other term or covenant
contained in this Agreement.
9.4 Notices. All notices, demands, consents or other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given) upon the earlier of receipt, one business day after being sent
by telecopier or three business days after being sent by registered or certified
mail to the parties at the addresses set forth above or to such other address as
either party shall hereafter specify by notice to the other party. Irrespective
of the foregoing, notice of change of address shall be effective only upon
receipt.
9.5 Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York applicable to contracts made
and to be performed wholly within such state.
9.6 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
Sections 6 or 7 as to which the parties shall have the right to apply for
specific performance to any court having equity jurisdiction, shall be resolved
by arbitration in New York, New York in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof and any party to the arbitration may, if such party so
elects, institute proceedings in any court having jurisdiction for the specific
performance of any such award. The powers for the arbitrator or arbitrators
shall include, but not be limited to, the awarding of injunctive relief. The
arbitrator shall include in any award in the prevailing party's favor the amount
of his or its reasonable attorney's fees and expenses and all other reasonable
costs and expenses of the arbitration. In the event the arbitrator
-12-
<PAGE>
does not rule in favor of the prevailing party in respect of all the claims
alleged by such party, the arbitrator shall include in any award in favor of the
prevailing party the amount of his or its reasonable costs and expenses of the
arbitration as he deems just and equitable under the circumstances. Except as
provided above, each party shall bear his or its own attorney's fees and
expenses and the parties shall bear equally all other costs and expenses of the
arbitration.
9.7 Assignability. This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. The Company may
assign its rights, together with its obligations hereunder, only to a successor
by merger or by the purchase of all or substantially all of the assets and
business of the Company and such rights and obligations shall inure to, and be
binding upon, any such successor.
9.8 Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties and their respective legal representatives, heirs,
permitted successors and permitted assigns.
9.9 Headings and Word Meanings. Headings and titles in this Agreement
are for convenience of reference only and shall not control the construction or
interpretation of any provisions hereof. The words "herein," "hereof,"
"hereunder" and words of similar import, when used anywhere in this Agreement,
refer to this Agreement as a whole and not merely to a subdivision in which such
words appear, unless the context otherwise requires. The singular shall include
the plural unless the context otherwise requires.
9.10 Separability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
INFINITE TECHNOLOGY GROUP, INC.
By: /s/ James McGowan
---------------------------
Name: James McGowan
Title: President and Chief Executive Officer
/s/ Paul Wolotsky
------------------------------
Paul Wolotsky
-13-
<PAGE>
EXHIBIT A
(FORM OF OPTION)
-14-
<PAGE>
NEITHER THE OPTION REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER ANY STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT OR LAWS,
THE RULES AND REGULATIONS THEREUNDER OR THE
PROVISIONS OF THIS OPTION CERTIFICATE
INFINITE TECHNOLOGY GROUP LTD.
----------------------
OPTION TO PURCHASE
SHARES OF COMMON STOCK
AS HEREIN DESCRIBED
DATED: AS OF SEPTEMBER 1, 1999
THIS CERTIFIES THAT, FOR VALUE RECEIVED
NAME: Paul Wolotsky ("Optionee")
ADDRESS: 1729 21st Street, N.W.
Washington, D.C. 20009
or permitted assigns (the "Holder") are entitled, subject to the terms set forth
herein, to purchase from Infinite Technology Group Ltd. (the "Company"), a New
York corporation, having its offices at 77 Jericho Turnpike, Mineola, New York
10501, Three Hundred Thousand (300,000) shares of the Company's common stock
subject to adjustment as set forth herein.
1. As used herein:
(a) "Common Stock" or "Common Shares" shall initially refer to the
Company's common stock including Underlying Securities, as more fully set forth
in Section 5 hereof.
(b) "Option Price" or "Common Share Price" shall be Eight and 50/100
Dollars ($8.50) per share.
-1-
<PAGE>
(c) "Underlying Securities" or "Underlying Shares"or "Underlying Stock"
shall refer to the Common Shares or other securities or property issuable or
issued upon exercise of this Option.
2. (a) The purchase rights represented by this Option may be exercised by
the Holder hereof, in whole or in part (but not as to less than a whole Common
Share), as to the vested portion (as defined below) of this Option only, at any
time, and from time to time, during the period commencing this date, until
September 1, 2009 (the "Expiration Date"), by the presentation of this Option,
with the purchase form attached duly executed, at the Company's office (or such
office or agency of the Company as it may designate in writing to the Holder
hereof by notice pursuant to Section 13 hereof), specifying the number of Common
Shares as to which the Option is being exercised, and upon payment by the Holder
to the Company in cash or by certified check or bank draft, in an amount equal
to the Option Price times the number of Common Shares then being purchased
hereunder. This Option shall vest as follows (conditioned only on the Optionee's
continued employment by the Company or a subsidiary of the Company):
(i) As to Twenty-Five Thousand (25,000) of the Underlying Shares, on the
date hereof;
(ii) As to Thirty-Five Thousand (35,000) of the Underlying Shares, on the
first anniversary of the date hereof;
(iii) As to Forty-Five Thousand (45,000) of the Underlying Shares, on the
second anniversary of the date hereof;
(iv) As to Fifty-Five Thousand (55,000) of the Underlying Shares, on the
third anniversary of the date hereof;
(v) As to Sixty-Five Thousand (65,000) of the Underlying Shares, on the
fourth anniversary of the date hereof; and
(vi) As to Seventy-Five Thousand (75,000) of the Underlying Shares, on the
fifth anniversary of the date hereof.
