<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1999
REGISTRATION NO: 333-88737
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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:
------------------------
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<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. [ ]
------------------------
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>
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 NOVEMBER 19, 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 our 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 OUR 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>
---
Prospectus Summary.................... 3
Risk Factors.......................... 6
Forward-Looking Statements............ 12
Use of Proceeds....................... 12
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Combined Financial Data...... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
<CAPTION>
PAGE
<S> <C>
---
Management............................ 30
Certain Transactions.................. 37
Principal Shareholders................ 39
Description of Capital Stock.......... 40
Shares Eligible for Future Sale....... 41
Underwriting.......................... 42
Legal Matters......................... 44
Experts............................... 45
Where You Can Find More Information... 45
Index to Combined Financial
Statements.......................... F-1
</TABLE>
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 major U.S. corporations and other
users of large-scale computing systems.
Our business strategy targets two primary areas:
Internet/e-commerce solution design and implementation, including hosting,
where a client's solution resides on our server, 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 1-800-FLOWERS.com, Chase
Manhattan Bank, Citibank, StarMedia, Time Inc., CNN, Simon & Schuster, TIAA
CREF, The Bank of New York, and Compaq Computer. With our new data center
presence in the Washington, D.C. area, we expect to expand our business
significantly to clients in that area as well.
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. Our ability to provide not only the design and consulting services,
but also the configuration and integration of the system, 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 our ability to combine
an extensive array of products and services gives us a competitive advantage.
Our offerings 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>
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. 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 Internet projects we undertake generally fall into two categories:
'Internet-enable' existing 'brick and mortar' businesses. Creating 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.
3
<PAGE>
'Concept-to-commerce' services. Assessing the technical feasibility of
developing web-based and e-commerce businesses and designing and
implementing an infrastructure for the new business venture.
Our principal executive offices are located at 77 Jericho Turnpike,
Mineola, New York 11501, our telephone number is (516) 877-1605 and our Internet
website address is www.infinitetech.com. The information contained on our
Internet site is not part of this prospectus.
Concurrent with the closing of our initial public offering, Infinite
Technology Information Services, Inc., 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 it occurred prior to this offering.
THE OFFERING
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<S> <C>
Common stock offered................ 2,000,000 shares
Common stock to be outstanding after
the offering...................... 8,000,000 shares
Use of proceeds..................... We plan to use the net proceeds of this offering to
repay bank debt, to acquire ITIS, to expand our
Internet data centers, to pay S corporation
distributions to our existing shareholders, to make a
loan to one of our officers, for possible 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.
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 corresponding Notes,
beginning on page F-1 of this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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 $18,757 $39,360
Operating income (loss)....... 789 69 328 (29) (177) (434) 2,988
Net income (loss)............. 789 68 281 (120) (354) (563) 2,733
Pro forma net income
(loss)(1)................... 434 37 153 (74) (242) (385) 1,503
Pro forma net income (loss)
per share:
Basic.................... $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.06) $ .24
Diluted.................. $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.06) $ .22
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)
------ --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 599 $10,019
Total assets................................................ 17,415 27,335
Short-term debt(3).......................................... 4,100 3,600
Long-term debt.............................................. 308 308
Total liabilities........................................... 13,614 9,814
Shareholders' equity........................................ 3,801 17,521
</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) 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 in the
ITIS Merger; repayment of $3.8 million in bank borrowings; a loan of
$500,000 to Dr. 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. Immediately following the closing of
this offering, we intend to make an S corporation distribution aggregating
approximately $1.4 million to Mr. Dresner and Mr. McGowan. This distribution
is reflected in the pro forma as adjusted balance sheet data as a reduction
of shareholders' equity.
(3) Since September 30, 1999, we have borrowed an additional $3.3 million
under our bank line of credit. The additional borrowings were used to pay
accounts payable. We are obligated to repay only the amount borrowed in
excess of $3.5 million at the time our initial public offering is completed.
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 AND MAY GENERATE LOSSES IN THE
FUTURE
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
$2,733,480 for the nine months ended September 30, 1999. At September 30, 1999,
we had shareholders' equity of $3,801,303. 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 nine months ended September 30, 1999 would have been
$1,503,480. If our revenues grow more slowly than we anticipate or if operating
expenses exceed our expectations, we may be unable to sustain or increase
profitability on a quarterly or annual basis.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE QUALIFIED PROFESSIONALS WE REQUIRE
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. In addition, we must
recruit and retain professionals who have expertise in technology advances and
developments so that they can fulfill the increasingly sophisticated needs of
our clients. 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, as a result, we may lose some of our client
engagements. Any losses of client relationships could result in a decrease in
our revenues.
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 contractual liabilities and potential
lawsuits;
Difficulties integrating systems, operations and cultures; and
6
<PAGE>
Amortization of acquired intangible assets.
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. This
may adversely impact the profitability of our remaining business activities and
limit our ability to grow our business.
FAILURE TO MANAGE OUR GROWTH MAY DIMINISH OUR PROFITABILITY OR IMPAIR OUR
ABILITY TO SERVICE OUR EXISTING BUSINESS
We have grown rapidly in revenues and in the number of our employees and
key executives. 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. 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 to
effectively manage our business.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF CLIENTS FOR
A SIGNIFICANT PORTION OF OUR REVENUES. IF WE LOSE ONE OR MORE OF THESE CLIENTS,
OUR FINANCIAL PERFORMANCE COULD SUFFER
We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of clients. The amount 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. 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 diminish our revenues and our
financial performance. In 1998, our ten largest clients generated approximately
60% of our revenues, with three clients, The Chase Manhattan Bank, Citibank and
The Bank of New York, accounting for 22%, 12% and 11%, respectively, of our
revenues.
WE DEPEND UPON SUN MICROSYSTEMS AS A KEY SUPPLIER. ANY INTERRUPTION IN THAT
RELATIONSHIP WOULD GREATLY RESTRICT OUR BUSINESS ACTIVITIES
For the fiscal year ended December 31, 1998 and for the nine months ended
September 30, 1999, in excess of 80% of our revenues from hardware sales
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 written 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, we could lose a significant portion of our hardware sales
revenues.
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
7
<PAGE>
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 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 result in a large monetary judgment against us and
could seriously harm our existing client relationships and our ability to
attract new clients. 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
that 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 WILL BE INHIBITED IF THE DEVELOPMENT 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. 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 have done so based on the presumption that a
viable market for Internet solutions will emerge and 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, and we may not recover the resources dedicated to such efforts.
RAPID TECHNOLOGY CHANGES BY OTHERS COULD CAUSE A DECLINE IN OUR REVENUES
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. 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.
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;
8
<PAGE>
Internet 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 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, making it more difficult for us to attract clients and skilled
employees, and to otherwise compete.
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. If we cannot compete effectively, our revenues and
profitability could decline.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS OUR
OPERATING RESULTS AND STOCK PRICE MAY DECREASE
Proprietary software products or components, or business methodologies
developed by us could provide us the ability to provide better or faster service
to our clients or to provide unique services. 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, any
competitive advantage provided by such intellectual property could be
eliminated, which could affect our revenues and profitability. 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. These 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
financial condition and operating results.
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 percentage of revenues, due to the potential hiring of large
numbers of employees each quarter, which results in increased salary expenses
before the new employees begin to generate substantial revenues.
9
<PAGE>
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 cause a
decline in 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 WILL 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 is also likely to have the effect of delaying or
preventing a change in control of us.
INVESTORS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing shareholders for their shares. As a
result, you will experience immediate and substantial dilution of approximately
$8.42 per share, representing the difference between our net tangible book value
per share as of September 30, 1999, after giving effect to this offering and the
assumed public offering price of $10.50 per share. Investors in this offering
will have contributed 99.9% of our net capital, but will own only 25% of our
common stock. In addition, you may experience further dilution to the extent
that shares of our common stock are issued upon the exercise of outstanding
stock options and warrants. Substantially all of the shares issuable upon the
exercise of currently outstanding stock options will be issued at a purchase
price less than the public offering price per share in this offering. See
'Dilution' for a more complete description of how the value of your investment
in our common stock will be diluted upon the completion of this offering.
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 our company that a shareholder may consider
favorable. Our certificate of incorporation and bylaws:
10
<PAGE>
Authorize the issuance of 'blank check' preferred stock that could be
issued by our board of directors to increase the 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.
All of the 5,900,000 shares outstanding prior to this offering will be available
for sale in the public market immediately following this offering, subject to
volume limitations imposed by Rule 144 of the Securities Act of 1933 and lock-up
agreements. These 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. 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. Investors may not be able to sell their common stock at or above our
initial public offering price.
11
<PAGE>
FORWARD-LOOKING STATEMENTS
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 these 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.
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. 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.
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:
the repayment of approximately $3.8 million of our bank debt;
our payment of $3.5 million toward the acquisition of ITIS;
an expansion of our Internet network operations/data centers, for which we
expect to incur capital expeditures of approximately $2.0 million;
make the payment of S corporation distributions of approximately $1.4
million;
make a loan of $500,000 to Dr. Wolotsky, our Executive Vice President and
Director of Internet Operations; and
fund possible strategic acquisitions, although we currently have no
understandings, commitments or agreements to make any acquisitions.
Approximately $3.8 million of the proceeds of this offering will be used to
repay a portion of our $7.5 million line of credit. Such line of credit bears
interest at prime plus 3/4 of one percent. The line of credit becomes payable in
full in June 2001, with a mandatory prepayment of the excess outstanding
indebtedness over $3.5 million upon the earlier to occur of December 31, 1999 or
the closing of this offering.
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. The consideration to be received by the
shareholders of ITIS was determined by our board of directors based upon the
potential value which ITIS brings to our growth strategy and the potential cash
flow which would be generated from projects under development by ITIS.
12
<PAGE>
We anticipate that we will dedicate approximately $2.0 million of the
proceeds of this offering to the expansion of our existing data centers and the
build-out of additional data centers during the 2000 fiscal year.
After this offering, we will make a $1.4 million S corporation distribution
to our existing shareholders. The amount of this distribution approximates taxed
but undistributed earnings through the termination of our status as an S
corporation.
While we have not identified any specific acquisition candidates, we are
seeking to acquire existing businesses which offer services similar to ours and
are located outside the Northeastern United States, or which expand the product
or service offerings which we currently provide. This could include businesses
which strengthen our capacity in certain service offerings, or businesses which
have developed or employ software products which we could resell or use in our
integration and service areas.
Management will have broad discretion in the allocation of the net proceeds
after repayment of bank debt, payment of the ITIS Merger consideration,
expansion of our data centers, payment of the S corporation distribution and the
loan to Dr. Wolotsky. Pending these 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.
13
<PAGE>
CAPITALIZATION
The following table presents our cash position and total capitalization as
of September 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
$3.8 million of the net proceeds to repay 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 corresponding Notes
beginning on page F-1 of this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------
PRO FORMA
AS
ACTUAL ADJUSTED(3)
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 599 $10,019
------- -------
------- -------
Short-term debt(4).......................................... 4,100 3,600
------- -------
Long-term debt.............................................. 308 308
------- -------
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,
150 shares issued and outstanding..................... 860 --
Additional paid-in-capital............................. 4 17,469
Accumulated other comprehensive income................. (28) (28)
Retained earnings...................................... 2,916 --
Less: shareholder notes receivable for ITIS common
stock................................................. (10) --
------- -------
Total shareholders' equity(2)..................... 3,801 17,521
------- -------
Total capitalization........................................ $ 8,209 $21,429
------- -------
------- -------
</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 1,036,980 shares of common stock at a
weighted average exercise price of $5.25 per share. See 'Management -- Stock
Option Plans.'
(2) Immediately following the closing of this offering, we intend to make an
aggregate S corporation distribution of approximately $1.4 million 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 in the
ITIS Merger; repayment of $3.8 million in bank borrowings; a loan of
$500,000 to Dr. 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.
(4) Since September 30, 1999, we have borrowed an additional $3.3 million
under our bank line of credit. The additional borrowings were used to pay
accounts payable. We are obligated to repay only the amount borrowed in
excess of $3.5 million at the time our initial public offering is completed.
14
<PAGE>
DILUTION
As of September 30, 1999, our net tangible book value was $2,951,303, or
approximately $0.50 per share. Net tangible book value per share is determined
by dividing our net tangible book value, which is our 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
$1,400,000 S corporation distribution, our pro forma tangible book value as of
September 30, 1999 would have been $16,671,303, or $2.08 per share. This
represents an immediate increase in net tangible book value of $1.58 per share
to our shareholders and an immediate dilution in net tangible book value of
$8.42 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 September 30,
1999.................................................. $0.50
Increase in net tangible book value attributable to new
shareholders.......................................... 1.58
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.08
------
Dilution to new shareholders................................ $ 8.42
------
------
</TABLE>
The following table summarizes, on a pro forma basis as of September 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 1,036,980 shares which may be acquired upon
the exercise of presently outstanding stock options at a weighted average
exercise price of $5.25 per share, and further excludes the effect of $3.5
million of consideration paid in the ITIS Merger which is being treated as a
dividend for accounting purposes.
The foregoing tables assume no exercise of any outstanding stock options to
purchase our common stock. As of September 30, 1999, there were outstanding
options to purchase an aggregate of 1,036,980 shares of common stock at a
weighted average exercise price of $5.25 per share under our stock option plans.
If all of these options had been exercised on September 30, 1999 before the
issuance of common stock from this offering, our net tangible book value would
have been approximately $8,395,448 or $0.93 per share. On the issuance of common
stock from this offering, our pro forma net tangible book value on September 30,
1999 would have been approximately $22,115,448 or approximately $2.45 per share,
the increase in net tangible book value attributable to new investors would have
been $1.52 per share and the dilution in net tangible book value to the new
investors would have been $8.05 per share.
15
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The following selected combined financial data should be read in
conjunction with the Combined Financial Statements and their corresponding Notes
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 September 30, 1999 and the statement of
operations data for the periods from January 1 through September 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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 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 $18,757 $39,360
Operating expenses....... 3,277 16,768 18,062 22,936 25,958 19,190 36,372
Operating income
(loss)................. 789 69 328 (29) (177) (434) 2,988
Net income (loss)........ 789 68 281 (120) (354) (563) 2,733
Pro forma net income
(loss)(1).............. 434 37 153 (74) (242) (385) 1,503
Pro forma net income
(loss) per share:
Basic............... $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.06) $ .24
Diluted............. $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.06) $ .22
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 14 $ 187 $ 158 $ 152 $ 637 $ 137 $ 599
Total assets......................... 1,111 4,365 2,823 4,605 8,464 7,455 17,415
Short-term debt...................... 150 300 687 1,318 3,500 2,200 4,100
Long-term debt....................... -- 83 111 42 383 -- 308
Total liabilities.................... 368 3,532 1,729 3,751 8,082 7,164 13,614
Shareholders' equity................. 743 833 1,094 854 383 291 3,801
</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.
16
<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 to those financial statements
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 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 towards consulting and software system design services related to
Internet-based applications and networks, we expect our revenues resulting from
these services to increase.
Although we continue to serve major U.S. corporations, we have widened our
focus to include middle-tier businesses, for which we provide a broader range of
services and can 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.
We believe that we are well positioned to provide the next generation of
information technology services. We have entered into a Master Internet Services
Agreement with MCSP, Inc. This corporation owns Internet data centers in Tysons
Corner, Virginia and Washington, D.C., with a direct fiber optic connection to a
major Internet connection point. MCSP is owned by Dr. Wolotsky, one of our
officers and directors. 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, if our usage of the facility reaches a minimum
threshold. If we exercise this option, MCSP would be merged into our
wholly-owned subsidiary, in exchange for 250,000 shares of our common stock.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Revenues increased 109.8% to $39,359,902 for the nine months ended
September 30, 1999 as compared to $18,756,569 for the nine months ended
September 30, 1998. Product sales increased 137.2% to $35,303,565 for the nine
months ended September 30, 1999 as compared to $14,885,892 for the nine months
ended September 30, 1998. The significant increase is due to the additions of
new customers as well as increased sales to existing customers generated by an
increase in the size of our sales force. Service sales for the nine months ended
September 30, 1999 increased 4.8% to $4,056,337 as compared to $3,870,677 for
the nine months ended September 30, 1998. This increase is the result of the
addition of new customers.
Gross profit increased to $7,769,100 or 19.7% of sales for the nine months
ended September 30, 1999 as compared to $2,275,853 or 12.1% of sales for the
nine months ended September 30, 1998. Gross profit relating to product sales was
$5,841,740 or 16.5% for the nine months ended September 30, 1999 as compared to
a negative gross profit of $447,935 for the nine months ended September 30,
1998. During the nine months ended September 30, 1998, we sold several products
at or slightly below cost because such sales were associated with higher margin
service sales, which made the combined sales
17
<PAGE>
profitable. During the nine months ended September 30, 1999, the increase in
gross profit was the result of a purchasing program we instituted to more
efficiently purchase hardware and networking components, and to better utilize
credits in cooperative programs established by the manufacturers we have
strategic alliances with, particularly with SUN Microsystems and Compaq
Computer. In addition, in 1999 we terminated several less profitable sales
arrangements. Due to greater information processing needs of our customers, our
product mix during 1999 shifted towards more high-end services and hardware,
which generate higher gross margins. Gross profit relating to service sales was
47.5% for the nine months ended September 30, 1999 compared to 70.4% for the
nine months ended September 30, 1998, as a result of an increase in the number
of employees and the resulting increase in costs incurred in response to
anticipated growth in our services business.
Selling, general and administrative expenses increased to $4,781,094 during
the nine months ended September 30, 1999 as compared to $2,709,430 during the
nine months ended September 30, 1998. Although the actual amounts spent on
selling, general and administrative expenses increased, these expenses as a
percentage of sales decreased by 2.3 percentage points. The increase in expenses
resulted from hiring additional sales personnel and developing the associated
infrastructure to support the increased sales.
Interest expense, net of interest income, increased 102.1% to $260,898 for
the nine months ended September 30, 1999 from $129,098 for the nine months ended
September 30, 1998. This increase was due to an increase in our borrowings,
which were necessary to finance our revenue growth and resulting increase in
accounts receivable.
We generated net income of $2,733,480 during the nine months ended
September 30, 1999, as compared to a net loss of $562,675 during the nine months
ended September 30, 1998. This increase in profitability was due to the increase
in revenue as well as the cost saving achieved through our purchasing program.
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, 1997, due 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 was due to the addition of new
customers and increased billings with existing customers for 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
services 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 helpdesk functionality and software systems required by
such services.