The portion of this Option which has vested pursuant to (i) to (vi) above
shall be referred to as the "vested portion".
(b) The Company agrees that the Holder hereof shall be deemed the record
owner of such Underlying Securities as of the close of business on the date on
which this Option shall have been presented and payment made for such Underlying
Securities as aforesaid. Certificates for the Underlying Securities so obtained
shall be delivered to the Holder hereof within a reasonable time, not exceeding
seven (7) days, after the rights represented by this Option shall have been so
exercised. If this Option shall be exercised in part only or transferred in part
-2-
<PAGE>
subject to the provisions herein, the Company shall, upon surrender of this
Option for cancellation or partial transfer, deliver a new Option evidencing the
rights of the Holder hereof to purchase the balance of the Underlying Shares
which such Holder is entitled to purchase hereunder.
3. Subject to the provisions of Section 8 hereof, (i) this Option is
exchangeable at the option of the Holder at the aforesaid office of the Company
for other Options of different denominations entitling the Holder thereof to
purchase in the aggregate the same number of Common Shares as are purchasable
hereunder; and (ii) this Option may be divided or combined with other Options
which carry the same rights, in either case, upon presentation hereof at the
aforesaid office of the Company together with a written notice, signed by the
Holder hereof, specifying the names and denominations in which new Options are
to be issued, and the payment of any transfer tax due in connection therewith.
4. Subject and pursuant to the provisions of this Section 4, the Option
Price and number of Common Shares subject to this Option shall be subject to
adjustment from time to time as set forth hereinafter in this Section 4.
(a) If the Company shall at any time subdivide its outstanding Common
Shares by recapitalization, reclassification, stock dividend, or split-up
thereof or other means, the number of Common Shares subject to this Option
immediately prior to such subdivision shall be proportionately increased and the
Option Price shall be proportionately decreased, and if the Company shall at any
time combine the outstanding Common Shares by recapitalization, reclassification
or combination thereof or other means, the number of Common Shares subject to
this Option immediately prior to such combination shall be proportionately
decreased and the Option Price shall be proportionately increased. Any such
adjustment to the Option Price shall become effective at the close of business
on the record date for such subdivision or combination.
(b) If the Company after the date hereof shall distribute to all of the
holders of its Common Shares any securities including, but not limited to Common
Shares, or other assets (other than a cash distribution made as a dividend
payable out of earnings or out of any earned surplus legally available for
dividends under the laws of the jurisdiction of incorporation of the Company),
the Board of Directors shall be required to make such equitable adjustment in
the Option Price and the type and/or number of Underlying Securities in effect
immediately prior to the record date of such distribution as may be necessary to
preserve to the Holder of this Option rights substantially proportionate to and
economically equivalent to those enjoyed hereunder by such Holder immediately
prior to the happening of such distribution. Any such adjustment made reasonably
and in good faith by the Board of Directors shall be final and binding upon the
Holders and shall become effective as of the record date for such distribution.
(c) No adjustment in the number of Common Shares subject to this Option
or the Option Price shall be required under this Section 4 unless such
adjustment would require an increase or decrease in such number of shares of at
least 1% of the then adjusted number of Common Shares issuable upon exercise of
the Option, provided, however, that any adjustments
-3-
<PAGE>
which by reason of the foregoing are not required at the time to be made shall
be carried forward and taken into account and included in determining the amount
of any subsequent adjustment. If the Company shall make a record of the Holders
of its Common Shares for the purpose of entitling them to receive any dividend
or distribution and legally abandon its plan to pay or deliver such dividend or
distribution then no adjustment in the number of Common Shares subject to the
Option shall be required by reason of the making of such record.