Interest expense, net of interest income, increased 106.2% to $196,973 for
the year ended December 31, 1998 as compared to $95,540 for the year ended
December 31, 1997. This increase was due to an increase in bank borrowings
resulting from increases in both accounts receivable and inventory necessary to
support the increased sales level.
18
<PAGE>
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 was
due to obtaining new customers. Service sales increased 171.6% 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 our 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 our 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.
Interest expense, net of interest income, increased 103.2% to $95,540 for
the year ended December 31, 1997 as compared to $47,028 for the year ended
December 31, 1996. This increase was due to an increase in bank borrowings
resulting from increases in accounts receivable necessary to support the
increased sales level.
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
Our current ratios at September 30, 1999 and 1998 were 1.20 and .99,
respectively. Working capital at September 30, 1999 was $2,674,262, an increase
of $2,764,975 over the same period last year. The increase was primarily due to
our increased earnings.
Cash used in operating activities was $33,334 and $830,015 for the nine
months ended September 30, 1999 and 1998, respectively. Significant changes in
accounts receivable, inventory and accounts payable were the direct result of
the significant increase in sales. Cash used in investing activities was
$260,038 and $102,283 for the nine months ended September 30, 1999 and 1998,
respectively, and was used to finance capital expenditures in both 1999 and 1998
and the purchase of available-for-sale securities in 1999. Cash provided by
financing activities was $255,465 and $917,262 for the nine months ended
September 30, 1999 and 1998, respectively, and included net proceeds from bank
financings.
We have previously funded our operations from cash flows generated from
operations and bank borrowings. As of September 30, 1999, we had a $3,500,000
line of credit with a bank expiring on June 30, 2000 bearing interest at the
bank's prime rate plus 3/4 of one percent. In addition, as of September 30,
1999, we had outstanding a note payable for $500,000 with a bank due October 21,
1999 bearing interest at the rate of 9% per annum. We also had a $500,000 term
loan with a bank expiring on November 30, 2003 bearing interest at 7.61%.
Effective October 29, 1999 we increased our line of credit to $7,500,000 from
$3,500,000. This line expires on June 30, 2001 and bears interest at the bank's
prime rate plus 3/4 of one percent. Borrowings under this line of credit reduce
automatically to $3,500,000 on the earlier to occur of either December 31, 1999
or the consummation of an initial public offering of our common stock. In
connection with the increase in our line of credit, the bank was issued 25,000
warrants to
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purchase our common stock at an exercise price of $.01 per share over a five
year period. As of November 12, 1999, we had $7,300,000 outstanding under this
line of credit. The additional bank borrowings since September 30, 1999 were
used to reduce accounts payable.
We expect to incur capital expenditures of $2,000,000 to $3,000,000 over
the next 24 months in connection with the upgrade and expansion of our new
network operations data centers. As of September 30, 1999, we had cash of
$599,338, and we believe that the net proceeds from the sale of common stock
offered by this prospectus, together with cash provided from operations and
borrowings available under our line of credit will be sufficient to meet working
capital and capital expenditure requirements for at least the next 24 months.
Inflation did not have a material impact on our revenues or income from
operations in 1996, 1997 and 1998, or during the nine months ended September 30,
1999.
INTEREST RATE RISKS
Our exposure to market rate risk for changes in interest rates relates
primarily to our investments in money market accounts and its outstanding bank
borrowings. We have not used derivative financial instruments in our investment
portfolio.
At September 30, 1999, our outstanding debt approximated $4,400,000 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 had been a 1% change in our variable rate debt, the interest
expense would increase or decrease by approximately $20,000 based upon the
weighted average outstanding variable rate borrowings during the year ended
December 31, 1998, and by $37,000 based upon the weighted average outstanding
variable rate borrowings during the nine month period ended September 30, 1999.
EQUITY PRICE RISK
We have a minimal investment in marketable securities of publicly-traded
companies. These investments, as of September 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 our 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.
To date we have not experienced any Year 2000 problems, and 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. We performed Year 2000 certification testing on our
existing hardware components and replaced all non-compliant hardware with new
hardware which manufacturers represent as Year 2000 compliant. Software,
including operating systems and programs, particularly accounting software, were
upgraded to newer, compliant versions. 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. We have also made inquiries of developers of third party
software used in our system integration and services projects for our clients
and received assurances of Year 2000
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<PAGE>
compliance for this software. 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.
We have not developed a comprehensive Year 2000 contingency plan to address
unanticipated situations that may result from the Year 2000. If any such
situations arise, we have designated a management team to address the issue.
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 June 15, 2000, which will affect us as of
January 1, 2001. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS No. 133 requires the
recognition of all of these 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.
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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 major U.S. corporations 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 1-800-FLOWERS.com, Chase
Manhattan Bank, Citibank, StarMedia, Time Inc., CNN, Simon & Schuster, TIAA
CREF, The Bank of New York, and Compaq Computer. With our new data center
presence in 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 be required to address this market.
We believe that 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. We believe that these factors
will grow in importance as established companies continue to Internet-enable
complex and established information technology
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processes, giving interactive information technology providers such as ITG, with
a 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 using 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 system design and
integration with complex existing software applications, 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 products and
services gives us a competitive advantage. These offerings 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, existing software applications, 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.]
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<PAGE>
<TABLE>
<CAPTION>
'DEFINE AND DESIGN' 'CONSTRUCT AND CONNECT' 'INSTALL AND IMPLEMENT'
------------------- ----------------------- -----------------------
<S> <C> <C> <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.
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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. Our
partnerships with these companies are as approved participants or vendors in
their sales and marketing programs.
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.
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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 personal
digital assistants (PDAs). 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 in
Northern Virginia 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 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, where the customer
is given use of a shared server in our data center, dedicated hosting, where the
customer has a server in our data center that is dedicated to that customer's
use, and co-located hosting, where the 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
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are also available, whereby we provide not only the facility and the Internet
access, but the actual 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 partnerships with these companies arise through our inclusion as
approved participants or vendors in sales and marketing programs established by
them. These relationships are typically renewed annually. 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.
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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.
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.
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We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of clients. In 1998, our ten largest
clients generated approximately 60% of our revenues, with three clients, The
Chase Manhattan Bank, Citibank and The Bank of New York, accounting for 22%, 12%
and 11%, respectively, of our revenues. To the extent that any significant
client uses less of our services or terminates its relationship with us in favor
of one of our competitors, our revenues could decline substantially. As a
result, the loss of any significant client to a competitor could seriously harm
our business.
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 and integration and warehouse facilities, are located
in Mineola, New York. These facilities are located in approximately 25,000
square feet of leased 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.
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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 Executive Vice President, Director of
Internet Operations 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 S. 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 Executive Vice President, Director of Internet Operations. 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
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<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, a
company engaged in the manufacture and sale of specialty chemical products, for
more than the past five years.
Craig S. 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,
identified as Class I, Class II and Class III. Immediately following this
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
which provide 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
31
<PAGE>
out-of-pocket costs incurred in connection with their attendance at our board
meetings. Members of the board of directors receive annual grants of stock
options under our 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 their 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 presents 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.
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<PAGE>
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>
The following table presents 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 our common stock as of December 31,
1998, which was $3.00, as determined by our board of directors.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Mark Dresner. Under the
terms of this 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 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. 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, for due
cause, or without due cause. Mr. Dresner can terminate his employment agreement
for good reason. 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.
33
<PAGE>
We have entered into an employment agreement with James McGowan. Under the
terms of this 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. 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, for due
cause, or without due cause. Mr. McGowan can terminate his employment agreement
for good reason. 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 or for
due cause. Dr. Wolotsky can terminate his employment agreement for good reason.
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 we or Dr. Wolotsky 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.
34
<PAGE>
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 November 15, 1999, options to purchase an
aggregate of 586,980 shares of common stock at a weighted average price of $2.37
per share were outstanding under the 1997 plan, of which 246,788 are currently
exercisable. The 1997 plan is substantially similar to our 1999 Stock Option
Plan, which is discussed in more detail below.
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 our company 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 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 non-
35
<PAGE>
employee 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.
Under 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, 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 150,000 options outstanding
under the 1999 directors' plan, exercisable at a price of $10.00 per share, of
which 75,000 are currently exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mark Dresner, Chairman of our board of directors, 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 their 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 their expenses for
a proceeding against them. We intend to obtain directors' and officers'
liability insurance.
36
<PAGE>
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 at the closing of this offering. While ITIS
has not generated revenues to date, it has entered into and 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. Before this, ITG had been referring many of such opportunities to
third parties. ITIS's activities during 1999 consisted primarily of identifying
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, Inc.,
to provide ITIS with the immediate data center and Internet access
infrastructure to provide such services on a large scale. In August 1999, ITIS
acquired from Wolotsky Enterprises, L.L.C., a company controlled by Paul
Wolotsky, the rights to a services agreement with World Online, Inc., which was
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, L.L.C. 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. The consideration to be received by
the shareholders of ITIS was determined by our board of directors based upon the
potential value which ITIS brings to our growth strategy and the potential cash
flow which would be generated from projects under development by ITIS.
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 him 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, under which ITIS has the exclusive use, other than for
existing hosting commitments of MCSP, Inc., of MCSP, Inc.'s Internet data center
facilities and Internet connectivity assets. MCSP has two Internet data centers,
located in Washington, DC and Tysons Corner, Virginia. 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 during the six months prior to such election the revenues
generated by MCSP, Inc. pursuant to the Service Agreement with ITIS exceed
$225,000. To date, MCSP, Inc. has not generated revenues under that agreement.
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
37
<PAGE>
and shareholder of MCSP, Inc. By electing to merge with MCSP, Inc., we would be
able to acquire ownership of the two data centers owned by MCSP, Inc., 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
Immediately following the closing of this offering, we intend to make an
S corporation distribution aggregating approximately $1,400,000 to Mr. Dresner
and Mr. McGowan. In addition, at the closing we will change our federal income
tax status from an 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 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'.
Loans from our shareholders
In August 1996, we borrowed an aggregate of $200,000 from Mr. Dresner and
Mr. McGowan. We are repaying these loans over three years. The loans bear
interest at a rate of 7%. As of December 31, 1998, the outstanding balance was
$36,342. As of the date of this prospectus the balance has been fully repaid.
38
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table presents information regarding the beneficial ownership
of our common stock as of November 15, 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 indicated, we believe 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 that
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. This
table 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.
Unless otherwise noted, 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 AFTER OFFERING
---- ------ --------------- --------------
<S> <C> <C> <C>
Mark Dresner(1)....................................... 2,977,500 49.4% 37.1%
James McGowan(2)...................................... 2,977,500 49.4 37.1
Paul Wolotsky(3)...................................... 135,000 2.2 1.7
Andrew Arlo(4)........................................ 120,288 2.0 1.5
Daniel Hickey(5)...................................... 37,500 * *
Bernard Esquenet(6)................................... 20,000 * *
Craig Libson(7)....................................... 20,000 * *
All directors and executive officers as a group
(10 persons)(8)..................................... 6,343,413 100 76.0
</TABLE>
- ------------
* Less than 1%
(1) Includes 27,500 shares of common stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 27,500
shares of common stock subject to stock options which are not currently
exercisable.
(2) Includes 27,500 shares of common stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 27,500
shares of common stock subject to stock options which are not currently
exercisable.
(3) 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.
(4) 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.
(5) Includes 37,500 shares of common stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 22,500
shares of common stock subject to stock options which are not currently
exercisable.
(6) Includes 20,000 shares of common stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 20,000
shares of common stock subject to stock options which are not currently
exercisable.
(7) Includes 20,000 shares of common stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 20,000
shares of common stock subject to stock options which are not currently
exercisable.
(8) Includes 343,413 shares of common stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 522,067
shares of common stock subject to stock options which are not currently
exercisable.
39
<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 our 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 available to holders of
preferred stock, holders of common stock are entitled to receive ratably any
dividends that may be declared by the board out of available funds.
Liquidation Rights. In the event of our liquidation, dissolution or winding
up, holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of holders
of preferred stock. Holders of common stock have no preemptive, conversion or
other rights to subscribe for additional securities of ours. 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 of those shares, 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 bylaws 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 of
those shares;
for the division of the board into three classes, with each class serving
for a staggered term of three years;
40
<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 bylaws 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 our company. 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 & 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 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
or warrants, 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, and shareholders 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 the underwriter 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 the underwriter.
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
41
<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 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 1,036,980 options issued by us 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 Option
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, the underwriter 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 by this
prospectus is subject to approval by its counsel of particular legal matters and
other conditions. The underwriter is obligated to purchase and accept delivery
of all the shares of common stock offered by this prospectus, 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 the offering price less a concession of not more than
$ per share. The underwriter may allow, and such dealers may re-allow to
other dealers, a concession of not more than $ 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, and shareholders 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,
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
42
<PAGE>
prospectus without the prior written consent of the underwriter. In addition,
during this 180-day period, we have also agreed not to file any registration
statement for, and each of our executive officers, directors and 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.
The following table shows the per share and total non-accountable expense
allowance and underwriting discounts and commissions to be paid to the
underwriter by us in connection with our initial public offering. These amounts
are shown assuming both no exercise and full exercise of the underwriter's
option to purchase additional shares of common stock. We have also included in
the table the 140,000 underwriter's warrants we have agreed to issue to the
underwriter. We are required to issue the same number of underwriter's warrants
regardless of whether the underwriter exercises its over-allotment option.
<TABLE>
<CAPTION>
PAID BY INFINITE TECHNOLOGY GROUP LTD.
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NO EXERCISE FULL EXERCISE
---------------------------------------------------- ----------------------------------------------------
DISCOUNTS AND EXPENSE UNDERWRITER'S DISCOUNTS AND EXPENSE UNDERWRITER'S
COMMISSIONS ALLOWANCE WARRANTS COMMISSIONS ALLOWANCE WARRANTS
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
Per share......... -- --
Total........ 140,000 140,000
</TABLE>
The expenses of this offering, exclusive of the underwriting discount, are
estimated at $500,000 and are payable by us. The principal components of the
offering expenses payable by us will include the fees and expenses of our
accountants and attorneys, the fees of our registrar and transfer agent, the
cost of printing this prospectus, the Nasdaq Stock Market listing fees and
filing fees paid to the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc.
We have also agreed pursuant to the underwriting agreement to allow the
underwriter 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 after that 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 this prospectus.
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
43
<PAGE>
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. 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 underwriter. The factors considered in determining the
initial public offering price included the history of and the prospects for the
industry in 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 have applied 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 by this prospectus 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 those 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 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 and holds options to purchase 40,000 shares of our common stock. Certain
legal matters in connection with this offering will be passed upon for the
underwriter by Coleman, Rhine & Goodwin LLP, New York, New York.
44
<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 is a part of that registration statement. This
prospectus does not contain all the information provided 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. Although
we have included in this prospectus summaries of all significant terms of our
material agreements and other documents, these summaries 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.
45
<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 September 30, 1999 (unaudited)............... F-3
Combined Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and the nine-month
periods ended September 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 nine-month period ended September 30, 1999
(unaudited)........................................... F-5
Combined Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and the nine-month
periods ended September 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.