(d) In case of any capital reorganization or reclassification or change
of the outstanding Common Shares (exclusive of a change covered by Section 4(a)
hereof or which solely affects the par value of such Common Shares) or in the
case of any merger or consolidation of the Company with or into another
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification,
change, capital reorganization or change in the ownership of the outstanding
Common Shares), or in the case of any sale or conveyance or transfer of all or
substantially all of the assets of the Company and in connection with which the
Company is dissolved, the Holder of this Option shall have the right thereafter
(until the expiration of the right of exercise of this Option) to receive upon
the exercise hereof, for the same aggregate Option Price payable hereunder
immediately prior to such event, the kind and amount of shares of stock or other
securities or property receivable upon such reclassification, change, capital
reorganization, merger or consolidation, or upon the dissolution following any
sale or other transfer, by a holder of the number of Common Shares of the
Company equal to the number of common shares obtainable upon exercise of this
Option immediately prior to such event; and if any reorganization,
reclassification, change, merger, consolidation, sale or transfer also results
in a change in Common Shares covered by Section 4(a), then such adjustment shall
be made pursuant to both this Section 4(d) and Section 4(a). The provisions of
this Section 4(d) shall similarly apply to successive reclassification, or
capital reorganizations, mergers or consolidations, changes, sales or other
transfers.
(e) The Company shall not be required to issue fractional Common Shares
upon any exercise of this Option. As to any final fraction of a Common Share
which the Holder of this Option would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the "current market price"
(as defined in Section 4(f) below) of a share of such stock on the business day
preceding the day of exercise. The Holder of this Option, by his acceptance
hereof, expressly waives any right to receive any fractional shares of stock
upon exercise of this Option.
(f) As used herein, the "current market price" per share of Common Stock
on any date shall be: (i) if the Common Stock is listed or admitted for trading
on any national securities exchange, the last reported sales price as reported
on such national securities exchange; (ii) if the Common Stock is not listed or
admitted for trading on any national securities exchange, the average of the
last reported closing bid and asked quotation for the Common Stock as reported
on the Automated Quotation System of NASDAQ or a similar service if NASDAQ is
not reporting such information; (iii) if the Common Stock is not listed or
admitted for trading on
-4-
<PAGE>
any national securities exchange or quoted by NASDAQ or a similar service, the
average of the last reported bid and asked quotation for the Common Stock as
quoted by a market maker in the Common Stock (or if there is more than one
market maker, the bid and asked quotation shall be obtained from two market
makers and the average of the lowest bid and highest asked quotation shall be
the "current market price"); or (iv) if the Common Stock is not listed or
admitted for trading on any national securities exchange or quoted by NASDAQ and
there is no market maker in the Common Stock, the fair market value of such
shares as determined by the Board of Directors.
(g) Irrespective of any adjustments pursuant to this Section 4 in the
Option Price or in the number, or kind, or class of shares or other securities
or other property obtainable upon exercise of this Option, and without impairing
any such adjustment the certificate representing this Option may continue to
express the Option Price and the number of Common Shares obtainable upon
exercise at the same price and number of Common Shares as are stated herein.
(h) Until this Option is exercised, the Underlying Shares, and the
Option Price shall be determined exclusively pursuant to the provisions hereof.
(i) Upon any adjustment of this Option the Company shall give written
notice thereof to the Holder which notice shall include the number of Underlying
Securities purchasable and the price per share upon exercise of this Option and
shall set forth in reasonable detail the events which resulted in such
adjustment
5. For the purposes of this Option, the terms "Common Shares" or "Common
Stock" shall mean (i) the class of stock designated as the common stock of the
Company on the date set forth on the first page hereof or (ii) any other class
of stock resulting from successive changes or reclassification of such Common
Stock consisting solely of changes from par value to no par value, or from no
par value to par value or changes in par value. If at any time, as a result of
an adjustment made pursuant to Section 4, the securities or other property
obtainable upon exercise of this Option shall include shares or other securities
of another corporation or other property, then thereafter, the number of such
other shares or other securities or property so obtainable shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Shares contained in
Section 4, and all other provisions of this Option with respect to Common Shares
shall apply on like terms to any such other shares or other securities or
property. Subject to the foregoing, and unless the context requires otherwise,
all references herein to Common Shares shall, in the event of an adjustment
pursuant to Section 4, be deemed to refer also to any other shares or other
securities or property when obtainable as a result of such adjustments.
6. The Company covenants and agrees that:
-5-
<PAGE>
(a) During the period within which the rights represented by this Option
may be exercised, the Company shall, at all times, reserve and keep available
out of its authorized capital stock, solely for the purposes of issuance upon
exercise of this Option, such number of its Common Shares as shall be issuable
upon the exercise of this Option and at its expense will obtain the listing
thereof on all quotation systems or national securities exchanges on which the
Common Shares are then listed; and if at any time the number of authorized
Common Shares shall not be sufficient to effect the exercise of this Option, the
Company will take such corporate action as may be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purpose; the Company shall have analogous obligations with
respect to any other securities or property issuable upon exercise of this
Option;
(b) All Common Shares which may be issued upon exercise of the rights
represented by this Option will, upon issuance, be validly issued, fully paid,
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof; and
(c) All original issue taxes payable in respect of the issuance of
Common Shares upon the exercise of the rights represented by this Option shall
be borne by the Company, but in no event shall the Company be responsible or
liable for income taxes or transfer taxes upon the transfer of any Options.