/s/ Ernst & Young LLP
Melville, New York
September 30, 1999
F-2
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 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 $ 599,338
Available-for-sale securities.................... -- 24,079 106,651
Accounts receivable, net of allowances for
doubtful accounts of $55,000 in 1998 and
$100,000 in 1999............................... 3,521,056 5,043,235 14,592,787
Inventories...................................... 402,834 2,022,042 587,207
Loans receivable from shareholders............... 100,000 -- --
Prepaid expenses and other current assets........ 57,597 296,746 94,000
---------- ---------- ------------
Total current assets........................ 4,233,967 8,023,347 15,979,983
Property and equipment, at cost, net of depreciation
and amortization of $118,749 in 1997, $218,010 in
1998 and $348,775 in 1999........................... 359,764 429,967 479,054
Other assets.......................................... 11,132 11,132 956,328
---------- ---------- ------------
Total assets................................ $4,604,863 $8,464,446 $ 17,415,365
---------- ---------- ------------
---------- ---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit................................... $1,249,074 $3,400,000 $ 3,500,000
Note payable to bank............................. -- -- 500,000
Accounts payable................................. 2,055,289 3,497,090 7,718,475
Accrued expenses and other current liabilities... 336,093 665,106 1,487,250
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 13,305,721
Term note payable to bank, less current portion....... -- 383,338 308,341
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, shares issued and
outstanding; 100 in 1997 and 1998, 150 in
1999........................................... 10,000 10,000 860,000 860,000
Additional paid-in capital....................... -- 4,290 4,290 4,290
Accumulated other comprehensive income........... -- (1,303) (28,054) (28,054)
Retained earnings................................ 794,648 320,587 2,916,067 1,516,067
Less: shareholder notes receivable for ITIS
common stock................................... (10,000) (10,000) (10,000) (10,000)
---------- ---------- ------------ ----------
Total shareholders' equity.................. 853,648 382,574 3,801,303 $2,401,303
---------- ---------- ------------ ----------
----------
Total liabilities and shareholders'
equity.................................... $4,604,863 $8,464,446 $ 17,415,365
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 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 14,885,892 35,303,565
Service sales............ 1,199,329 3,256,381 4,196,540 3,870,677 4,056,337
----------- ----------- ----------- ----------- -----------
Total sales......... 18,390,896 22,906,234 25,780,786 18,756,569 39,359,902
----------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of product sales.... 16,253,523 19,191,529 19,966,179 15,333,827 29,461,825
Cost of service.......... 528,880 1,087,535 1,348,389 1,146,889 2,128,977
Selling, general and
administrative
expenses............... 1,280,084 2,656,620 4,643,513 2,709,430 4,781,094
----------- ----------- ----------- ----------- -----------
Total operating
expenses.......... 18,062,487 22,935,684 25,958,081 19,190,146 36,371,896
----------- ----------- ----------- ----------- -----------
Operating income (loss)....... 328,409 (29,450) (177,295) (433,577) 2,988,006
Other (expense) income:
Interest expense, net of
interest income........ (47,028) (95,540) (196,973) (129,098) (260,898)
Miscellaneous income..... -- 4,662 20,207 -- 6,372
----------- ----------- ----------- ----------- -----------
Net income (loss)............. $ 281,381 $ (120,328) $ (354,061) $ (562,675) $ 2,733,480
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Pro Forma (unaudited):
Income (loss) before
provision for income
taxes.................. $ 281,381 $ (120,328) $ (354,061) $ (562,675) $ 2,733,480
Provision (benefit) for
income taxes........... 128,000 (46,000) (112,000) (178,000) 1,230,000
----------- ----------- ----------- ----------- -----------
Net income (loss)........ $ 153,381 $ (74,328) $ (242,061) $ (384,675) $ 1,503,480
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per
share:
Basic............... $ .03 $ (.01) $ (.04) $ (.06) $ .24
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted............. $ .03 $ (.01) $ (.04) $ (.06) $ .22
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding:
Basic............... 5,900,000 5,900,000 6,233,333 6,233,333 6,233,333
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted............. 5,900,000 5,900,000 6,233,333 6,233,333 6,689,521
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</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 NINE MONTH PERIOD
ENDED SEPTEMBER 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).......... -- -- -- 2,733,480 --
Unrealized loss on available for
sale securities (unaudited)... -- -- -- -- (26,751)
Total comprehensive income
(unaudited)................... -- -- -- -- --
Distributions to shareholders
(unaudited)................... -- -- -- (138,000) --
Issuance of common stock in
connection with the
acquisition of the CarNet
Services Agreement
(unaudited)................... -- -- -- -- --
--------- ------- ------ ---------- --------
Balance at September 30, 1999
(unaudited)....................... 5,900,000 $59,000 $4,290 $2,916,067 $(28,054)
--------- ------- ------ ---------- --------
--------- ------- ------ ---------- --------
<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).......... -- -- -- 2,733,480
Unrealized loss on available for
sale securities (unaudited)... -- -- -- (26,751)
----------
Total comprehensive income
(unaudited)................... -- -- -- 2,706,729
Distributions to shareholders
(unaudited)................... -- -- -- (138,000)
Issuance of common stock in
connection with the
acquisition of the CarNet
Services Agreement (unaudited) 50 850,000 -- 850,000
--- ---------- -------- ----------
Balance at September 30, 1999
(unaudited)....................... 150 $ 860,000 $(10,000) $3,801,303
--- ---------- -------- ----------
--- ---------- -------- ----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................... $ 281,381 $ (120,328) $ (354,061) (562,675) $ 2,733,480
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization......... 35,732 363,882 99,261 91,493 108,000
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) -- (6,372)
Changes in operating assets and
liabilities:
Accounts receivable................ 2,049,560 (1,651,708) (1,577,179) (712,354) (9,594,552)
Inventories........................ (353,147) (29,687) (1,619,208) (2,104,292) 1,434,835
Prepaid expenses and other current
assets........................... (440) (36,142) (239,149) (37,466) 202,746
Other assets....................... -- (11,132) -- -- --
Accounts payable................... (2,317,473) 1,240,986 1,441,801 2,268,014 4,221,385
Accrued expenses and other current
liabilities...................... 98,373 220,398 329,013 244,542 822,144
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities... (206,014) (23,731) (1,864,089) (812,738) (33,334)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of property and equipment..... (218,596) (146,714) (169,464) (102,283) (157,087)
Purchases of available-for-sale
securities............................ -- -- (55,294) -- (239,686)
Proceeds from sales of
available-for-sale securities......... -- -- 33,769 -- 136,735
Other assets............................ -- (295,738) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities... (218,596) (442,452) (190,989) (102,283) (260,038)
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds of line of credit.............. 824,074 725,000 4,100,000 950,926 100,000
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) (50,941) (36,342)
Proceeds of notes payable to
shareholders.......................... 200,000 -- -- -- --
Proceeds of notes payable to bank....... -- -- 500,000 -- 1,200,000
Principal repayments of notes payable to
bank.................................. (183,340) -- (16,666) -- (774,997)
Loan to shareholders.................... -- (100,000) -- -- --
Proceeds of loan receivable from
affiliated companies.................. -- 120,000 -- -- --
Payments of deferred offering costs..... -- -- -- -- (95,196)
Distributions to shareholders........... (20,000) (120,000) (20,000) -- (138,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities............................ 395,396 461,097 2,539,843 899,985 255,465
----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents........................... (29,214) (5,086) 484,765 (15,036) (37,907)
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 $ 137,444 $ 599,338
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid during the period......... $ 44,247 $ 90,442 $ 230,807 $ 134,782 $ 265,571
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
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 NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Infinite Technology Group Ltd. ('ITG' or 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 the
Company and Infinite Technology Information Services, Inc. ('ITIS' or the
'Affiliate'). Each of these companies were under common ownership and management
through August 10, 1999, and under similar ownership and common management
thereafter. 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 nine month periods
ended September 30, 1998 and 1999, revenues from three and two customers
aggregated approximately $8.0 million and $13.4 million, respectively, which
represented approximately 43% (18%, 13% and 12%) and 34% (20% and 14%) 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 nine month period ended September 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 September 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
F-7
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN MARKETABLE SECURITIES (CONTINUED)
classified as available for sale. Available for sale securities are carried at
fair value, with the unrealized 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, which consist of computer equipment and parts, are stated at
the lower of cost (first-in, first-out basis) 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 flows 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
fair value of such assets.
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 NINE MONTHS ENDED SEPTEMBER 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 nine month periods ended September 30,
1998 and 1999, advertising expense was approximately $143,000 and $86,000,
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
nine months ended September 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 nine
months ended September 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
Historical net income/loss per share information, which has not been
presented, as such information would not be meaningful without the provision of
income taxes. Accordingly, 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 pro forma diluted net income per share for the nine
month period ended September 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
nine month period ended September 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 pro forma
dividend treatment has been included in the calculations for the year ended
December 31, 1998 and the nine month period ended September 30, 1998.
F-9
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
3. AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities consist of marketable equity securities of
publicly traded companies and mutual funds. 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 September 30, 1999, investments
had an aggregate cost, fair market value and gross unrealized holding loss of
$134,705, $106,651 and $28,054, respectively.
4. PROPERTY AND EQUIPMENT
Details of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- -------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Computer equipment................................. $298,280 $377,274 $482,452
Computer software.................................. 68,030 116,379 135,794
Furniture and fixtures............................. 47,200 57,535 79,774
Leasehold improvements............................. 65,003 96,789 129,809
-------- -------- --------
478,513 647,977 827,829
Less: accumulated depreciation and amortization.... 118,749 218,010 348,775
-------- -------- --------
$359,764 $429,967 $479,054
-------- -------- --------
-------- -------- --------
</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, 2000. At December 31, 1998 and September 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 9.00% at
September 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
September 30, 1999, $483,334 and $408,337 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 nine months
ended September 30, 1998 and 1999, equipment rentals were approximately $12,000
and $24,000, respectively.
F-10
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
6. LEASE COMMITMENTS (CONTINUED)
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 $211,000 and $249,000, for the nine months ended
September 30, 1998 and 1999, respectively.
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.
F-11
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
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 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, 1998 and the nine months ended September 30, 1999, the
Company's board of directors granted 200,480, 119,500 and 267,000 Incentive
Stock Options at prices ranging from $1.12 to $10.00 per share. The options
issued in 1997 fully vest after four years and expire ten years from the date of
grant. The options issued in 1998 and 1999 fully vest after three years and
expire ten years from the date of grant. On September 1, 1999, Paul Wolotsky, in
connection with his employment agreement with the Company, was granted 300,000
non-qualified options at $8.50 per share. These options vest over a five year
period and expire ten years from the date of grant. On September 15, 1999 the
Company granted 150,000 stock options under the 1999 Directors Stock Option Plan
at an exercise price of $10.00 per share. These options vest over a two-year
period 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
F-12
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
10. STOCK INCENTIVE PLAN (CONTINUED)
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 net loss using the minimum value
option pricing model is approximately $381,000 (or approximately $210,000
(unaudited) after deducting pro forma income taxes) for the year ended
December 31, 1998. The effect of this amortization on the year ended
December 31, 1997 was immaterial.
A summary of the Company's stock option activity, and related information
is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
1997 1998 SEPTEMBER 30, 1999
------------------------ ------------------------ --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning
of year................
-- -$- 200,480 $1.12 319,980 $1.27
Granted.................. 200,480 1.12 119,500 1.50 717,000 7.02
Canceled................. -- -- -- -- -- --
------- ----- ------- ----- --------- -----
Outstanding -- end of
year................... 200,480 $1.12 319,980 $1.27 1,036,980 $5.25
------- ----- ------- ----- --------- -----
------- ----- ------- ----- --------- -----
Exercisable at end of
year................... 40,096 $1.12 110,067 $1.21 346,788 $4.13
Weighted-averaged fair
value of options
granted during the
year................... $ .29 $ .32 $1.33
</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 nine months ended September 30, 1999 had an
exercise price ranging from $3.00 to $10.00 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 September 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
F-13
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
12. ITIS (CONTINUED)
$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, 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.
ITIS recorded the estimated value of the CarNet Services Agreement at $850,000,
based upon the value ascribed to the Company's shares to be received in the
proposed ITIS Merger. 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 cash consideration in the ITIS Merger, or $3.5 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 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 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
F-14
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
13. PRO FORMA INCOME TAXES AND SUBCHAPTER S DISTRIBUTION (UNAUDITED) (CONTINUED)
a corresponding charge to operations upon the termination of its Subchapter 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 September 30, 1999
reflects the shareholders' equity of the Company as if the planned estimated
$1,400,000 Subchapter S distribution had been made to Mr. Dresner and Mr.
McGowan at such date.
14. SUBSEQUENT EVENTS (UNAUDITED)
On October 21, 1999, the Company repaid $500,000 under a note with a bank,
dated September 20, 1999.
On October 21, 1999, the Company borrowed $800,000 under a note with a
bank. The note is due November 22, 1999, and bears interest at the bank's prime
rate plus three quarters of a percent (9%).
On October 29, 1999, the Company's line of credit was increased to
$7,500,000. The line expires on June 30, 2001 and bears interest at the bank's
prime rate plus three quarters of a percent. Borrowings under this line reduce
automatically to $3,500,000 on the earlier to occur of (1) December 31, 1999 and
(2) the consummation of an initial public offering of the common stock of the
Company. In connection with the increase in the Company's line of credit, the
bank was issued 25,000 warrants to purchase common stock in the Company at an
exercise price of $.01 per share over a five year period.
On November 3, 1999, the Company repaid a note with a bank for $3,500,000
due under its line of credit. In addition, the Company repaid a note for
$800,000 dated October 21, 1999.
On November 3, 1999, the Company borrowed $7,300,000 under a note with a
bank. The note is due December 3, 1999 and bears interest at the bank's prime
rate plus three quarters of 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. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or any sale of the common stock.
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.......................... 72,875
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...................................... 24,366
--------
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, granted on
June 17, 1997, to purchase 200,480 shares of common stock at an exercise
price of $1.12 per share, options, granted on January 15, 1998, to
purchase 119,500 shares of common stock at an exercise price of $1.50
per share, options, granted on January 15, 1999, to purchase 165,500
shares of common stock at an exercise price of $3.00 per share, options,
granted on January 15, 1999, to purchase 60,000 shares of common stock
at an exercise price of $3.30 per share, options, granted on March 15,
1999, to purchase 14,000 shares of common stock at an exercise price of
$3.75 per share, options, granted on March 15, 1999 and April 15, 1999,
to purchase an aggregate of 4,000 shares of common stock at an exercise
price of $5.00 per share and options, granted on August 23, 1999 and
September 27, 1999, to purchase an aggregate of 21,000 shares of common
stock at an exercise price of $10.00 per share. No such outstanding
options had been exercised.
II-2
<PAGE>
2. The Company's 1999 Directors' Stock Option Plan, provides for the grant
of stock options to employee and non-employee directors and committee
members of the Company (the '1999 Directors' Plan'). Under the 1999
Directors' Plan, optionees receive non-discretionary, automatic grants
of non-qualified 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 November 15, 1999,
pursuant to the 1999 Directors' Plan, options to purchase an aggregate
of 150,000 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 Company's 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 (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. The Company believes that this transaction is exempt
from registration under the Securities Act pursuant to Section 4(2), or
Regulation D promulgated thereunder, as a transaction by an issuer not
involving a public offering.
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 common stock to ITIS
as part of the merger consideration. The Company believes that this
transaction is exempt from registration under the Securities Act
pursuant to Section 4(2), or Regulation D promulgated thereunder, as a
transaction by an issuer not involving a public offering.
5. On October 29, 1999, the Company issued a five (5) year warrant to
Chemical Investments, Inc. to purchase up to 25,000 shares of the
Company's common stock at an exercise price of $.01 per share, as
additional incentive for The Chase Manhattan Bank to extend the
Company's line of credit. The shares underlying the warrant vest on the
earlier of (i) June 30, 2000, or (ii) the closing of the Company's
initial public offering. The Company believes that this transaction is
exempt from the registration under the Securities Act pursuant to
Section 4(2), or Regulation D promulgated thereunder, as a transaction
by an issuer not involving a public offering.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offerings.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1 -- Form of Underwriting Agreement, as amended.**
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 -- Leases, 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.***
10.7 -- S Corporation Termination, Tax Allocation and
Indemnification Agreement, dated November 17, 1999, among
Mark Dresner, James McGowan and the Company.**
10.8 -- U.S. Indirect Value Added Reseller Agreement, dated
April 25, 1995, between Sun Microsystems, Inc. and the
Company, as amended.**
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>
- ------------
* Previously filed.
** 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
II-4
<PAGE>
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-5
<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 November 19,
1999.
INFINITE TECHNOLOGY GROUP LTD.
By: /s/ JAMES McGOWAN
...................................
JAMES McGOWAN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
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 November 19, 1999
.........................................
MARK DRESNER
* President, Chief Executive Officer November 19, 1999
......................................... and Director (Principal Executive
JAMES McGOWAN Officer)
* Director November 19, 1999
.........................................
PAUL WOLOTSKY
* Director November 19, 1999
.........................................
BERNARD ESQUENET
* Director November 19, 1999
.........................................
CRAIG S. LIBSON
* Chief Financial Officer (Principal November 19, 1999
......................................... Financial and Accounting Officer)
DENNIS WILSON
*By: /s/ MARK DRESNER
...............................................
MARK DRESNER
ATTORNEY-IN-FACT
</TABLE>
II-6
<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 2,00,000
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. 333-88737), 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
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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 eitherthe 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. At or prior to the
Closing Date, (i) the Company shall have taken all steps necessary to terminate
its status as a "subchapter S" corporation under the Internal Revenue Code of
1986, as amended (the "Code") and (ii) Mark Dresner ("Dresner") and James
McGowan ("McGowan" and, collectively with Dresner, the "Existing Stockholders")
shall have entered into a tax agreement (the "Tax Agreement") with the Company
in a form reasonably acceptable to the Underwriter.
(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
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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 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
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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
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
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compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(h) Each of the Company and the Existing Stockholders (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 Chapters 21 through 24 of 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, the Tax Agreement and the Underwriter's Warrant Agreement, and
to consummate the transactions provided for in such agreements; and this
Agreement, the Tax Agreement and the Underwriter's Warrant Agreement have each
been duly and properly authorized, executed, and delivered by the Company. Each
of this Agreement, the Tax 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
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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, 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 Tax 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
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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
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.
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(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 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
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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.
(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.
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(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 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.
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(ag) In addition to the foregoing, the Existing Stockholders
severally and not jointly represent and warrant to, and agree with, the
Underwriter that:
(i) Each of the Existing Stockholders has full right,
power and authority to enter into this Agreement and the Tax Agreements. The
execution, delivery and performance of this Agreement and the Tax Agreement by
each of the Existing Stockholders will not conflict with or result in a breach
of any of the terms or provisions of, or constitute a default or cause an
acceleration of any obligation under, any license, indenture, lease, mortgage,
deed of trust, bank loan, credit agreement, or other material agreement or
instrument to which an Existing Stockholder is a party or by which an Existing
Stockholder is bound, or to which any of the property or assets of an Existing
Stockholder is subject, or any order of any court or governmental agency or
authority entered into in any proceeding to which an Existing Stockholder was or
is a party or by which an Existing Stockholder is bound, or violate or conflict
with any applicable foreign, federal, state or local law, rule, administrative
regulation or ordinance or administrative or court decree applicable to an
Existing Stockholder or an Existing Stockholder's property;
(ii) None of the Existing Stockholders nor any
trustee or beneficiary of the Existing Stockholders is affiliated as a director,
officer, partner, stockholder, or otherwise with any securities broker or dealer
which is a member of the NASD or any other organization that owns or controls
any member of the NASD; and
(iii) No statement, representation, warranty or
covenant made by the Existing Stockholders in this Agreement or made in any
certificate or document required by this Agreement to be delivered to the
Underwriter was or will be, when made, inaccurate, untrue or incorrect.
For purposes of this Agreement, references to "knowledge" of
the Company, or phrases of similar import, shall be deemed to mean the actual
knowledge of the Company's Chief Executive Officer, Chief Operating Officer or
Chief Financial Officer.
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.
(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
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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 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
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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 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.
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<PAGE>
(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 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
16
<PAGE>
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
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary that is not so consolidated.
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(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, daily consolidated transfer sheets
relating to the Common Stock, up to four (4) times during such year.
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<PAGE>
(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 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
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<PAGE>
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 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,
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<PAGE>
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 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
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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.
(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
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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 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
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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 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
24
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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, the Tax 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 other laws of
general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
25
<PAGE>
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;
(xi) the statements in the Prospectus under "Dividend
Policy," "Description of Capital Stock," and "Shares Eligible for Future Sale"
have been reviewed by such
26
<PAGE>
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 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.
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<PAGE>
(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 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;
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<PAGE>
(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:
(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;
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(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.
(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
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<PAGE>
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 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
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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 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
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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 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
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<PAGE>
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.
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
34
<PAGE>
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 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.
35
<PAGE>
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.
36
<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:
CONFIRMED AND ACCEPTED AS TO SECTIONS 1(h) and 1(ag) ONLY:
MARK DRESNER
- -----------------------------------
JAMES McGOWAN
- -----------------------------------
37
<PAGE>
NUMBER SHARES
ITG [LOGO]
ITG
Infinite Technology Group Ltd.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF NEW YORK CUSIP 45663M 10 4
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
=========================Infinite Technology Group Ltd.=========================
transferable on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ MARK DRESNER /s/ JAMES McGOWAN
CHAIRMAN OF THE BOARD AND SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
[CORPORATE SEAL]
INFINITE TECHNOLOGY GROUP LTD.
1993
NEW YORK
*
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR.