7. Until exercised, this Option shall not entitle the Holder hereof to any
voting rights or other rights as a shareholder of the Company.
8. This Option may not be transferred, sold or assigned except to, in whole
or in part (i) any entity controlled by, or under common control with, the
Optionee, (ii) the spouse, lineal descendants, estate or a trust for the benefit
of any of the foregoing, or (iii) by operation of law. No transfer of all or a
portion of the Option (as permitted hereby) or the Underlying Securities shall
be made at any time unless the Company shall have been supplied with evidence
reasonably satisfactory to it that such transfer is not in violation of the
Securities Act of 1933, as amended (the "Act"). Subject to the satisfaction of
the aforesaid condition and upon surrender of this Option or certificates for
any Underlying Securities at the office of the Company, the Company shall
deliver a new Option or Options or new certificate or certificates for
Underlying Securities to and in the name of the permitted assignee or assignees
named therein. Any such certificate may bear a legend reflecting the
restrictions on transfer set forth herein.
9. If this Option is lost, stolen, mutilated or destroyed, the Company
shall, on such terms as to indemnity or otherwise as the Company may reasonably
impose, issue a new Option of like denomination, tenor and date. Any such new
Option shall constitute an original contractual obligation of the Company,
whether or not the allegedly lost, stolen, mutilated or destroyed Option shall
be at any time enforceable by anyone.
10. Any Option issued pursuant to the provisions of Section 9 hereof, or
upon transfer, exchange, division or partial exercise of this Option or
combination thereof with another Option
-6-
<PAGE>
or Options, shall set forth each provision set forth in Sections 1 through 15,
inclusive, of this Option as each such provision is set forth herein, and shall
be duly executed on behalf of the Company by a duly authorized officer.
11. Upon surrender of this Option for transfer or exchange or upon the
exercise hereof, this Option shall be canceled by the Company, and shall not be
reissued by the Company and, except as provided in Section 2 in case of a
partial exercise, Section 3 in case of an exchange or Section 8 in case of a
transfer, or Section 9 in case of mutilation. Any new Option certificate shall
be issued promptly but not later than fifteen (15) days after receipt of the old
Option certificate.
12. This Option shall inure to the benefit of and be binding upon the
Holder hereof, the Company and their respective successors, heirs, executors,
legal representatives and assigns.
13. All notices required hereunder shall be in writing and shall be deemed
given when telegraphed, delivered personally or within two (2) days after
mailing when mailed by certified or registered mail, return receipt requested,
to the party to whom such notice is intended, at the address of such other party
as set forth on the first page hereof, or at such other address of which the
Company or Holder has been advised by the notice hereunder.
14. In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the Holders shall be
enforceable to the fullest extent permitted by law.
15. The validity, interpretation and performance of this Option and of the
terms and provisions hereof shall be governed by the laws of the State of New
York applicable to agreements entered into and performed entirely in such state.
IN WITNESS WHEREOF, the parties have caused this Option to be executed
as of September 1, 1999.
INFINITE TECHNOLOGY GROUP LTD.
By:
--------------------------------------
Name: James McGowan
Title: President and Chief Executive Officer
------------------------------------------
Paul Wolotsky
-7-
<PAGE>
PURCHASE FORM
TO BE EXECUTED UPON EXERCISE OF OPTION
The undersigned record holder of the within Option hereby irrevocably
elects to exercise the right to purchase _________ Common Shares of Infinite
Technology Group Ltd., evidenced by the within Option, according to the terms
and conditions thereof, and herewith makes payment of the purchase price
in full.
The undersigned requests that certificates for such shares shall be
issued in the name set forth below.
Dated: ___________, _____
------------------------------------------
Signature
------------------------------------------
Print Name of Signatory
------------------------------------------
Name to whom certificates are
to be issued if different from above
------------------------------------------
------------------------------------------
Address
------------------------------------------
Social Security No. or other identifying
number
If said number of shares shall not be all the shares purchasable under the
within Option, the undersigned requests that a new Option for the unexercised
portion shall be registered in the name of:
------------------------------------------
(Please Print)
------------------------------------------
------------------------------------------
Address
------------------------------------------
Social Security No. or other identifying
number
------------------------------------------
Signature
------------------------------------------
Print Name of Signatory
-8-
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, __________ hereby sells, assigns and transfers to
__________ (Social Security or I.D. No. __________) the within Option, or that
portion of this Option purchasable for _______ common shares together with all
rights, title and interest therein, and does hereby irrevocably constitute and
appoint _____________ attorney to transfer such Option on the register of the
within named Company, with full power of substitution.