BY
AUTHORIZED SIGNATURE
<PAGE>
Infinite Technology Group Ltd.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in UNIF GIFT MIN ACT - ________Custodian________
common (Cust) (Minor)
TEN ENT - as tenants by the under Uniform Gifts to Minors
entireties Act__________________________
JT TEN - as joint tenants with (State)
right of survivorship
and not as tenants
in common
Additional abbreviations may also be used though not in the above list.
For value received, _________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated__________________________________
--------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed:
- ----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
This Agreement BETWEEN
GASPAR INDUSTRIES, INC., a New York Corporation, with offices at 80 Jefferson
Avenue, Mineola, New York 11501,
as Landlord,
and
INFINITE TECHNOLOGY GROUP, LTD., a New York Corporation, with offices at 77
Jericho Turnpike, Mineola, New York 11501,
as Tenant
Witnesseth: The Landlord hereby leases to the Tenant the following premises:
Approximately 5,220 square feet (the entire lower level) of premises 259 Elm
Place, Mineola, New York 11501, as shown on Exhibit "A" attached.
for the term of three (3) years to commence from the 1st day of February, 1996
and to end on the 31st day of January, 1999 to be used and occupied only for
storage, integration, and display of computer equipment.
upon the conditions and covenants following:
1st. That the tenant shall pay the annual rent as set forth in rider paragraph
28th.
2nd. That the Tenant shall take good care of the premises and shall, at the
Tenant's own cost and expense make all repairs except structural. and at the end
of other expiration of the term, shall deliver up the demised premises in good
order or condition, damages by the elements excepted.
3rd. That the Tenant shall promptly execute and comply with all statues,
ordinances, rules, orders, regulations and requirements of the Federal, State
and Local Governments and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in, upon or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders and
regulations of the New York Board of Fire Underwriters, or any other similar
body, at the Tenant's own cost and expense.
4th. That the Tenant, successors, heirs, executors or administrators shall not
assign this agreement, or underlet or underlease the premises, or any part
thereof, or make any alterations on the premises, without the Landlord's consent
in writing; or occupy, or permit or suffer the same to be occupied for any
business or purpose deemed disreputable or extra-hazardous on account of fire,
under the penalty of damages and forfeiture, and in the event of a breach
thereof, the term herein shall immediately cease and determine at the option of
the Landlord as if it were the expiration of the original term.
5th. Tenant must give Landlord prompt notice of fire, accident, damage or
dangerous or defective condition. If the Premises can not be used because of
fire or other casualty, Tenant is not required to pay rent for the time the
Premises are unusable. If part of the Premises can not be used, Tenant must pay
rent for the usable part. Landlord shall have the right to decide which part of
the Premises is usable. Landlord need only repair the damaged structural parts
of the Premises. Landlord is not required to repair or replace any equipment,
fixtures, furnishings or decorations unless originally installed by Landlord.
Landlord is not responsible for delays due to settling insurance claims,
obtaining estimates, labor and supply problems or any other cause not fully
under Landlord's control.
If the fire or other casualty is caused by an act or neglect of Tenant,
Tenant's employees or invitees, or at the time of the fire or casualty Tenant is
in default in any term of this Lease, then all repairs will be made at Tenant's
expense and Tenant must pay the full rent with no adjustment. The cost of the
repairs will be added rent.
Landlord has the right to demolish or rebuild the building if there is
substantial damage by fire or other casualty. Landlord may cancel this Lease
within 30 days after the substantial fire or casualty by giving Tenant notice of
Landlord's intention to demolish or rebuild. The lease will end 30 days after
Landlord's cancellation notice to Tenant. Tenant must deliver the Premises to
Landlord on or before the cancellation date in the notice and pay all rent due
to the date of the fire or casualty. If the Lease is cancelled Landlord is not
required to repair the Premises or Building. The cancellation does not release
Tenant of liability in connection with the fire or casualty. This Section is
intended to replace the terms of New York Real Property Law Section 227.
<PAGE>
6th. The said Tenant agrees that the said Landlord and the Landlord's agents and
other representatives shall have the right to enter into and upon said premises,
or any part thereof, at all reasonable hours for the purpose of examining the
same, or making such repairs or alterations therein as may be necessary for the
safety and preservation thereof.
7th. The Tenant also agrees to permit the Landlord or the Landlord's agents to
show the premises to persons wishing to hire or purchase the same; and the
Tenant further agrees that on and after the sixth month, next preceding the
expiration of the term hereby granted, the Landlord or the Landlord's agents
shall have the right to place notices on the front of said premises, or any part
thereof, offering the premises "To Let" or "For Sale", and the Tenant hereby
agrees to permit the same to remain thereon without hindrance or molestation.
8th. That if the said premises, or any part thereof shall be deserted or become
vacant during said term, or if any default be made in the payment of the said
rent or any part thereof, or if any default be made in the performance of any of
the covenants herein contained, the Landlord or representatives may re-enter the
said premises by force, summary proceedings or otherwise, and remove all persons
therefrom, without being liable to prosecution therefor, and the Tenant hereby
expressly waives the service of any notice in writing of intention to re-enter,
and the Tenant shall pay at the same time as the rent becomes payable under the
terms hereof a sum equivalent to the rent reserved herein, and the Landlord may
rent the premises on behalf of the Tenant, reserving the right to rent the
premises for a longer period of time than fixed in the original lease without
releasing the original Tenant from any liability, applying any moneys collected,
first to the expense of resuming or obtaining possession, second to restoring
the premises to a rentable condition, and then to the payment of the rent and
all other charges due and to grow due to the Landlord, any surplus to be paid to
the Tenant, who shall remain liable for any deficiency.
9th. Landlord may replace, at the expense of Tenant, any and all broken glass in
and about the demised premises. Landlord may insure, and keep insured, all plate
glass in the demised premises for and in the name of Landlord. Bills, for the
premiums therefor shall be rendered by Landlord to Tenant at such times as
Landlord may elect, and shall be due from, and payable by Tenant when rendered,
and the amount thereon shall be deemed to be, and be paid as, additional rental.
Damage and injury to the said premises, caused by the carelessness, negligence
or improper conduct on the part of the said Tenant or the Tenant's agents or
employees shall be repaired as speedily as possible by the Tenant at the
Tenant's own cost and expense.
13th. That if default be made in any of the covenants herein contained, then it
shall be lawful for the said Landlord to re-enter the said premises, and the
same to have again, re-possess and enjoy. The said Tenant hereby expressly
waives the service of any notice in writing of intention to re-enter.
14th. That this instrument shall not be a lien against said premises in respect
to any mortgages that are now on or that hereafter may be placed against said
premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this lease,
irrespective of the date of recording and the Tenant agrees to execute without
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of this lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Landlord, or the Landlord's
assigns and legal representatives to the option of canceling this lease without
incurring any expense or damage and the term hereby granted is expressly limited
accordingly.
17th. It is expressly understood and agreed that in case the demised premises
shall be deserted or vacated, or if default be made in the payment of the rent
or any part thereof as herein specified, or if, without the consent of the
Landlord, the Tenant shall sell, assign, or mortgage this lease or if default be
made in the performance of any of the covenants and agreements in this lease
contained on the part of the Tenant to be kept and performed, or if the Tenant
shall fail to comply with any of the statutes, ordinances, rules, orders,
regulations and requirements of the Federal State and Local Governments or of
any and all their Departments and Bureaus, applicable to said premises, or if
the Tenant shall file or there be filed against Tenant a petition in bankruptcy
or arrangement, or Tenant be adjudicated a bankrupt or make an assignment for
the benefit of creditors or take advantage of any insolvency act, the Landlord
may, if the Landlord so elects, at any time thereafter terminate this lease and
the term hereof, on giving to the Tenant five days' notice in writing of the
Landlord's intention to do so, and this lease and the term hereof shall expire
and come to an end on the date fixed in such notice as if the said date were the
date originally fixed in this lease for the expiration hereof. Such notice may
be given by mail to the Tenant addressed to the demised premises.
19th. That the Tenant will not nor will the Tenant permit undertenants or other
persons to do anything in said premises, or bring anything into said premises,
or permit anything to be brought into said premises or to be kept therein, which
will in any way increase the rate of fire insurance on said demised premises,
nor use the demised premises or any part thereof, nor suffer or permit their use
for any business or purpose which would cause an increase in the rate of fire
insurance on said building, and the Tenant agrees to pay on demand any such
increase.
20th. The failure of the Landlord to insist upon a strict performance of any of
the terms, conditions and covenants herein, shall not be deemed a waiver of any
rights or remedies that the Landlord may have, and shall not be deemed a waiver
of any subsequent breach or default in the terms, conditions and covenants
herein contained. This instrument may not be changed, modified, discharged or
terminated orally.
21st. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim against
Landlord for the value of any unexpired term of said lease. No part of any award
shall belong to the Tenant.
<PAGE>
22nd. If after default in payment of rent or violation of any other provision of
this lease, or upon the expiration of this lease, the Tenant moves out or is
dispossessed and fails to remove any trade fixtures or other property prior to
such said default, removal, expiration of lease, or prior to the issuance of the
final order or execution of the warrant, then and in that event, the said
fixtures and property shall be deemed abandoned by the said Tenant and shall
become the property of the Landlord.
23rd. In the event that the relation of the Landlord and Tenant may cease or
terminate by reason of the re-entry of the Landlord under the terms and
covenants contained in this lease or by ejectment of the Tenant by summary
proceedings or otherwise, or after the abandonment of the premises by the
Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in
monthly payments the rent which accrues subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained, the difference between the rent reserved and the
rent collected and received, if any, by the Landlord during the remainder of the
unexpired term, such difference or deficiency between the rent herein reserved
and the rent collected if any, shall become due and payable in monthly payments
during the remainder of the unexpired term, as the amounts of such difference or
deficiency shall from time to time be ascertained; and it is mutually agreed
between Landlord and Tenant that the respective parties hereto shall and hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other on any matters whatsoever arising out of
or in any way connected with this lease, the Tenant's use or occupancy of said
premises, and/or any claim of injury or damage.
24th. The Tenant waives all rights to redeem under any law of the State of New
York.
25th. This lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in nowise be affected, impaired or excused because Landlord is
unable to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repairs,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures if Landlord is prevented or delayed from so
doing by reason of governmental preemption in connection with a National
Emergency or in connection with any rule, order or regulation of any department
or subdivision thereof of any governmental agency or by reason of the condition
of supply and demand which have been or are affected by war or other emergency.
26th. No diminution or abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building or to its appliances, nor for any space
taken to comply with any law, ordinance or order of a governmental authority. In
respect to the various "services," if any, herein expressly or impliedly agreed
to be furnished by the Landlord to the Tenant, it is agreed that there shall be
no diminution or abatement of the rent, or any other compensation, for
interruption or curtailment of such "service" when such interruption or
curtailment shall be due to accident, alterations or repairs desirable or
necessary to be made or to inability or difficulty in securing supplies or labor
for the maintenance of such "service" or to some other cause, not gross
negligence on the part of the Landlord. No such interruption or curtailment of
any such "service" shall be deemed a constructive eviction. The Landlord shall
not be required to furnish, and the Tenant shall not be entitled to receive, any
of such "services" during any period wherein the Tenant shall be in default in
respect to the payment of rent. Neither shall there be any abatement or
diminution of rent because of making of repairs, improvements or decorations to
the demised premises after the date above fixed for the commencement of the
term, it being understood that rent shall, in any event, commence to run at such
date so above fixed.
27th. Landlord shall not be liable for failure to give possession of the
premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior Tenant or any other person is wrongfully
holding over or is in wrongful possession, or for any other reason. The rent
shall not commence until possession is given or is available, but the term
herein shall not be extended.
See attached.
And the said Landlord doth covenant that the said Tenant on paying the
said yearly rent, and performing the covenants aforesaid, shall and may
peacefully and quietly have, hold and enjoy the said demised premises for the
term aforesaid, provided however, that this covenant shall be conditioned upon
the retention of title to the premises by the Landlord.
And it is mutually understood and agreed that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
In Witness Whereof, the parties have interchangeably set their hands and
seals (or caused these presents to be signed by their proper corporate officers
and caused their proper corporate seal to be hereto affixed this day of
19
Signed, sealed and delivered GASPAR INDUSTRIES, INC.
in the presence of BY:
L. S.
---------------------------------
Steven Saloy
/s/ Steven Saloy, Pres. L. S.
---------------------------------
INFINITE TECHNOLOGY GROUP, LTD. L. S.
---------------------------------
BY: JAMES McGOWAN
<PAGE>
State of New York
}ss.:
County of
On the day of 19 , before me personally came
to me known and known to me to be the individual described in, and who executed,
the foregoing instrument, and acknowledged to me that he executed
the same.
State of New York
}ss.:
County of
On the day of 19 , before me personally came
to me known , who, being by me duly sworn, did depose and say that he resides at
No.
that he is the of
the corporation mentioned in, and which executed, the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said instrument
is such corporate seal; that it was so affixed by order of the Board of
of said corporation; and that he signed his name thereto by
like order.
======================================
======================================
Lease
======================================
Dated, ___________________19
In Consideration of the letting of the premises within mentioned to the
within named Tenant and the sum of $1.00 paid to the undersigned by the within
named Landlord, the undersigned do hereby covenant and agree, to and with the
Landlord and the Landlord's legal representatives, that if default shall at any
time be made by the said Tenant in the payment of the rent and the performance
of the covenants contained in the within lease, on the Tenant's part to be paid
and performed, that the undersigned will well and truly pay the said rent, or
any arrears thereof, that may remain due unto the said Landlord, and also pay
all damages that may arise in consequence of the non-performance of said
covenants, or either of them, without requiring notice of any such default from
the said Landlord. The undersigned hereby waives all right to trial by jury in
any action or proceeding hereinafter instituted by the Landlord, to which the
undersigned may be a party.
In Witness Whereof, the undersigned has set hand and seal this day
of , 19
WITNESS
___________________________L.S.
<PAGE>
EXHIBIT "A"
[DIAGRAM OF LOTS 478 TO 481 INCLUSIVE, ROOSEVELT PARK,
FLD., MINEOLA, NASSAU CO., N.Y.]
<PAGE>
RIDER TO LEASE DATED:
BETWEEN, GASPAR INDUSTRIES, INC., LANDLORD, -AND-
INFINITE TECHNOLOGY GROUP, LTD.
28th. The Tenant shall pay during the following periods, the following annual
fixed rent, in the following monthly installments, in advance of the first day
of each and every month:
ANNUAL MONTHLY
PERIOD FIXED RENT INSTALLMENTS
- ----------------------------------------------------------------
Feb 1,1996 thru Jan 31,1997 $ 30,000.00 $ 2,500.00
Feb 1,1997 thru Jan 31,1998 31,500.00 2,625.00
Feb 1,1998 thru Jan 31,1999 33,075.00 2,756.25
29th The Tenant shall pay as additional rent hereunder:
a) 50% of any increase in the real estate taxes levied against the
building and lot known as 259 Elm Place, Mineola of which the demised premises
is a part, which increase exceeds the General Tax for the year January 1, 1996
to December 31, 1996, the School Tax for the fiscal year July 1, 1996 to June
30, 1997; and the Village Tax for the fiscal year June 1, 1996 to May 31, 1997;
and 50% of any other tax or assessment that may be levied against said building
and lot.
b) If the names, lien dates or items included in the real estate taxes now
assessed against the parcels of which the demised premises form a part, are
changed during the term of this lease, the tenant shall pay the aforesaid
proportionate shares of the amounts by which the total real estate taxes paid by
the Landlord, by whatever name such tax is called or periods covered, shall
exceed the total amount now paid by the Landlord for the three taxes and base
years set forth above.
c) Any such increase in taxes shall be paid as additional rent, in advance
of the lien dates of any such tax, upon presentation to the Tenant of a copy of
the bill showing the tax due. Upon the Tenant's failure to pay any additional
rent as billed by the Landlord, the Landlord may collect same as provided for
herein and as provided by law. If Landlord receives a refund by reason of
protesting the tax assessment, tenant shall receive its proportionate share of
additional rent refunded.
30th During the term of this lease Tenant shall at it's
<PAGE>
sole cost and expense, provide and keep in force, comprehensive public liability
insurance including property damage, insuring Landlord and Tenant against
liability for injury or damage to persons or property incurred in or about the
demised premises or arising out of the ownership, maintenance, use or occupation
thereof. Such policy shall be written by good and reputable solvent insurance
companies, shall name the Landlord as an additional insured, and shall be for
not less than $500,000.00 coverage in respect to any one person and not less
than $1,000,000.00 coverage in respect to any one accident, and shall further
provide that such policy will not be cancelled without at least fifteen (15)
days prior written notice to the Landlord.
At or prior to the commencement of this lease and at least fifteen (15)
days prior to the expiration of any such policy, Tenant shall deliver to
Landlord an appropriate Certificate of Insurance evidencing the existence and
continuation of the required coverage. Upon Tenant's failure to comply in full
with these provisions the Landlord shall have the right to secure or pay the
charges for any such policy and charge the Tenant as additional rent therefore.
Tenant shall indemnify and hold Landlord harmless from and against any and
all liabilities, obligations, damages, penalties, claims, costs and expenses for
which Landlord shall not be reimbursed by insurance, suffered or incurred as a
result of any breach by the Tenant of any covenant or condition of this lease.
31st Tenant acknowledges that Landlord has made no representations as to the
physical condition, operation or any other matter relating to the demised
premises; that Tenant has had full opportunity and has made a thorough
inspection of the premises and is familiar with same: and Tenant agrees to
accept delivery of the premises in their present "as is" condition.
32nd Tenant will pay for the electricity, water and gas for heating, used in the
demised premises; shall maintain and pay the cost of a service contract on the
heating and air conditioning systems; and shall also pay for its own rubbish
removal and janitorial
<PAGE>
services.
33rd Tenant shall have the use of two reserved parking spaces in the parking lot
of the demised premises.
Landlord shall keep the parking areas and entrances free of snow and
debris.
34th If Landlord institutes any proceeding or any action against the tenant for
breach of the terms and conditions of this lease, Landlord shall be entitled to
reimbursement for all the costs and expenses incurred including reasonable
attorney's fees.
35th Tenant at its sole expense shall supply proportionate share of matching
signage on the outside of the building.
GASPAR INDUSTRIES, INC.
by /s/ Steven Saloy, Pres.
-------------------------------
INFINITE TECHNOLOGY GROUP, LTD.
by /s/ JAMES McGOWAN
-------------------------------
<PAGE>
EXTENTION OF LEASE AGREEMENT
AGREEMENT made this 1st day of April 1999, between GASPAR INDUSTRIES,
INC., a New York corporation, with offices at 80 Jefferson Avenue, Mineola, New
York 11501, (Landlord), and INFINITE TECHNOLOGY GROUP, LTD. A New York
corporation, with offices at 77 Jericho Turnpike, Mineola, New York 11501,
(Tenant).
W I T N E S S E T H:
WHEREAS, the parties hereto entered into a Lease Agreement covering
approximately 5,220 square feet (entire lower level) of premises 259 Elm Place,
Mineola, New York 11501, for a period of three (3) years commencing February 1,
1996 and terminating on January 31, 1999, and
WHEREAS, the parties are desirous of extending the aforesaid Lease under
the terms and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and those in the stated Lease, the parties hereby agree as follows:
FIRST: The term of the extended Lease shall commence on February 1, 1999
and terminate on January 31, 2002.
<PAGE>
SECOND: The Tenant shall pay during the following period, the following
annual fixed rent, in the following monthly installments, in advance of the
first day of each and every month:
ANNUAL MONTHLY
PERIOD FIXED RENT INSTALLMENTS
------ ---------- ------------
February 1, 1999-January 31, 2000 $34,067.28 $2,838.94
February 1, 1000-January 31, 2001 $35,089.32 $2,924.11
February 1, 2001-January 31, 2002 $36,141.96 $3,011.83
THIRD: That except as modified by this extension agreement, all of the
terms and conditions of the original Lease, shall apply during the extended term
herein granted.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first written above.
GASPAR INDUSTRIES, INC.
by /s/ Steven Saloy, Pres.
-------------------------------
Steven Saloy
INFINITE TECHNOLOGY GROUP, LTD.
by /s/ JAMES McGOWAN
-------------------------------
<PAGE>
THIS AGREEMENT BETWEEN
GASPAR INDUSTRIES, INC., a New York Corporation, with offices at 80 Jefferson
Avenue, Mineola, New York 11501,
as Landlord,
and
INFINITE TECHNOLOGY GROUP, LTD., a New York Corporation, with offices at 77
Jericho Turnpike, Mineola, New York 11501,
as Tenant
Witnesseth: The Landlord hereby leases to the Tenant the following premises:
Approximately 2,400 square feet on the upper level of premises 65 Washington
Avenue, Mineola, New York, as shown on Exhibit "A" attached,
for the term of two (2) years
to commence from the 1st day of March, 1997, and to end on the
28th day of February, 1999, to be used and occupied only for
offices, storage, integration and display of computer equipment,
upon the conditions and covenants following:
1st. That the tenant shall pay the annual rent as set forth in rider paragraph
28th.
2nd. That the Tenant shall take good care of the premises and shall, at the
Tenant's own cost and expense make all repairs except structural
and at the end of other expiration of the term, shall deliver up the demised
premises in good order or condition, damages by the elements excepted.
3rd. That the Tenant shall promptly execute and comply with all statutes,
ordinances, rules, orders, regulations and requirements of the Federal, State
and Local Governments and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in, upon, or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders and
regulations of the New York Board of Fire Underwriters, or any other similar
body, at the Tenant's own cost sand expense.
4th. That the Tenant, successors, heirs, executors or administrators shall not
assign this agreement, or underlet or underlease the premises, or any part
thereof, or make any alterations on the premises, without the Landlord's consent
in writing; or occupy, or permit or suffer the same to be occupied for any
business or purpose deemed disreputable or extra-hazardous on account of fire,
under the penalty of damages and forfeiture, and in the event of a breach
thereof, the term herein shall immediately cease and determine at the option of
the Landlord as if it were the expiration of the original term.
5th. Tenant must give Landlord prompt notice of fire, accident, damage or
dangerous or defective condition. If the Premises cannot be used because of fire
or other casualty, Tenant is not required to pay rent for the time the Premises
are unusable. If part of the Premises can not be used, Tenant must pay rent for
the usable part. Landlord shall have the right to decide which part of the
Premises is usable. Landlord need only repair the damaged structural parts of
the Premises. Landlord is not required to repair or replace any equipment,
fixtures, furnishings or decorations unless originally installed by Landlord.
Landlord is not responsible for delays due to settling insurance claims,
obtaining estimates, labor and supply problems or any other cause not fully
under Landlord's control.
If the fire or other casualty is caused by an act or neglect of Tenant,
Tenant's employees or invitees, or at the time of the fire or casualty Tenant is
in default in any term of this Lease, then all repairs will be made at Tenant's
expense and Tenant must pay the full rent with no adjustment. The cost of the
repairs will be added rent.
Landlord has the right to demolish or rebuild the building if there is
substantial damage by fire or other casualty. Landlord may cancel this Lease
within 30 days after the substantial fire or casualty by giving Tenant notice of
Landlord's intention to demolish or rebuild. The lease will end 30 days after
Landlord's cancellation notice to Tenant. Tenant must deliver the Premises to
Landlord on or before the cancellation date in the notice and pay all rent due
to the date of the fire or casualty. If the Lease is cancelled Landlord is not
required to repair the Premises or Building. The cancellation does not release
Tenant of liability in connection with the fire or casualty. This Section is
intended to replace the terms of New York Real Property Law Section 227.
<PAGE>
6th. The said Tenant agrees that the said Landlord and the Landlord's agents and
other representatives shall have the right to enter into and upon said premises,
or any part thereof, at all reasonable hours for the purpose of examining the
same, or making such repairs or alterations therein as may be necessary for the
safety and preservation thereof.
7th. The Tenant also agrees to permit the Landlord or the Landlord's agents to
show the premises to persons wishing to hire or purchase the same; and the
Tenant further agrees that on and after the sixth month, next preceding the
expiration of the term hereby granted, the Landlord or the Landlord's agents
shall have the right to place notices on the front of said premises, or any part
thereof, offering the premises "To Let" or "For Sale", and the Tenant hereby
agrees to permit the same to remain thereon without hindrance or molestation.
8th. That if the said premises, or any part thereof shall be deserted or become
vacant during said term, or if any default be made in the payment of the said
rent or any part thereof, or if any default be made in the performance of any of
the covenants herein contained, the Landlord or representatives may re-enter the
said premises by force, summary proceedings or otherwise, and remove all persons
therefrom, without being liable to prosecution therefor, and the Tenant hereby
expressly waives the service of any notice in writing of intention to re-enter,
and the Tenant shall pay at the same time as the rent becomes payable under the
terms hereof a sum equivalent to the rent reserved herein, and the Landlord may
rent the premises on behalf of the Tenant, reserving the right to rent the
premises for a longer period of time than fixed in the original lease without
releasing the original Tenant from any liability, applying any moneys collected,
first to the expense of resuming or obtaining possession, second to restoring
the premises to a rentable condition, and then to the payment of the rent and
all other charges due and to grow due to the Landlord, any surplus to be paid to
the Tenant, who shall remain liable for any deficiency.
9th. Landlord may replace, at the expense of Tenant, any and all broken glass in
and about the demised premises. Landlord may insure, and keep insured, all plate
glass in the demised premises for and in the name of Landlord. Bills, for the
premiums therefor shall be rendered by Landlord to Tenant at such times as
Landlord may elect, and shall be due from, and payable by Tenant when rendered,
and the amount thereon shall be deemed to be, and be paid as, additional rental.
Damage and injury to the said premises, caused by the carelessness, negligence
or improper conduct on the part of the said Tenant or the Tenant's agents or
employees shall be repaired as speedily as possible by the Tenant at the
Tenant's own cost and expense.
12th. That the Landlord is exempt from any and all liability for any damage or
injury to person or property caused by or resulting from steam, electricity,
gas, water, rain, ice or snow, or any leak or flow from or into any part of said
building or from any damage or injury resulting or arising from any other cause
or happening whatsoever unless said damage or injury be caused by or be due to
the negligence of the Landlord.
13th. That if default be made in any of the covenants herein contained, then it
shall be lawful for the said Landlord to re-enter the said premises, and the
same to have again, re-possess and enjoy. The said Tenant hereby expressly
waives the service of any notice in writing of intention to re-enter.
14th. That this instrument shall not be a lien against said premises in respect
to any mortgages that are now on or that hereafter may be placed against said
premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this lease,
irrespective of the date of recording and the Tenant agrees to execute without
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of this lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Landlord, or the Landlord's
assigns and legal representatives to the option of canceling this lease without
incurring any expense or damage and the term granted is expressly limited
accordingly.
17th. It is expressly understood and agreed that in case the demised premises
shall be deserted or vacated, or if default be made in the payment of the rent
or any part thereof as herein specified, or if, without the consent of the
Landlord, the Tenant shall sell, assign, or mortgage this lease or if default be
made in the performance of any of the covenants and agreements in this lease
contained on the part of the Tenant to be kept and performed, or if the Tenant
shall fail to comply with any of the statutes, ordinances, rules, orders,
regulations and requirements of the Federal, State and Local Governments or of
any and all their Departments and Bureaus, applicable to said premises, or if
the Tenant shall file or there be filed against Tenant a petition in bankruptcy
or arrangement, or Tenant be adjudicated a bankrupt or make an assignment for
the benefit of creditors or take advantage of any insolvency act, the Landlord
may, if the Landlord so elects, at any time thereafter terminate this lease and
the term hereof, on giving to the Tenant five days' notice in writing of the
Landlord's intention so to do, and this lease and the term hereof shall expire
and come to an end on the date fixed in such notice as if the said date were the
date originally fixed in this lease for the expiration hereof. Such notice may
be given by mail to the Tenant addressed to the demised premises.
19th. That the Tenant will not nor will the Tenant permit undertenants or other
persons to do anything in said premises, or bring anything into said premises,
or permit anything to be brought into said premises or to be kept therein, which
will in any way increase the rate of fire insurance on said demised premises,
nor use the demised premises or any part thereof, nor suffer or permit their use
for any business or purpose which would cause an increase in the rate of fire
insurance on said building, and the Tenant agrees to pay on demand any such
increase.
20th. The failure of the Landlord to insist upon a strict performance of any of
the terms, conditions and covenants herein, shall not be deemed a waiver of any
rights or remedies that the Landlord may have, and shall not be deemed a waiver
of any subsequent breach or default in the terms, conditions and covenants
herein contained. This instrument may not be changed, modified, discharged or
terminated orally.
21st. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim against
Landlord for the value of any unexpired term of said lease. No part of any award
shall belong to the Tenant.
<PAGE>
22nd. If after default in payment of rent or violation of any other provision of
this lease, or upon the expiration of this lease, the Tenant moves out or is
dispossessed and fails to remove any trade fixtures or other property prior to
such said default, removal, expiration of lease, or prior to the issuance of the
final order or execution of the warrant, then and in that event, the said
fixtures and property shall be deemed abandoned by the said Tenant and shall
become the property of the Landlord.
23rd. In the event that the relation of the Landlord and Tenant may cease or
terminate by reason of the re-entry of the Landlord under the terms and
covenants contained in this lease or by ejectment of the Tenant by summary
proceedings or otherwise, or after the abandonment of the premises by the
Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in
monthly payments the rent which accrues subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained, the difference between the rent reserved and the
rent collected and received, if any, by the Landlord during the remainder of the
unexpired term, such difference or deficiency between the rent herein reserved
and the rent collected if any, shall become due and payable in monthly payments
during the remainder of the unexpired term, as the amounts of such difference or
deficiency shall from time to time be ascertained; and it is mutually agreed
between Landlord and Tenant that the respective parties hereto shall and hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other on any matters whatsoever arising out of
or in any way connected with this lease, the Tenant's use or occupancy of said
premises, and/or any claim of injury or damage.
24th. The Tenant waives all rights to redeem under any law of the State of New
York.
25th. This lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in nowise be affected, impaired or excused because Landlord is
unable to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repairs,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures if Landlord is prevented or delayed from so
doing by reason of governmental preemption in connection with a National
Emergency or in connection with any rule, order or regulation of any department
or subdivision thereof of any governmental agency or by reason of the condition
of supply and demand which have been or are affected by war or other emergency.
26th. No diminution or abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building or to its appliances, nor for any space
taken to comply with any law, ordinance or order of a governmental authority. In
respect to the "services," if any, herein expressly or impliedly agreed to be
furnished by the Landlord to the Tenant, it is agreed that there shall be no
diminution or abatement of the rent, or any other compensation, for interruption
or curtailment of such "service" when such interruption or curtailment shall be
due to accident, alterations or repairs desirable or necessary to be made or to
inability or difficulty in securing supplies or labor for the maintenance of
such "service" or to some other cause, not gross negligence on the part of the
Landlord. No such interruption or curtailment of any such "service" shall be
deemed a constructive eviction. The landlord shall not be required to furnish,
and the Tenant shall not be entitled to receive, any of such "services" during
any period wherein the Tenant shall be in default in respect to the payment of
rent. Neither shall there be any abatement or diminution of rent because of
making of repairs, improvements or decorations to the demised premises after the
date above fixed for the commencement of the term, it being understood that rent
shall, in any event, commence to run at such date so above fixed.
27th. Landlord shall not be liable for failure to give possession of the
premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior Tenant or any other person is wrongfully
holding over or is in wrongful possession, or for any other reason. The rent
shall not commence until posession is given or is available, but the term herein
shall not be extended.
See attached.
And the said Landlord doth covenant that the said Tenant on paying the
said yearly rent, and performing the covenants aforesaid, shall and may
peacefully and quietly have, hold and enjoy the said demised premises for the
term aforesaid, provided however, that this covenant shall be conditioned upon
the retention of title to the premises by the Landlord.
And it is mutually understood and agreed that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
In Witness Whereof, the parties have interchangeably set their hands and
seals (or caused these presents to be signed by their proper corporate officers
and caused their proper corporate seal to be hereto affixed) this day of
19
Signed, sealed and delivered
in the presence of GASPAR INDUSTRIES, INC.
BY:
----------------------------------L. S.
STEVEN SALOY
----------------------------------L. S.
INFINITE TECHNOLOGY GROUP, LTD.
BY:
----------------------------------L. S.
<PAGE>
State of New York )
) SS.:
County of )
On the day of 19 , before me personally
came to me known and known to me to be the individual
described in, and who executed, the foregoing instrument, and acknowledged to me
that he executed the same.
State of New York )
) SS.:
County of )
On the day of 19 , before me personally came
to me known, who, being duly sworn, did depose and say the
he resides at No. that he is the of the
corporation mentioned in, and which executed, the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of of said corporation; and that he signed h name thereto
by like order.
================================================================================
================================================================================
Lease
================================================================================
Dated, __________________ 19
In Consideration of the letting of the premises within mentioned to the
within named Tenant and the sum of $1.00 paid to the undersigned by the within
named Landlord, the undersigned do hereby covenant and agree, to and
with the Landlord and the Landlord's legal representatives, that if default
shall at any time be made by the said Tenant in the payment of the rent and the
performance of the covenants contained in the within lease, on the Tenant's part
to be paid and performed, that the undersigned will well and truly pay the said
rent, or any arrears thereof, that may remain due unto the said Landlord, and
also pay all damages thay may arise in consequence of the non-performance of
said covenants, or either of them, without requiring notice of any such default
from the said Landlord. The undersigned hereby waives all rights to trial by
jury in any action or proceeding hereinafter instituted by the Landlord, to
which the undersigned may be a party.
In Witness Whereof, the undersigned ha set hand and seal this
day of , 19
WITNESS
----------------------------------------L.S.
<PAGE>
Exhibit "A"
[Diagram of Upper Level of 65 Washington Ave., Mineola, NY 11501]
<PAGE>
RIDER TO LEASE DATED:
BETWEEN, GASPAR INDUSTRIES, INC., LANDLORD, -AND-
INFINITE TECHNOLOGY GROUP, LTD.
28TH. The Tenant shall pay during the following periods, the following annual
fixed rent, in the following monthly installments, in advance of the first day
of each and every month:
ANNUAL MONTHLY
PERIOD FIXED RENT INSTALLMENTS
- ------ ----------- ------------
Mar 1, 1997 thru Feb 28, 1998 $21,600.00 $ 1,800.00
Mar 1, l998 thru Feb 28, 1999 22,680.00 1,890.00
29th The Tenant shall pay as additional rent hereunder:
a) 25% of any increase in the real estate taxes levied against the
building and lot known as 65 Washington Avenue, of which the demised premises is
a part, which increase exceeds the General Tax for the year January 1, 1997 to
December 31, 1997, the School Tax for the fiscal year July 1, 1996 to June 30,
1997; and the Village Tax for the fiscal year June 1, 1996 to May 31, 1997; and
25% of any other tax or assessment that may be levied against said building and
lot.
b) If the names, lien dates or items included in the real estate taxes now
assessed against the parcels of which the demised premises form a part, are
changed during the term of this lease, the tenant shall pay the aforesaid
proportionate shares of the amounts by which the total real estate taxes paid by
the Landlord, by whatever name such tax is called or periods covered, shall
exceed the total amount now paid by the Landlord for the three taxes and base
years set forth above.
c) Any such increase in taxes shall be paid as additional rent, in advance
of the lien dates of any such tax, upon presentation to the Tenant of a copy of
the bill showing the tax due. Upon the Tenant's failure to pay any additional
rent as billed by the Landlord, the Landlord may collect same as provided for
herein and as provided by law. If Landlord receives a refund by reason of
protesting the tax assessment, tenant shall receive its proportionate share of
additional rent refunded.
30th During the term of this lease Tenant shall at it's
<PAGE>
sole cost and expense, provide and keep in force, comprehensive public liability
insurance including property damage, insuring Landlord and Tenant against
liability for injury or damage to persons or property incurred in or about the
demised premises or arising out of the ownership, maintenance, use or occupation
thereof. Such policy shall be written by good and reputable solvent insurance
companies, shall name the Landlord as an additional insured, and shall be for
not less than $500,000.00 coverage in respect to any one person and not less
than $1,000,000.00 coverage in respect to any one accident, and shall further
provide that such policy will not be cancelled without at least fifteen (15)
days prior written notice to the Landlord.
At or prior to the commencement of this lease and at least fifteen (15)
days prior to the expiration of any such policy, Tenant shall deliver to
Landlord an appropriate Certificate of Insurance evidencing the existence and
continuation of the required coverage. Upon Tenant's failure to comply in full
with these provisions the Landlord shall have the right to secure or pay the
charges for any such policy and charge the Tenant as additional rent therefore.