--------------------------------
(Signature)
Dated: __________, _____
Signature Guaranteed:
- ----------------------------
-9-
<PAGE>
MASTER INTERNET SERVICES AGREEMENT
This Master Internet Services Agreement ("AGREEMENT") is entered into this
1st day of July, 1999, by and between MCSP, Inc., with its principal offices at
3225 Beret Lane, Silver Spring, MD. 20906 ("MCSP") and Infinite Technology
Information Services, Inc., with its principal offices located at 77 Jericho
Turnpike, Mineola, N.Y. 11501 ("INFINITE"), for the purpose of setting forth the
terms and conditions relating to the purchase of MCSP's Internet products and
services by Infinite and the Eligible Participants, as defined in Section 1
below.
1. DEFINITIONS.
"Eligible Participants" means Infinite, its Affiliates and customers and
shall also mean any other entities that MCSP and Infinite mutually agree upon
are eligible to participate in the offerings under this Agreement.
"Affiliate" means with respect to a party, an entity controlled by,
controlling or under common control with such party.
"Effective Date" means the effective date of this Agreement which shall
be the date first set forth above.
2. GRANT OF EXCLUSIVE USE. MCSP hereby grants to Infinite the exclusive
right to use, resell and integrate MCSP's bandwidth licenses and Internet
backbone infrastructure (the "INTERNET SERVICES") in connection with Internet
solutions Infinite or its Affiliates designs for Eligible Participants or in
connection with the provision of Internet Services to customers of Infinite or
its Affiliates.
3. PRICING. The prices for the Internet Services applicable to this
Agreement shall be (i) the then-current actual out-of-pocket costs incurred by
MCSP with respect to such Internet Services, plus (ii) an amount equal to five
(5%) percent of such costs (the "PRICE"). Such Prices shall be applicable for
the duration of the Term set forth in Section 6. Infinite shall have the right
to add an integration fee and other charges and/or mark-ups of such Prices when
reselling the Internet Services to Eligible Participants, such amounts to be in
Infinite's sole discretion.
4. FORECASTS. Two weeks prior to the end of each calendar quarter Infinite
shall, based on the best available information, provide MCSP a forecast of
orders likely to be generated pursuant to this Agreement on a per service and
geographic basis. Infinite and MCSP shall meet at Infinite's principal office
during the first two weeks of each calendar quarter during the term of this
Agreement to discuss Infinite's estimate of anticipated Eligible Participants'
needs for Internet Services on a per service and geographic basis for the
ensuing calendar quarter. Additionally,
1
<PAGE>
these meetings will be designed to promote discussions of the most appropriate
network architecture to service Infinite's customers. Each of these meetings
shall be followed by an executive meeting at which at least one officer of
Infinite attends.
5. SERVICE ORDERS AND COORDINATION. Infinite will coordinate all orders for
Internet Services through MCSP's designated Account Manager. Infinite will enter
into a service agreement with MCSP, on behalf of each Eligible Participant, for
Internet Services to be provide to each Eligible Participant (referred to herein
singularly as "SERVICE AGREEMENT" and collectively as "SERVICE AGREEMENTS").
Each Service Agreement shall set forth the terms, conditions, and pricing of the
Internet Services. The current terms and conditions applicable to purchases of
dedicated Internet connections are set forth in Schedule 1. If Infinite believes
that the level of Internet Service or support provided to an Eligible
Participant in any case is insufficient, Infinite may contact MCSP's designated
Account Manager for assistance with problem resolution.
6. TERM OF THE AGREEMENT. Unless sooner terminated in accordance with this
Agreement, the initial term of this Agreement shall be three (3) years from the
Effective Date, which term shall be automatically renewed for an additional one
year period, provided that neither party has delivered to the other a written
notice of intent not to renew for the forthcoming term not less than sixty (60)
days in advance of the end of the then-current term.
7. MERGER OF MCSP AND INFINITE. Any time after January 1, 2001 either MCSP
or Infinite may elect, by written notice to the other, that MCSP merge with and
into Infinite (structured as a tax-free reorganization); provided, that Infinite
has contracted for Internet Services during the six (6) month period prior to
the date of such notice of not less than $225,000.
Upon the effectiveness of such merger, among other things, MCSP shall be
merged with and into Infinite and all of the shares of Common Stock of MCSP
shall be exchanged for a number of shares equal to one-third (1/3) of the shares
of issued and outstanding common stock of Infinite.
8. CONSULTING. MCSP will (at no additional charge) provide one day of
on-site assistance once monthly and provide remote assistance as reasonably
required to assist Infinite in routing traffic and configuring equipment.
9. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY
STATED, OR IMPLIED HEREIN OR IN ANY SERVICE AGREEMENT, NEITHER PARTY SHALL HAVE
ANY LIABILITY TO THE OTHER PARTY WHATSOEVER FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS
OF PROFIT, LOSS OF REVENUE, OR LOSS OF BUSINESS SUFFERED BY THE OTHER OR BY ANY
ELIGIBLE PARTICIPANT, ASSIGNEE OR OTHER TRANSFEREE OF THE OTHER, EVEN IF
INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.
2
<PAGE>
10. ACCEPTABLE USE. MCSP's Internet Services may be used only for lawful
purposes. Use of any Internet Service must comply with the then-current version
of the MCSP Acceptable Use Policy ("POLICY") for the geographic area in which
the service is provided, to be provided by MCSP on a case-by-case basis. MCSP
reserves the right to change the Policy from time to time, effective upon
notification to Infinite. MCSP reserves the right to suspend the Internet
Services or terminate this Agreement effective upon notice for a violation of
the Policy which is not cured within ten (10) days after such notice.
11. INVOICING AND PAYMENT. The Eligible Participants obtaining Internet
Services will make payment to Infinite for Internet Services in accordance with
the terms of each applicable Service Agreement. MCSP will invoice Infinite for
the aggregate Internet Services in accordance with the terms of the applicable
Service Agreements with Eligible Participants.
12. MARKETING AND PUBLICITY.
MCSP will assist Infinite in the design and implementation of a
marketing program for Infinite's provision of Internet Services to third
parties. Such program shall include, but not be limited to, (i) Infinite's
ability to resell MCSP's Internet Services, (ii) cooperating on mutually
beneficial hosting and co-location remarketing programs and (iii) cooperation on
international co-location facilities agreements. Other than (a) identifying MCSP
to Eligible Participants as Infinite's Internet Service provider, and (b) any
mutually approved joint marketing programs, neither party shall publicize the
existence of this Agreement without the written consent of the other, except as
may be required by applicable law, regulation, or government order. Neither
party may use the name, logo, trademarks, service marks or other proprietary
identifying symbols of the other party in any advertising, signage, marketing
materials, brochures or any other materials in any medium without the other
party's express advance written consent. Any such permitted use shall be only
within guidelines provided by such party. Neither party shall issue any press
release, announcement or public statement with respect to this Agreement or the
other party without the other party's express advance written consent. Any
breach of this Section shall be a material breach of this Agreement constituting
cause for termination.
13. INFINITE NOT RESTRICTED. Infinite may seek services similar to the
Internet Services from third parties and may engage in provision of Internet
Services directly, through its own Internet backbone infrastructure, which it
may construct or acquire.
14. AUDIT. In order to verify the performance of each parties' financial
obligations to eachother hereunder, either party (the "AUDITING PARTY") may
cause, upon ten (10) days' prior notice (i) an audit to be made of the other
party's (the "AUDITED PARTY") relevant books and records and/or (ii) an
inspection to be made of the Audited Party's relevant facilities and procedures.
Any audit and/or inspection shall be conducted during regular business hours at
the Audited Party's facilities and in a manner that does not interfere with the
Audited Party's normal business activities. Any audit shall be conducted by an
independent certified public accountant selected by the Auditing Party (other
than on a contingent fee basis) who will be subject to the confidentiality
provisions of this Agreement. The Auditing Party will be entitled to receive the
3
<PAGE>
final written report from the selected auditor. All records and the final
written report shall remain the confidential information of the Auditing Party.
The Audited Party shall provide the selected auditor access to the relevant
records and facilities. The Auditing Party agrees to, or to cause the auditor
to, deliver a copy of the final report to the Auditing Party promptly upon
completion of the audit. The Audited Party shall notify the Auditing Party
within thirty (30) days of its receipt of the report of any disagreements with
the findings contained therein. Such notice shall state the basis upon which the
Audited Party disagrees with the findings and shall be accompanied by data to
support its assertions. If within thirty (30) days of delivery of such notice to
the Auditing Party, the parties cannot agree on the numbers or the amounts
reported, a second audit shall be conducted by an independent certified public
accountant mutually agreed to by the parties. The cost of such second audit
shall be borne equally by both parties and the conclusions shall be binding upon
both parties. The Audited Party shall make prompt adjustments to compensate for
any errors or omissions disclosed by the audit. Any such audit shall be paid for
by the Auditing Party unless material discrepancies are disclosed. "Material"
shall mean an error of five percent (5%) or more of the number or amount that
was reported. If material discrepancies are disclosed, the Audited Party agrees
to reimburse the Auditing Party for the reasonable costs (based on current
market prices) associated with the audit in addition to all sums due. In no
event shall audits be made more frequently than annually.
15. OPPORTUNITY TO BID. In the event that Infinite requires additional
telecommunications services (including Internet-protocol-based Internet Services
and traditional voice Internet Services), Infinite shall provide MCSP and its
affiliates an opportunity to propose terms under which they could provide such
Internet Services to Infinite. However, nothing contained herein shall be
construed as prohibiting or limiting Infinite's right to conduct such activities
as principal.