Tenant shall indemnify and hold Landlord harmless from and against any and
all liabilities, obligations, damages, penalties, claims, costs and expenses for
which Landlord shall not be reimbursed by insurance, suffered or incurred as a
result of any breach by the Tenant of any covenant or condition of this lease.
31st Tenant acknowledges that Landlord has made no representations as to the
physical condition, operation or any other matter relating to the demised
premises; that Tenant has had full opportunity and has made a thorough
inspection of the premises and is familiar with same; and Tenant agrees to
accept delivery of the premises in their present "as is" condition.
32nd Tenant will pay for the electricity, water and fuel oil used in the demised
premises; shall maintain and pay the cost of a service contract on the heating
and air conditioning systems; and shall also pay for its own rubbish removal and
janitorial
<PAGE>
services.
33rd Tenant shall have the use of two reserved parking spaces at the end of
Washington Avenue.
Landlord shall keep the parking areas and entrances free of snow and
debris.
34th If Landlord institutes any proceeding or any action against the tenant for
breach of the terms and conditions of this lease, Landlord shall be entitled to
reimbursement for all the costs and expenses incurred including reasonable
attorney's fees.
35th Landlord at its sole expense shall supply to Tenant its proportionate share
of matching signage on the outside of the building.
GASPAR INDUSTRIES, INC.
by ___________________________
INFINITE TECHNOLOGY GROUP, LTD.
by ___________________________
<PAGE>
THIS AGREEMENT BETWEEN
GASPAR INDUSTRIES, INC., a New York Corporation, with offices at 80 Jefferson
Avenue, Mineola, New York 11501,
as Landlord
and
INFINITE TECHNOLOGY GROUP, LTD., a New York Corporation, with offices at 77
Jericho Turnpike, Mineola, New York 11501,
as Tenant
WITNESSETH: The Landlord hereby leases to the Tenant the following premises:
Approximately 5,500 square feet (entire lower level) of premises 65 Washington
Avenue, Mineola, New York 11501, as shown on Exhibit "A" attached.
for the term of three (3) years
to commence from the 1st day of August, 1996, and to end on the
31st day of July, l999, to be used and occupied only for offices, storage,
integration and display of computer equipment,
upon the conditions and covenants following:
1st. That the Tenant shall pay the annual rent as set forth in rider paragraph
28th.
2nd. That the Tenant shall take good care of the premises and shall, at the
Tenant's own cost and expense make all repairs except structural.
and at the end or other expiration of the term, shall deliver up the demised
premises in good order or condition, damages by the elements excepted.
3rd. That the Tenant shall promptly execute and comply with all statues,
ordinances, rules, orders, regulations and requirements of the Federal, State
and Local Governments and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in, upon or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders and
regulations of the New York Board of Fire Underwriters, or any other similar
body, at the Tenant's own cost sand expense.
4th. That the Tenant, successors, heirs, executors or administrators shall not
assign this agreement, or underlet or underlease the premises, or any part
thereof, or make any alterations on the premises, without the Landlord's consent
in writing; or occupy or permit or suffer the same to be occupied for any
business or purpose deemed disreputable or extra-hazardous on account of fire,
under the penalty of damages and forfeiture, and in the event of a breach
thereof, the term herein shall immediately cease and determine at the option of
the Landlord as if it were the expiration of the original term.
5th. Tenant must give Landlord prompt notice of fire, accident, damage or
dangerous or defective condition. If the Premises can not be used because of
fire or other casualty, Tenant is not required to pay rent for the time the
Premises are unusable. If part of the Premises can not be used, Tenant must pay
rent for the usable part. Landlord shall have the right to decide which part of
the Premises is usable. Landlord need only repair the damaged structural parts
of the Premises. Landlord is not required to repair or replace any equipment,
fixtures, furnishings or decorations unless originally installed by Landlord.
Landlord is not responsible for delays due to settling insurance claims,
obtaining estimates, labor and supply problems or any other cause not fully
under Landlord's control.
If the fire or other casualty is caused by an act or neglect of Tenant,
Tenant's employees or invitees, or at the time of the fire or casualty Tenant is
in default in any term of this Lease, then all repairs will be made at Tenant's
expense and Tenant must pay the full rent with no adjustment. The cost of the
repairs will be added rent.
Landlord has the right to demolish or rebuild the building if there is
substantial damage by fire or other casualty. Landlord may cancel this Lease
within 30 days after the substantial fire or casualty by giving Tenant notice of
Landlord's intention to demolish or rebuild. The Lease will end 30 days after
Landlord's cancellation notice to Tenant. Tenant must deliver the Premises to
Landlord on or before the cancellation date in the notice and pay all rent due
to the date of the fire or casualty. If the Lease is cancelled Landlord is not
required to repair the Premises or Building. The cancellation does not release
Tenant of liability in connection with the fire or casualty. This Section is
intended to replace the terms of New York Real Property Law Section 227.
<PAGE>
to enter into and upon said premises, or any part thereof, at all reasonable
hours for the purpose of examining the same, or making such repairs or
alterations therein as may be necessary for the safety and preservation thereof.
7th. The Tenant also agrees to permit the Landlord or the Landlord's agents to
show the premises to persons wishing to hire or purchase the same; and the
Tenant further agrees that on and after the sixth month, next preceding the
expiration of the term hereby granted, the Landlord or the Landlord's agents
shall have the right to place notices on the front of said premises, or any part
thereof, offering the premises "To Let" or "For Sale", and the Tenant hereby
agrees to permit the same to remain thereon without hindrance or molestation.
8th. That if the said premises, or any part thereof shall be deserted or become
vacant during said term, or if any default be made in the payment of the said
rent or any part thereof, or if any default be made in the performance of any of
the covenants herein contained, the Landlord or representatives may re-enter the
said premises by force, summary proceedings or otherwise, and remove all persons
therefrom, without being liable to prosecution therefor, and the Tenant hereby
expressly waives the service of any notice in writing of intention to re-enter,
and the Tenant shall pay at the same time as the rent becomes payable under the
terms hereof a sum equivalent to the rent reserved herein, and the Landlord may
rent the premises on behalf of the Tenant, reserving the right to rent the
premises for a longer period of time than fixed in the original lease without
releasing the original Tenant from any liability, applying any moneys collected,
first to the expense of resuming or obtaining possession, second to restoring
the premises to a rentable condition, and then to the payment of the rent and
all other charges due and to grow due to the Landlord, any surplus to be paid to
the Tenant, who shall remain liable for any deficiency.
9th. Landlord may replace, at the expense of Tenant, any and all broken glass in
and about the demised premises. Landlord may insure, and keep insured, all place
glass in the demised premises for and in the name of Landlord. Bills, for the
premiums therefor shall be rendered by Landlord to Tenant at such times as
Landlord may elect, and shall be due from, and payable by Tenant when rendered,
and the amount thereon shall be deemed to be, and be paid as, additional rental.
Damage and injury to the said premises, caused by the carelessness, negligence
or improper conduct on the part of the said Tenant or the Tenant's agents or
employees shall be repaired as speedily as possible by the Tenant at the
Tenant's own cost and expense.
13th. That if default be made in any of the covenants herein contained, then it
shall be lawful for the said Landlord to re-enter the said premises, and the
same to have again, re-possess and enjoy. The said Tenant hereby expressly
waives the service of any notice in writing of intention to re-enter.
14th. That this instrument shall not be a lien against said premises in respect
to any mortgages that are now on or that hereinafter may be placed against said
premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this lease,
irrespective of the date of recording and the Tenant agrees to execute without
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of this lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Landlord, or the Landlord's
assigns and legal representatives to the option of cancelling this lease without
incurring any expense or damage and the term hereby granted is expressly limited
accordingly.
17th. It is expressly understood and agreed that in case the demised premises
shall be deserted or vacated, or if default be made in the payment of the rent
or any part thereof as herein specified, or if, without the consent of the
Landlord, the Tenant shall sell, assign, or mortgage this lease or if default be
made in the performance of any of the covenants and agreements in this lease
contained on the part of the Tenant to be kept and performed, or if the Tenant
shall fail to comply with any of the statutes, ordinances, rules, orders,
regulations and requirements of the Federal, State and Local Governments or of
any and all their Departments and Bureaus, applicable to said premises, or if
the Tenant shall file or there be filed against Tenant a petition in bankruptcy
or arrangement, or Tenant be adjudicated a bankrupt or make an assignment for
the benefit of creditors or take advantage of any insolvency act, the Landlord
may, if the Landlord so elects, at any time thereafter terminate this lease and
the term hereof, on giving to the Tenant five days' notice in writing of the
Landlord's intention so to do, and this lease and the term hereof shall expire
and come to an end on the date fixed in such notice as if the said ate were the
date originally fixed in this lease for the expiration hereof. Such notice may
be given by mail to the Tenant addressed to the demised premises.
19th. That the Tenant will not nor will the Tenant permit undertenants or other
persons to do anything in said premises, or bring anything into said premises,
or permit anything to be brought into said premises or to be kept therein, which
will in any way increase the rate of fire insurance on said demised premises,
nor use the demised premises or any part thereof, nor suffer or permit their use
for any business or purpose which would cause an increase in the rate of fire
insurance on said building, and the Tenant agrees to pay on demand any such
increase.
20th. The failure of the Landlord to insist upon a strict performance of any of
the terms, conditions and covenants herein, shall not be deemed a waiver of any
rights or remedies that the Landlord my have, and shall not be deemed a waiver
of any subsequent breach or default in the terms, conditions and covenants
herein contained. This instrument may not be changed, modified, discharged or
terminated orally.
21st. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim against
Landlord for the value of any unexpired term of said lease. No part of any award
shall belong to the Tenant.
<PAGE>
22nd. If after default in payment of rent or violation of any other provision of
this lease, or upon the expiration of this lease, the Tenant moves out or is
dispossessed and fails to remove any trade fixtures or other property prior to
such said default, removal, expiration of lease, or prior to the issuance of the
final order or execution of the warrant, then and in that event, the said
fixtures and property shall be deemed abandoned by the said Tenant and shall
become the property of the Landlord.
23rd. In the event that the relation of the Landlord and Tenant may cease or
terminate by reason of the re-entry of the Landlord under the terms and
covenants contained in this lease or by the ejectment of the Tenant by summary
proceedings or otherwise, or after the abandonment of the premises by the
Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in
monthly payments the rent which accrues subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained, the difference between the rent reserved and the
rent collected and received, if any, by the Landlord during the remainder of the
unexpired term, such difference or deficiency between the rent herein reserved
and the rent collected if any, shall become due and payable in monthly payments
during the remainder of the unexpired term, as the amounts of such difference or
deficiency shall from time to time be ascertained; and it is mutually agreed
between Landlord and Tenant that the respective parties hereto shall and hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other on any matters whatsoever arising out of
or in any way connected with this lease, the Tenant's use or occupancy of said
premises, and/or any claim of injury or damage.
24th. The Tenant waives all rights to redeem under any law of the State of New
York.
25th. This lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in nowise be affected, impaired or excused because Landlord is
unable to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repairs,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures if Landlord is prevented or delayed from so
doing by reason of governmental preemption in connection with a National
Emergency or in connection with any rule, order or regulation of any department
or subdivision thereof of any governmental agency or by reason of the condition
of supply and demand which have been or are affected by war or other emergency.
26th. No diminution or abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building or to its appliances, nor for any space
taken to comply with any law, ordinance or order of a governmental authority. In
respect to the various "services," if any, herein expressly or impliedly agreed
to be furnished by the Landlord to the Tenant, it is agreed that there shall be
no diminution or abatement of the rent, or any other compensation, for
interruption or curtailment of such "service" when such interruption or
curtailment shall be due to accident, alterations or repairs desirable or
necessary to be made or to inability or difficulty in securing supplies or labor
for the maintenance of such "service" or to some other cause, not gross
negligence on the part of the Landlord. No such interruption or curtailment of
any such "service" shall be deemed a constructive eviction. The Landlord shall
not be required to furnish, and the Tenant shall not be entitled to receive, any
of such "services" during any period wherein the Tenant shall be in default in
respect to the payment of rent. Neither shall there be any abatement or
diminution of rent because of making of repairs, improvements or decorations to
the demised premises after the date above fixed for the commencement of the
term, it being understood that rent shall, in any event, commence to run at such
date so above fixed.
27th. Landlord shall not be liable for failure to give possession of the
premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior Tenant or any other person is wrongfully
holding over or is in wrongful possession, or for any other reason. The rent
shall not commence until possession is given or is available, but the term
herein shall not be extended.
See attached.
And the said Landlord doth covenant that the said Tenant on paying the
said yearly rent, and performing the covenants aforesaid, shall and may
peacefully and quietly have, hold and enjoy the said demised premises for the
term aforesaid, provided however, that this covenant shall be conditioned upon
the retention of title to the premises by the Landlord.
AND IT IS MUTUALLY UNDERSTOOD AND AGREED that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
IN WITNESS WHEREOF, the parties have interchangeably set their hands and
seals (or caused these presents to be signed by their proper corporate officers
and caused their proper corporate seal to be hereto affixed) this day of 19
Signed, sealed and delivered
In the presence of GASPAR INDUSTRIES, INC.
BY:................................L. S.
STEVEN SALOY
BY:................................L. S.
INFINITE TECHNOLOGY GROUP, LTD.
BY:................................L. S.
<PAGE>
Exhibit "A"
[Diagram of 65 Washington Ave Lower Level]
<PAGE>
RIDER TO LEASE DATED:
BETWEEN, GASPAR INDUSTRIES, INC., LANDLORD, -AND-
INFINITE TECHNOLOGY GROUP, LTD.
28th The Tenant shall pay during the following periods, the following annual
fixed rent, in the following monthly installments, in advance of the first day
of each and every month:
ANNUAL MONTHLY
PERIOD FIXED RENT INSTALLMENTS
- ------ ---------- ------------
Aug 1, 1996 thru July 31, 1997 $31,200.00 $2,600.00
Aug 1, 1997 thru July 31, 1998 32,760.00 2,730.00
Aug 1, l998 thru July 31, 1999 34,398.00 2,866.50
29th The Tenant shall pay as additional rent hereunder:
a) 50% of any increase in the real estate taxes levied against the
building and lot known as 65 Washington Avenue, of which the demised premises is
a part, which increase exceeds the General Tax for the year January 1, 1996 to
December 31, 1996, the School Tax for the fiscal year July 1, 1996 to June 30,
1997; and the Village Tax for the fiscal year June 1, 1996 to May 31, 1997; and
50% of any other tax or assessment that may be levied against said building and
lot.
b) If the names, lien dates or items included in the real estate
taxes now assessed against the parcels of which the demised premises form a
part, are changed during the term of this lease, the tenant shall pay the
aforesaid proportionate shares of the amounts by which the total real estate
taxes paid by the Landlord, by whatever name such tax is called or periods
covered, shall exceed the total amount now paid by the Landlord for the three
taxes and base years set forth above.
c) Any such increase in taxes shall be paid as additional rent, in
advance of the lien dates of any such tax, upon presentation to the Tenant of a
copy of the bill showing the tax due. Upon the Tenant's failure to pay any
additional rent as billed by the Landlord, the Landlord may collect same as
provided for herein and as provided by law. If Landlord receives a refund by
reason of protesting the tax assessment, tenant shall receive it's proportionate
share of additional rent refunded.
30th During the term of this lease Tenant shall at it's
<PAGE>
sole cost and expense, provide and keep in force, comprehensive public liability
insurance including property damage, insuring Landlord and Tenant against
liability for injury or damage to persons or property incurred in or about the
demised premises or arising out of the ownership, maintenance, use or occupation
thereof. Such policy shall be written by good and reputable solvent insurance
companies, shall name the Landlord as an additional insured, and shall be for
not less than $500,000.00 coverage in respect to any one person and not less
than $1,000,000.00 coverage in respect to any one accident, and shall further
provide that such policy will not be cancelled without at least fifteen (15)
days prior written notice to the Landlord.
At or prior to the commencement of this lease and at least fifteen
(15) days prior to the expiration of any such policy, Tenant shall deliver to
Landlord an appropriate Certificate of Insurance evidencing the existence and
continuation of the required coverage. Upon Tenant's failure to comply in full
with these provisions the Landlord shall have the right to secure or pay the
charges for any such policy and charge the Tenant as additional rent therefore.
Tenant shall indemnify and hold Landlord harmless from and against
any and all liabilities, obligations, damages, penalties, claims, costs and
expenses for which Landlord shall not be reimbursed by insurance, suffered or
incurred as a result of any breach by the Tenant of any covenant or condition of
this lease.
31st Tenant acknowledges that Landlord has made no representations as to the
physical condition, operation or any other matter relating to the demised
premises; that Tenant has had full opportunity and has made a thorough
inspection of the premises and is familiar with same; and Tenant agrees to
accept delivery of the premises in their present "as is" condition.
32nd Tenant will pay for the electricity, water and fuel oil used in the demised
premises; shall maintain and pay the cost of a service contract on the heating
and air conditioning systems; and shall also pay for its own rubbish removal and
janitorial
<PAGE>
services.
33rd Tenant shall have the use of two reserved parking spaces at the end of
Washington Avenue.
Landlord shall keep the parking areas and entrances free of snow and
debris.
34th If Landlord institutes any proceeding or any action against the tenant for
breach of the terms and conditions of this lease, Landlord shall be entitled to
reimbursement for all the costs and expenses incurred including reasonable
attorney's fees.
35th Landlord at its sole expense shall supply to Tenant its proportionate share
of matching signage on the outside of the building.
GASPAR INDUSTRIES, INC.
By______________________________________
INFINITE TECHNOLOGY GROUP, LTD.
By______________________________________
<PAGE>
EXTENSION OF LEASE AGREEMENT
AGREEMENT made this 28th day of July 1999, between GASPAR INDUSTRIES, INC.
a New York corporation, with offices at 80 Jefferson Avenue, Mineola, New York
11501, (Landlord), and INFINITE TECHNOLOGY GROUP, LTD., a New York corporation,
with offices at 77 Jericho Turnpike, Mineola, New York 11501, (Tenant).
WITNESSETH:
WHEREAS, the parties hereto entered into a Lease Agreement covering
approximately 5,500 square feet (entire lower level) of premises 65 Washington
Avenue, Mineola, New York 11501, for a period of three (3) years commencing
August 1, 1996 and terminating on July 31, 1999 and
WHEREAS, the parties are desirous of extending the aforesaid Lease under
the terms and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the mutual convenants herein
contained, and those in the stated Lease, the parties hereby agree as follows:
FIRST: The term of the extended Lease shall commence on August 1, 1999 and
terminate on July 31, 2002.