16. CONFIDENTIALITY. The prices and terms of this Agreement shall be held
confidential by each party, as shall each party's confidential or proprietary
information, including, without limitation, any information obtained by MCSP,
its agents or representatives in the course of performing an audit pursuant to
Section 14 of this Agreement ("CONFIDENTIAL INFORMATION"). MCSP's performance
under this Agreement, the quality of MCSP network performance, the Prices and
any data provided by MCSP to Infinite regarding performance of the MCSP network
shall be deemed MCSP Confidential Information. Neither party shall disclose the
other party's Confidential Information to third parties without the other
party's written consent, except as permitted pursuant to this Section. Each
party shall disseminate the other party's Confidential Information among its
employees only on a need-to-know basis and shall use such Confidential
Information only for the purpose of performing its obligations hereunder. To the
extent a party is required by applicable law, regulation, or a government agency
or court order, subpoena, or investigative demand, to disclose the existence or
terms of this Agreement, or the other party's Confidential Information, such
party shall use its reasonable efforts to minimize such disclosure and obtain an
assurance that the recipient shall accord confidential treatment to such
Confidential Information, and shall notify the other party contemporaneously of
such disclosure. Either party, in its discretion, may terminate this Agreement
for cause upon ten days' notice and without
4
<PAGE>
penalty in the event of any breach of this Section. The obligations in this
Section shall survive any termination of this Agreement for a period of two (2)
years.
17. GENERAL.
This Agreement may not be assigned by either party without the prior
written consent of the other, which consent shall not be unreasonably withheld,
conditioned or delayed, provided, however, that this Agreement shall be binding
upon and inure to the benefit of any successor in interest to Infinite resulting
from, among other things, a merger, consolidation, sale of stock or sale of
substantially all of the assets of Infinite. No failure on the part of either
party to exercise, and no delay in exercising, any right or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right or remedy hereunder preclude any other or further exercise thereof or
the exercise of any other right or remedy granted hereby or by law. This
Agreement supersedes all prior or contemporaneous representations, agreements or
understandings concerning the subject matter hereof. If any term of this
Agreement, or the application of such term to any person or circumstance, shall
be held invalid, the remainder of this Agreement, or the application of such
term to persons or circumstances other than those to which it is held invalid,
shall not be affected thereby. The effective date of this Agreement is the last
date of the signatures of a duly authorized representative of a party affixed
below.
MCSP, INC. INFINITE TECHNOLOGY INFORMATION
SERVICES, INC.
By: /s/ Paul Wolotsky By: /s/ Mark Dresner
---------------------------- -------------------------------
Name: Paul Wolotsky Name: Mark Dresner
Title: President Title: President
5
<PAGE>
SCHEDULE 1
TERMS AND CONDITIONS
1. MCSP exercises no control over, and accepts no responsibility for, the
content of the information passing through MCSP's host computers, network hubs
and points of presence (the "MCSP NETWORK"). EXCEPT AS EXPRESSLY SET FORTH IN
SECTION 7 BELOW, MCSP (a) MAKES NO WARRANTIES OF ANY KIND, WHETHER EXPRESS OR
IMPLIED, FOR THE INTERNET SERVICES AND EQUIPMENT IT IS PROVIDING, AND (b)
DISCLAIMS ANY WARRANTY OF TITLE, MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS
FOR A PARTICULAR PURPOSE. Use of any information obtained via the MCSP Network
is at Infinite's own risk. MCSP specifically denies any responsibility for the
accuracy or quality of information obtained through its Internet Services. MCSP
shall not be liable for any delay or failure in performance due to Force
Majeure, which shall include without limitation acts of God, earthquake, labor
disputes, changes in law, regulation or government policy, riots, war, fire,
epidemics, acts or omissions of vendors or suppliers, equipment failures,
transportation difficulties, or other occurrences which are beyond MCSP's
reasonable control.
2. All use of the MCSP Network and the service must comply with the then-
current version of the MCSP Acceptable Use Policy ("POLICY") which is made a
part of this Agreement. MCSP reserves the right to amend the Policy from time to
time, effective upon notice to Infinite. MCSP reserves the right to suspend the
service or terminate this Agreement effective upon notice for a violation of the
Policy which is not cured within ten (10) days after written notice of such
violation. Infinite agrees to indemnify and hold harmless MCSP from any losses,
damages, costs or expenses resulting from any third party claim or allegation
("CLAIM") arising out of or relating to use of the service, including any Claim
which, if true, would constitute a violation of the Policy.
3. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL,
PUNITIVE OR CONSEQUENTIAL DAMAGES THAT RESULT FROM INFINITE'S OR INFINITE'S
USERS' USE OF THE MCSP NETWORK AND THE SERVICE INCLUDING, WITHOUT LIMITATION,
ANY SUCH DAMAGES FOR LOSS OF DATA RESULTING FROM DELAYS, NON-DELIVERIES,
MISDELIVERIES OR SERVICE INTERRUPTIONS. Notwithstanding anything to the contrary
stated in this Agreement, Infinite's sole remedies for any claims relating to
this service or the MCSP Network are set forth in Section 7 below.
4. Networks assigned from a MCSP net-block are non-portable. Network space
allocated by MCSP must be returned to MCSP in the event Infinite discontinues
service.
5. Payment is due thirty (30) days after date of invoice. Accounts are in
default if payment is not received within thirty (30) days after date of
invoice. If payment is returned to MCSP unpaid
6
<PAGE>
Infinite is immediately in default and subject to a returned check charge of
twenty-five ($25) dollars from MCSP. Accounts unpaid sixty (60) days after date
of invoice may have service interrupted or terminated. Such interruption does
not relieve Infinite of the obligation to pay the applicable monthly fees. Only
a written request to terminate Infinite's service relieves Infinite of the
obligation to pay a monthly fee. Accounts in default are subject to an interest
charge on the outstanding balance of the lesser of 1.5% per month or the maximum
rate permitted by law. Infinite agrees to pay MCSP its reasonable expenses,
including attorney and collection agency fees, incurred in enforcing its rights
under these Terms and Conditions. Prices are exclusive of any taxes which may be
levied or assessed upon the equipment or Internet Services provided hereunder.
Any such taxes shall be paid by Infinite. If Infinite is exempt from otherwise
applicable taxes, Infinite must submit its tax identification number and
exemption certificate at the same time it submits this Agreement.
6. Billing for MCSP Internet Services will commence when a MCSP hub and a
functioning telephone circuit are prepared to route IP packets to an Eligible
Participant's site. The Start-up Charge is invoiced upon acceptance of this
Agreement by MCSP. Charges for equipment shall be invoiced upon shipment.
Service is invoiced monthly in advance, and may be canceled only by sixty (60)
days' advance written notice. In the event of early cancellation of a term
commitment, the Eligible Participant will be required to pay seventy-five (75%)
percent of MCSP's standard monthly fee for each month remaining in the Term
Commitment.
7. Neither party may use the other party's name, trademarks, tradenames or
other proprietary identifying symbols without the prior written approval of the
other party. Neither party may assign or transfer any of its rights or
obligations under this Agreement without the express, prior written consent of
the other party; provided, that either party may assign or transfer this
Agreement to any affiliate of such party upon advance written notice to the
other party. No failure on the part of either party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof nor
shall any single or partial exercise of any right or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right or
remedy granted hereby or by law.
8. These Terms and Conditions are applicable to Internet Services purchased
pursuant to the Master Internet Services Agreement between MCSP, and Infinite
dated July 1, 1999 and shall prevail notwithstanding any variance with terms and
conditions of any order submitted. Activation of service shall indicate MCSP's
acceptance of this Agreement. Use of the MCSP Network constitutes acceptance of
these Terms and Conditions.
7
<PAGE>
SUBSIDIARIES OF INFINITE TECHNOLOGY GROUP LTD.
Infinite Technology Group Ltd. has one subsidiary, Mercury Internet
Services, Inc., a New York Corporation, which was incorporated on September 17,
1999.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption 'Experts' and to
the use of our report dated September 30, 1999 in the Registration Statement on
Form S-1 and related prospectus of Infinite Technology Group Ltd. for the
registration of 2,300,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Melville, New York
October 8, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 JUN-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 637,245 682,852
<SECURITIES> 24,079 119,637
<RECEIVABLES> 5,098,235 11,404,208
<ALLOWANCES> 55,000 100,000
<INVENTORY> 2,022,042 4,131,082
<CURRENT-ASSETS> 8,023,347 16,713,278
<PP&E> 647,977 762,079
<DEPRECIATION> 218,010 288,010
<TOTAL-ASSETS> 8,464,446 17,198,479
<CURRENT-LIABILITIES> 7,698,534 15,746,428
<BONDS> 0 0
<COMMON> 59,000 59,000
0 0
0 0
<OTHER-SE> 323,574 1,059,711
<TOTAL-LIABILITY-AND-EQUITY> 8,464,446 17,198,479
<SALES> 21,584,246 17,942,320
<TOTAL-REVENUES> 25,780,786 19,986,667
<CGS> 19,966,179 15,139,319
<TOTAL-COSTS> 25,780,786 19,986,667
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 55,000 45,000
<INTEREST-EXPENSE> 176,766 80,269
<INCOME-PRETAX> (354,061) 765,133
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (354,061) 765,133
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (354,061) 765,133
<EPS-BASIC> (.03) .07
<EPS-DILUTED> (.03) .07