<PAGE>
SECOND: The tenant shall pay during the following period, the following annual
fixed rent, in the following montly installments, in advance of the first day
of each and every month:
ANNUAL
PERIOD FIXED RENT INSTALLMENTS
------ ---------- ------------
August 1, 1999--July 31, 2000 $35,430.00 $2,952.50
August 1, 2000--July 31, 2001 $36,492.96 $3,041.08
August 1, 2001--July 31, 2002 $37,587.72 $3,132,31
THIRD: That except as modified by this extension agreement, all of the terms and
conditions of the original Lease, shall apply during the extended term herein
granted.
IN WITNESS WHEREOF. The parties hereto have executed this Agreement the day
and year first written above
GASPAR INDUSTRIES, INC.
By:_____________________________________
Stephen Saloy
INFINITE TECHNOLOGY GROUP, LTD.
By:_____________________________________
James McGowan
<PAGE>
EXTENTION OF LEASE AGREEMENT
AGREEMENT made this 1st day of April 1999, between GASPAR INDUSTRIES,
INC., a New York Corporation, with offices at 80 Jefferson Avenue, Mineola, New
York 11501, (Landlord), and INFINITE TECHNOLOGY GROUP, LTD. A New York
corporation, with offices at 77 Jericho Turnpike, Mineola, New York 11501,
(Tenant).
W I T N E S S E T H:
WHEREAS, the parties hereto entered into a Lease Agreement covering
approximately 2,400 square feet on the upper level of premises 65 Washington
Avenue, Mineola, New York 11501, for a period of two (2) years commencing March
1, 1997 and terminating on February 28, 1999, and
WHEREAS, the parties are desirous of extending the aforesaid Lease under
the terms and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and those in the stated Lease, the parties hereby agree as follows:
FIRST: The term of the extended Lease shall commence on March 1, 1999 and
terminate on February 28, 2002.
<PAGE>
SECOND: The Tenant shall pay during the following period, the following
annual fixed rent, in the following monthly installments, in advance of the
first day of each and every month:
ANNUAL MONTHLY
PERIOD FIXED RENT INSTALLMENTS
------ ---------- ------------
March 1, 1999-February 29, 2000 $23,360.40 $1,946.70
March 1, 2000-February 28, 2001 $24,061.20 $2,005.10
March 1, 2002-February 28, 2002 $24,783.00 $2,065/25
THIRD: That except as modified by this extension agreement, all of the
terms and conditions of the original Lease, shall apply during the extended term
herein granted.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first written above.
GASPAR INDUSTRIES, INC.
by /s/ Steven Saloy, Pres.
-------------------------------
Steven Saloy
INFINITE TECHNOLOGY GROUP, LTD.
by /s/ JAMES McGOWAN
-------------------------------
<PAGE>
This Agreement BETWEEN
GASPAR INDUSTRIES, INC., a New York Corporation, with offices at 80 Jefferson
Avenue, Mineola, New York 11501,
as Landlord
and
INFINITE TECHNOLOGY GROUP, LTD., a New York Corporation, with offices at 77
Jericho Turnpike, Mineola, New York 11501,
as Tenant
Witnesseth; The Landlord hereby leases to the Tenant the following premises:
Approximately 5,000 square feet on the lower level of premises 249 Elm Place,
Mineola, New York 11501, as shown on Exhibit "A" attached, plus covered parking
on the lower level,
for the term of three (3) years
to commence from the 1st day of July 1997 and to end on the 30th day of June
2000 to be used and occupied only for
storage and integration of computer equipment,
upon the conditions and covenants following:
1st. That the Tenant shall pay the annual rent as set forth in Rider Paragraph
28th.
2nd. That the Tenant shall take good care of the premises and shall, at the
Tenant's own cost and expense make all repairs
except structural
and at the end or other expiration of the term, shall deliver up the demised
premises in good order or condition, damages by the elements excepted.
3rd. That the Tenant shall promptly execute and comply with all statues,
ordinances, rules, orders, regulations and requirements of the Federal, State
and Local Governments and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in, upon or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders and
regulations of the New York Board of Fire Underwriters, or any other similar
body, at the Tenant's own cost and expense.
4th. That the Tenant, successors, heirs, executors or administrators shall not
assign this agreement, or underlet or underlease the premises, or any part
thereof, or make any alterations on the premises, without the Landlord's consent
in writing; or occupy, or permit or suffer the same to be occupied for any
business or purpose deemed disreputable or extra-hazardous on account of fire,
under the penalty of damages and forfeiture, and in the event of a breach
thereof, the term herein shall immediately cease and determine at the option of
the Landlord as if it were the expiration of the original term.
5th. Tenant must give Landlord prompt notice of fire, accident, damage or
dangerous or defective condition. If the Premises cannot be used because of fire
or other casualty, Tenant is not required to pay rent for the time the Premises
are unusable. If part of the Premises can not be used, Tenant must pay rent for
the usable part. Landlord shall have the right to decide which part of the
Premises is usable. Landlord need only repair the damaged structural parts of
the Premises. Landlord is not required to repair or replace any equipment,
fixtures, furnishings or decorations unless originally installed by Landlord.
Landlord is not responsible for delays due to settling insurance claims,
obtaining estimates, labor and supply problems or any other cause not fully
under Landlord's control.
If the fire or other casualty is caused by an act or neglect of Tenant,
Tenant's employees or invitees, or at the time of the fire or casualty Tenant is
in default in any term of this Lease, then all repairs will be made at Tenant's
expense and Tenant must pay the full rent with no adjustment. The cost of the
repairs will be added rent.
Landlord has the right to demolish or rebuild the Building if there is
substantial damage by fire or other casualty. Landlord may cancel this Lease
within 30 days after the substantial fire or casualty by giving Tenant notice of
Landlord's intention to demolish or rebuild. The Lease will end 30 days after
Landlord's cancellation notice to Tenant. Tenant must deliver the Premises to
Landlord on or before the cancellation date in the notice and pay all rent due
to the date of the fire or casualty. This Section is intended to replace the
terms of New York Real Property Law Section 227.
<PAGE>
6th. The said Tenant agrees that the said Landlord and the Landlord's agents and
other representatives shall have the right to enter into and upon said premises,
or any part thereof, at all reasonable hours for the purpose of examining the
same, or making such repairs or alterations therein as may be necessary for the
safety and preservation thereof.
7th. The Tenant also agrees to permit the Landlord or the Landlord's agents to
show the premises to persons wishing to hire or purchase the same; and the
Tenant further agrees that on and after the sixth month, next preceding the
expiration of the term hereby granted, the Landlord or the Landlord's agents
shall have the right to place notices on the front of said premises, or any part
thereof, offering the premises "To Let" or "For Sale", and the Tenant hereby
agrees to permit the same to remain thereon without hindrance or molestation.
8th. That if the said premises, or any part thereof shall be deserted or become
vacant during said term, or if any default be made in the payment of the said
rent or any part thereof, or if any default be made in the performance of any of
the covenants herein contained, the Landlord or representatives may re-enter the
said premises by force, summary proceedings or otherwise, and remove all persons
therefrom, without being liable to prosecution therefor, and the Tenant hereby
expressly waives the service of any notice in writing of intention to re-enter,
and the Tenant shall pay at the same time as the rent becomes payable under the
terms hereof a sum equivalent to the rent reserved herein, and the Landlord may
rent the premises on behalf of the Tenant, reserving the right to rent the
premises for a longer period of time than fixed in the original lease without
releasing the original Tenant from any liability, applying any moneys collected,
first to the expense of resuming or obtaining possession, second to restoring
the premises to a rentable condition, and then to the payment of the rent and
all other charges due and to grow due to the Landlord, any surplus to be paid to
the Tenant, who shall remain liable for any deficiency.
9th. Landlord may replace, at the expense of Tenant, any and all broken glass in
and about the demised premises. Landlord may insure, and keep insured, all plate
glass in the demised premises for and in the name of Landlord. Bills, for the
premiums therefor shall be rendered by Landlord to Tenant at such times as
Landlord may elect, and shall be due from, and payable by Tenant when rendered,
and the amount thereon shall be deemed to be, and be paid as, additional rental.
Damage and injury to the said premises, caused by the carelessness, negligence
or improper conduct on the part of the said Tenant or the Tenant's agents or
employees shall be repaired as speedily as possible by the Tenant at the
Tenant's own cost and expense.
12th. That the Landlord is exempt from any and all liability for any damage or
injury to person or property caused by or resulting from steam, electricity,
gas, water, rain, ice or snow, or any leak or flow from or into any part of said
building or from any damage or injury resulting or arising from any other cause
or happening whatsoever unless said damage or injury be caused by or be due to
the negligence of the Landlord.
13th. That if default be made in any of the covenants herein contained, then it
shall be lawful for the said Landlord to re-enter the said premises, and the
same to have again, re-possess and enjoy. The said Tenant hereby expressly
waives the service of any notice in writing of intention to re-enter.
14th. That this instrument shall not be a lien against said premises in respect
to any mortgages that are now on or that hereinafter may be placed against said
premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this lease,
irrespective of the date of recording and the Tenant agrees to execute without
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of this lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Landlord, or the Landlord's
assigns and legal representatives to the option of cancelling this lease without
incurring any expense or damage and the term granted is expressly limited
accordingly.
16th. That the security deposited under this lease shall not be mortgaged,
assigned or encumbered by the Tenant without the written consent of the
Landlord.
17th. It is expressly understood and agreed that in case the demised premises
shall be deserted or vacated, or if default be made in the payment of the rent
or any part thereof as herein specified, or if, without the consent of the
Landlord, the Tenant shall sell, assign, or mortgage this lease or if default be
made in the performance of any of the covenants and agreements in this lease
contained on the part of the Tenant to be kept and performed, or if the Tenant
shall fail to comply with any of the statutes, ordinances, rules, orders,
regulations and requirements of the Federal, State and Local Governments or of
any and all their Departments and Bureaus, applicable to said premises, or if
the Tenant shall file or there be filed against Tenant a petition in bankruptcy
or arrangement, or Tenant be adjudicated a bankrupt or make an assignment for
the benefit of creditors or take advantage of any insolvency act, the Landlord
may, if the Landlord so elects, at any time thereafter terminate this lease and
the term hereof, on giving the Tenant five days' notice in writing of the
Landlord's intention so to do, and this lease and the term hereof shall expire
and come to an end on the date fixed in such notice as if the said date were the
date originally fixed in this lease for the expiration hereof. Such notice may
be given by mail to the Tenant addressed to the demised premises.
19th. That the Tenant will not nor will the Tenant permit undertenants or other
persons to do anything in said premises, or bring anything into said premises,
or permit anything to be brought into said premises or to be kept therein, which
will in any way increase the rate of fire insurance on said demised premises,
nor use the demised premises or any part thereof, nor suffer or permit their use
for any business or purpose which would cause an increase in the rate of fire
insurance on said building, and the Tenant agrees to pay on demand any such
increase.
20th. The failure of the Landlord to insist upon a strict performance of any of
the terms, conditions and covenants herein, shall not be deemed a waiver of any
rights or remedies that the Landlord my have, and shall not be deemed a waiver
of any subsequent breach or default in the terms, conditions and covenants
herein contained. This instrument may not be changed, modified, discharged or
terminated orally.
21st. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim against
Landlord for the value of any unexpired term of said lease. No part of any award
shall belong to the Tenant.
<PAGE>
22nd. If after default in payment of rent or violation of any other provision of
this lease, or upon the expiration of this lease, the Tenant moves out or is
dispossessed and fails to remove any trade fixtures or other property prior to
such said default, removal, expiration of lease, or prior to the issuance of the
final order or execution of the warrant, then and in that event, the said
fixtures and property shall be deemed abandoned by the said Tenant and shall
become the property of the Landlord.
23rd. In the event that the relation of the Landlord and Tenant may cease or
terminate by reason of the re-entry of the Landlord under the terms and
covenants contained in this lease or by ejectment of the Tenant by summary
proceedings or otherwise, or after the abandonment of the premises by the
Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in
monthly payments the rent which accrues subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained, the difference between the rent reserved and the
rent collected and received, if any, by the Landlord during the remainder of the
unexpired term, such difference or deficiency between the rent herein reserved
and the rent collected if any, shall become due and payable in monthly payments
during the remainder of the unexpired term, as the amounts of such difference or
deficiency shall from time to time be ascertained; and it is mutually agreed
between Landlord and Tenant that the respective parties hereto shall and hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other on any matters whatsoever arising out of
or in any way connected with this lease, the Tenant's use or occupancy of said
premises, and/or any claim of injury or damage.
24th. The Tenant waives all rights to redeem under any law of the State of New
York.
25th. This lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in nowise be affected, impaired or excused because Landlord is
unable to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repairs,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures if Landlord is prevented or delayed from so
doing by reason of governmental preemption in connection with a National
Emergency or in connection with any rule, order or regulation of any department
or subdivision thereof of any governmental agency or by reason of the condition
of supply and demand which have been or are affected by war or other emergency.
26th. No diminution or abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building or to its appliances, nor for any space
taken to comply with any law, ordinance or order of a governmental authority. In
respect to the various "services," if any, herein expressly or impliedly agreed
to be furnished by the Landlord to the Tenant, it is agreed that there shall be
no diminution or abatement of the rent, or any other compensation, for
interruption or curtailment of such "service" when such interruption or
curtailment shall be due to accident, alterations or repairs desirable or
necessary to be made or to inability or difficulty in securing supplies or labor
for the maintenance of such "service" or to some other cause, not gross
negligence on the part of the Landlord. No such interruption or curtailment of
any such "service" shall be deemed a constructive eviction. The Landlord shall
not be required to furnish, and the Tenant shall not be entitled to receive, any
of such "services" during any period wherein the Tenant shall be in default in
respect to the payment of rent. Neither shall there be any abatement or
diminution of rent because of making of repairs, improvements or decorations to
the demised premises after the date above fixed for the commencement of the
term, it being understood that rent shall, in any event, commence to run at such
date so above fixed.
27th. Landlord shall not be liable for failure to give possession of the
premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior Tenant or any other person is wrongfully
holding over or is in wrongful possession, or for any other reason. The rent
shall not commence until possession is given or is available, but the term
herein shall not be extended.
And the said Landlord doth covenant that the said Tenant on paying the
said yearly rent, and performing the covenants aforesaid, shall and may
peacefully and quietly have, hold and enjoy the said demised premises for the
term aforesaid, provided however, that this covenant shall be conditioned upon
the retention of title to the premises by the Landlord.
And it is mutually understood and agreed that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
IN WITNESS WHEREOF, the parties have interchangeably set their hands and
seals (or caused these presents to be signed by their proper corporate
officers and caused their proper corporate seal to be hereto affixed) this
day of 19
Signed, sealed and delivered
In the presence of
GASPAR INDUSTRIES, INC.
BY: /s/ Steven Saloy
...............................L. S.
STEVEN SALOY
INFINITE TECHNOLOGY GROUP, LTD.
BY: /s/ JAMES McGOWAN
.............................. L. S.
<PAGE>
RIDER TO LEASE DATED:
BETWEEN, GASPAR INDUSTRIES, INC., LANDLORD, -AND-
QUEENS REPRODUCTIONS, INC.
28th. The Tenant shall pay during the following periods, the following annual
fixed rent, in the following monthly installments, in advance of the first day
of each and every month:
ANNUAL MONTHLY
PERIOD FIXED RENT INSTALLMENTS
- ------ ---------- ------------
July 1, 1997 thru Jun 30, 1998 $36,000.00 $ 3,000.00
July 1, 1998 thru Jun 30, 1999 37,800.00 3,150.00
July 1, 1999 thru Jun 30, 2000 39,690.00 3,307.50
29th The Tenant shall pay as additional rent hereunder:
a) 42% of any increase in the real estate taxes levied against the
building and lot known as 77 Jericho Turnpike of which the demised premises is
a part, which increase exceeds the General Tax for the year January 1, 1997 to
December 31, 1997, the School Tax for the fiscal year July 1, 1996 to June 30,
1997; and the Village Tax for the fiscal year June 1, 1996 to May 31, 1997; and
42% of any other tax or assessment that may be levied against said building and
lot.
b) If the names, lien dates or items included in the real estate
taxes now assessed against the parcels of which the demised premises form a
part, are changed during the term of this lease, the tenant shall pay the
aforesaid proportionate shares of the amounts by which the total real estate
taxes paid by the Landlord, by whatever name such tax is called or periods
covered, shall exceed the total amount now paid by the Landlord for the three
taxes and base years set forth above.
c) Any such increase in taxes shall be paid as additional rent, in
advance of the lien dates of any such tax, or at landlord's option, monthly
simultaneously with the payment of the fixed rent, of the fixed rent, upon
presentation to the Tenant of a copy of the bill showing the tax due. Upon the
Tenant's failure to pay any additional rent as billed by the Landlord, the
Landlord may collect same as provided for herein and as provided by law. If
Landlord receives a refund by reason of protesting the tax assessment, tenant
shall receive its proportionate share of
<PAGE>
additional rent refunded.
30th During the term of this lease Tenant shall at it's sole cost and expense,
provide and keep in force, comprehensive public liability insurance including
property damage, insuring Landlord and Tenant against liability for injury or
damage to persons or property incurred in or about the demised premises or
arising out of the ownership, maintenance, use or occupation thereof. Such
policy shall be written by good and reputable solvent insurance companies, shall
name the Landlord as an additional insured, and shall be for not less than
$500,000.00 coverage in respect to any one person and not less than
$1,000,000.00 coverage in respect to any one accident, and shall further provide
that such policy will not be cancelled without at least fifteen (15) days prior
written notice to the Landlord.
At or prior to the commencement of this lease and at least fifteen
(15) days prior to the expiration of any such policy, Tenant shall deliver to
Landlord an appropriate Certificate of Insurance evidencing the existence and
continuation of the required coverage. Upon Tenant's failure to comply in full
with these provisions the Landlord shall have the right to secure or pay the
charges for any such policy and charge the Tenant as additional rent therefore.
Tenant shall indemnify and hold Landlord harmless from and against
any and all liabilities, obligations, damages, penalties, claims, costs and
expenses for which Landlord shall not be reimbursed by insurance, suffered or
incurred as a result of any breach by the Tenant of any covenant or condition of
this lease.
31st Tenant acknowledges that Landlord has made no representations as to the
physical condition, operation or any other matter relating to the demised
premises; that Tenant has had full opportunity and has made a thorough
inspection of the premises and is familiar with same; and Tenant agrees to
accept delivery of the premises in their present "as is" condition.
32nd Tenant will pay to the Landlord for electricity and fuel oil used in the
demised premises, as per separate LILCO
<PAGE>
meter and separate fuel oil tank; shall maintain and pay the cost of a service
contract on the heating and air conditioning systems; and shall also pay for its
own rubbish removal and janitorial services.
33rd Tenant shall have the use of all parking spaces on the lower level.
Landlord shall keep the parking areas and entrances free of snow and
debris.
34th If Landlord institutes any proceeding or any action against the tenant for
breach of the terms and conditions of this lease, Landlord shall be entitled to
reimbursement for all the costs and expenses incurred including reasonable
attorney's fees.
35th Landlord at its sole expense shall supply to Tenant its proportionate share
of matching signage on the outside of the building.
GASPAR INDUSTRIES, INC.
By /s/ Steven Saloy
-------------------------------------
INFINITE TECHNOLOGY GROUP, LTD.
By /s/ JAMES McGOWAN
-------------------------------------
<PAGE>
Exhibit "A"
[Diagram of 249 Elm Place, Mineola, NY Lower Level]
<PAGE>
This Agreement BETWEEN
GASPAR INDUSTRIES, INC., a New York Corporation,
with offices at 80 Jefferson Avenue, Mineola, New York 11501,
as Landlord,
and
INFINITE TECHNOLOGY GROUP, LTD., a New York Corporation, with offices at 77
Jericho Turnpike, Mineola, New York 11501,
as Tenant
Witnesseth: The Landlord hereby leases to the Tenant the following premises:
Approximately 5,400 sq. ft. on the lower level of premises 77 Jericho Turnpike,
Mineola, New York, as shown on Exhibit "A" & "B" attached,
for the term of Three (3) years
to commence from the 1st day of January 1998 and to end on the
31st day of December 2000 to be used and occupied only for
offices and storage and display of computer equipment,
upon the conditions and covenants following:
1st. That the Tenant shall pay the annual rent as set forth in Rider Paragraph
28th.
2nd. That the Tenant shall take good care of the premises and shall, at the
Tenant's own cost and expense make all repairs except structural
and at the end or other expiration of the term, shall deliver up the demised
premises in good order or condition, damages by the elements excepted.
3rd. That the Tenant shall promptly execute and comply with all statutes,
ordinances, rules, orders, regulations and requirements of the Federal, State
and Local Governments and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in, upon, or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders and
regulations of the New York Board of Fire Underwriters, or any other similar
body, at the Tenant's own cost and expense.
4th. That the Tenant, successors, heirs, executors or administrators shall not
assign this agreement, or underlet or underlease the premises, or any part
thereof, or make any alterations on the premises, without the Landlord's consent
in writing; or occupy, or permit or suffer the same to be occupied for any
business or purpose deemed disreputable or extra-hazardous on account of fire,
under the penalty of damages and forfeiture, and in the event of a breach
thereof, the term herein shall immediately cease and determine at the option of
the Landlord as if it were the expiration of the original term.
5th. Tenant must give Landlord prompt notice of fire, accident, damage or
dangerous or defective condition. If the Premises can not be used because of
fire or other casualty, Tenant is not required to pay rent for the time the
Premises are unusable. If part of the Premises can not be used, Tenant must pay
rent for the usable part. Landlord shall have the right to decide which part of
the Premises is usable. Landlord need only repair the damages structural parts
of the Premises. Landlord is not required to repair or replace any equipment,
fixtures, furnishings or decorations unless originally installed by Landlord.
Landlord is not responsible for delays due to settling insurance claims,
obtaining estimates, labor and supply problems or any other cause not fully
under Landlord's control.
If the fire or other casualty is caused by an act or neglect of Tenant,
Tenant's employees or invitees, or at the time of the fire or casualty Tenant is
in default in any term of this Lease, then all repairs will be made at Tenant's
expense and Tenant must pay the full rent with no adjustment. The cost of the
repairs will be added rent.
Landlord has the right to demolish or rebuild the Building if there is
substantial damage by fire or other casualty. Landlord may cancel this Lease
within 30 days after the substantial fire or casualty by giving Tenant notice of
Landlord's intention to demolish or rebuild. The Lease will end 30 days after
Landlord's cancellation notice to Tenant. Tenant must deliver the Premises to
Landlord on or before the cancellation date in the notice and pay all rent due
to the date of the fire or casualty. If the Lease is cancelled Landlord is not
required to repair the Premises or Building. The cancellation does not release
Tenant of liability in connection with the fire or casualty. This Section is
intended to replace the terms of New York Real Property Law Section 227.
<PAGE>
6th. The said Tenant agrees that the said Landlord and the Landlord's agents and
other representatives shall have the right to enter into and upon said premises,
or any part thereof, at all reasonable hours for the purpose of examining the
same, or making such repairs or alterations therein as may be necessary for the
safety and preservation thereof.
7th. The Tenant also agrees to permit the Landlord or the Landlord's agents to
show the premises to persons wishing to hire or purchase the same; and the
Tenant further agrees that on and after the sixth month, next preceding the
expiration of the term hereby granted, the Landlord or the Landlord's agents
shall have the right to place notices on the front of said premises, or any part
thereof, offering the premises "To Let" or "For Sale", and the Tenant hereby
agrees to permit the same to remain thereon without hindrance or molestation.
8th. That if the said premises, or any part thereof shall be deserted or become
vacant during said term, or if any default be made in the payment of the said
rent or any part thereof, or if any default be made in the performance of any of
the covenants herein contained, the Landlord or representatives may re-enter the
said premises by force, summary proceedings or otherwise, and remove all persons
therefrom, without being liable to prosecution therefor, and the Tenant hereby
expressly waives the service of any notice in writing of intention to re-enter,
and the Tenant shall pay at the same time as the rent becomes payable under the
terms hereof a sum equivalent to the rent reserved herein, and the Landlord may
rent the premises on behalf of the Tenant, reserving the right to rent the
premises for a longer period of time than fixed in the original lease without
releasing the original Tenant from any liability, applying any moneys collected,
first to the expense of resuming or obtaining possession, second to restoring
the premises to a rentable condition, and then to the payment of the rent and
all other charges due and to grow due to the Landlord, any surplus to be paid to
the Tenant, who shall remain liable for any deficiency
9th. Landlord may replace, at the expense of Tenant, any and all broken glass in
and about the demised premises. Landlord may insure, and keep insured, all plate
glass in the demised premises for and in the name of Landlord. Bills, for the
premiums therefor shall be rendered by Landlord to Tenant at such times as
Landlord may elect, and shall be due from, and payable by Tenant when rendered,
and the amount thereon shall be deemed to be, and be paid as, additional rental.
Damage and injury to the said premises, caused by the carelessness, negligence
or improper conduct on the part of the said Tenant or the Tenant's agents or
employees shall be repaired as speedily as possible by the Tenant at the
Tenant's own cost and expense.
12th. That the Landlord is exempt from any and all liability for any damage or
injury to person or property caused by or resulting from steam, electricity,
gas, water, rain, ice or snow, or any leak or flow from or into any part of said
building or from any damage or injury resulting or arising from any other cause
or happening whatsoever unless said damage or injury be caused by or be due to
the negligence of the Landlord.
13th. That if default be made in any of the covenants herein contained, then it
shall be lawful for the said Landlord to re-enter the said premises, and the
same to have again, re-possess and enjoy. The said Tenant hereby expressly
waives the service of any notice in writing of intention to re-enter.
14th. That this instrument shall not be a lien against said premises in respect
to any mortgages that are now on or that hereafter may be placed against said
premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this lease,
irrespective of the date of recording and the Tenant agrees to execute without
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of this lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Landlord, or the Landlord's
assigns and legal representatives to the option of cancelling this lease without
incurring any expense or damage and the term herby granted is expressly limited
accordingly.
15th. The Tenant has this day deposited with the Landlord the sum of $
as security for the full and faithful performance by the Tenant of
all the terms, covenants and conditions of this lease upon the Tenant's part to
be performed, which said sum shall be returned to the Tenant after the time
fixed as the expiration of the term herein, provided the Tenant has fully and
faithfully carried out all of said terms, covenants and conditions on Tenant's
part to be performed. In the event of a bona fide sale, subject to this lease,
the Landlord shall have the right to transfer the security to the vendee for the
benefit of the Tenant and the Landlord shall be considered released by the
Tenant from all liability for the return of such security; and the Tenant agrees
to look to the new Landlord solely for the return of the said security, and it
is agreed that this shall apply to every transfer or assignment made of the
security to a new Landlord.
16th. That the security deposited under this lease shall not be mortgaged,
assigned or encumbered by the Tenant without the written consent of the
Landlord.
17th. It is expressly understood and agreed that in case the demised premises
shall be deserted or vacated, or if default be made in the payment of the rent
or any part thereof as herein specified, or if, without the consent of the
Landlord, the Tenant shall sell, assign, or mortgage this lease or if default be
made in the performance of any of the covenants and agreements in this lease
contained on the part of the Tenant to be kept and performed, or if the Tenant
shall fail to comply with any of the statues, ordinances, rules, orders,
regulations and requirements of the Federal, State and Local Governments or of
any and all their Departments and Bureaus, applicable to said premises, or if
the Tenant shall file or there be filed against Tenant a petition in bankruptcy
or arrangement, or Tenant be adjudicated a bankrupt or make an assignment for
the benefit of creditors or take advantage of any insolvency act, the Landlord
may, if the Landlord so elects, at any time thereafter terminate this lease and
the term hereof on giving to the Tenant five days' notice in writing of the
Landlord's intention so to do, and this lease and the term hereof shall expire
and come to an end on the date fixed in such notice as if the said ate were the
date originally fixed in this lease for the expiration hereof. Such notice may
be given by mail to the Tenant addressed to the demised premises.
19th. That the Tenant will not nor will the Tenant permit undertenants or other
persons to do anything in said premises, or bring anything into said premises,
or permit anything to be brought into said premises or to be kept therein, which
will in any way increase the rate of fire insurance on said demised premises,
nor use the demised premises or any part thereof, nor suffer or permit their use
for any business or purpose which would cause an increase in the rate of fire
insurance on said building, and the Tenant agrees to pay on demand any such
increase.
20th. The failure of the Landlord to insist upon a strict performance of any of
the terms, conditions and covenants herein, shall not be deemed a waiver of any
rights or remedies that the Landlord may have, and shall not be deemed a waiver
of any subsequent breach or default in the terms, conditions and covenants
herein contained. This instrument may not be changed, modified, discharged or
terminated orally.
21st. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim against
Landlord for the value of any unexpired term of said lease. No part of any award
shall belong to the Tenant.
<PAGE>
22nd. If after default in payment of rent or violation of any other provision of
this lease, or upon the expiration of this lease, the Tenant moves out or is
dispossessed and fails to remove any trade fixtures or other property prior to
such said default, removal, expiration of lease, or prior to the issuance of the
final order or execution of the warrant, then and in that event, the said
fixtures and property shall be deemed abandoned by the said Tenant and shall
become the property of the Landlord.
23rd. In the event that the relation of the Landlord and Tenant may cease or
terminate by reason of the re-entry of the Landlord under the terms and
covenants contained in this lease or by ejectment of the Tenant by summary
proceedings or otherwise, or after the abandonment of the premises by the
Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in
monthly payments the rent which accrues subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained, the difference between the rent reserved and the
rent collected and received, if any, by the Landlord during the remainder of the
unexpired term, such difference or deficiency between the rent herein reserved
and the rent collected if any, shall become due and payable in monthly payments
during the remainder of the unexpired term, as the amounts of such difference or
deficiency shall from time to time be ascertained; and it is mutually agreed
between Landlord and Tenant that the respective parties hereto shall and hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other on any matters whatsoever arising out of
or in any way connected with this lease, the Tenant's use or occupancy of said
premises, and/or any claim of injury or damage.
24th. The Tenant waives all rights to redeem under any law of the State of New
York.
25th. This lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in nowise be affected, impaired or excused because Landlord is
unable to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repairs,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures if Landlord is prevented or delayed from so
doing by reason of governmental preemption in connection with a National
Emergency or in connection with any rule, order or regulation of any department
or subdivision thereof of any governmental agency or by reason of the condition
of supply and demand which have been or are affected by war or other emergency.
26th. No diminution or abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building or to its appliances, nor for any space
taken to comply with any law, ordinance or order of a governmental authority. In
respect to the "services," if any, herein expressly or impliedly agreed to be
furnished by the Landlord to the Tenant, it is agreed that there shall be no
diminution or abatement of the rent, or any other compensation, for interruption
or curtailment of such "service" when such interruption or curtailment shall be
due to accident, alterations or repairs desirable or necessary to be made or to
inability or difficulty in securing supplies or labor for the maintenance of
such "service" or to some other cause, not gross negligence on the part of the
Landlord. No such interruption or curtailment of any such "service" shall be
deemed a constructive eviction. The landlord shall not be required to furnish,
and the Tenant shall not be entitled to receive, any of such "services" during
any period wherein the Tenant shall be in default in respect to the payment of
rent. Neither shall there be any abatement or diminution of rent because of
making of repairs, improvements or decorations to the demised premises after the
date above fixed for the commencement of the term, it being understood that rent
shall, in any event, commence to run at such date so above fixed.
27th. Landlord shall not be liable for failure to give possession of the
premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior Tenant or any other person is wrongfully
holding over or is in wrongful possession, or for any other reason. The rent
shall not commence until possession is given or is available, but the term
herein shall not be extended.
And the said Landlord doth covenant that the said Tenant on paying the
said yearly rent, and performing the covenants aforesaid, shall and may
peacefully and quietly have, hold and enjoy the said demised premises for the
term aforesaid, provided however, that this covenant shall be conditioned upon
the retention of title to the premises by the Landlord.
And it is mutually understood and agreed that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
In Witness Whereof, the parties have interchangeably set their hands and
seals (or caused these presents to be signed by their proper corporate
officers and caused their proper corporate seal to be hereto affixed) this
day of April 1998
Signed, sealed and delivered
in the presence of
GASPAR INDUSTRIES, INC.
BY: /s/ Steven Saloy
...............................L. S.
STEVEN SALOY
INFINITE TECHNOLOGY GROUP, LTD.
.................................. L. S.
BY: /s/ JAMES McGOWAN
.............................. L. S.
<PAGE>
RIDER TO LEASE DATED:
BETWEEN, GASPAR INDUSTRIES, INC., LANDLORD, -AND-
QUEENS REPRODUCTIONS, INC.
28TH. The Tenant shall pay during the following periods, the following annual
fixed rent, in the following monthly installments, in advance of the first day
of each and every month:
ANNUAL MONTHLY
PERIOD FIXED RENT INSTALLMENTS
- ------ ---------- ------------
Jan 1, 1998 thru Dec 31, 1998 $78,382.44 $6,531.87
Jan 1, 1999 thru Dec 31, 1999 82,301.52 6,858.46
Jan 1, 2000 thru Dec 31, 2000 86,416.56 7,201.38
29th The Tenant shall pay as additional rent hereunder:
a) 41% of any increase in the real estate taxes levied against the
building and lot known as 77 Jericho Turnpike of which the demised premises is
a part, which increase exceeds the General Tax for the year January 1, 1998 to
December 31, 1998, the School Tax for the fiscal year July 1, 1997 to June 30,
1998; and the Village Tax for the fiscal year June 1, 1997 to May 31, 1998; and
41% of any other tax or assessment that may be levied against said building and
lot.
b) If the names, lien dates or items included in the real estate
taxes now assessed against the parcels of which the demised premises form a
part, are changed during the term of this lease, the tenant shall pay the
aforesaid proportionate shares of the amounts by which the total real estate
taxes paid by the Landlord, by whatever name such tax is called or periods
covered, shall exceed the total amount now paid by the Landlord for the three
taxes and base years set forth above.
c) Any such increase in taxes shall be paid as additional rent, in
advance of the lien dates of any such tax, or at landlord's option, monthly
simultaneously with the payment upon presentation to the Tenant of a copy of the
bill showing the tax due. Upon the Tenant's failure to pay any additional rent
as billed by the Landlord, the Landlord may collect same as provided for herein
and as provided by law. If Landlord receives a refund by reason of protesting
the tax assessment, tenant shall receive its proportionate share of
<PAGE>
additional rent refunded.
30th During the term of this lease Tenant shall at it's sole cost and expense,
provide and keep in force, comprehensive public liability insurance including
property damage, insuring Landlord and Tenant against liability for injury or
damage to persons or property incurred in or about the demised premises or
arising out of the ownership, maintenance, use or occupation thereof. Such
policy shall be written by good and reputable solvent insurance companies, shall
name the Landlord as an additional insured, and shall be for not less than
$500,000.00 coverage in respect to any one person and not less than
$1,000,000.00 coverage in respect to any one accident, and shall further provide
that such policy will not be cancelled without at least fifteen (15) days prior
written notice to the Landlord.
At or prior to the commencement of this lease and at least fifteen
(15) days prior to the expiration of any such policy, Tenant shall deliver to
Landlord an appropriate Certificate of Insurance evidencing the existence and
continuation of the required coverage. Upon Tenant's failure to comply in full
with these provisions the Landlord shall have the right to secure or pay the
charges for any such policy and charge the Tenant as additional rent therefore.
Tenant shall indemnify and hold Landlord harmless from and against
any and all liabilities, obligations, damages, penalties, claims, costs and
expenses for which Landlord shall not be reimbursed by insurance, suffered or
incurred as a result of any breach by the Tenant of any covenant or condition of
this lease.
31st Tenant acknowledges that Landlord has made no representations as to the
physical condition, operation or any other matter relating to the demised
premises; that Tenant has had full opportunity and has made a thorough
inspection of the premises and is familiar with same; and Tenant agrees to
accept delivery of the premises in their present "as is" condition.
32nd Tenant will pay to the Landlord for electricity and gas, the usage metered
by the LILCO meter for the entire lower
<PAGE>
level.
Tenant shall also pay for its own rubbish removal and janitorial
services.
Landlord will maintain heating and air conditioning systems.
33rd Tenant shall have the use of eight (8) parking spaces in the covered
parking garage, and eight (8) parking spaces on the concrete area outside the
entrance to the premises.
Landlord shall keep the parking areas and entrances free of snow and
debris.
34th If Landlord institutes any proceeding or any action against the tenant for
breach of the terms and conditions of this lease, Landlord shall be entitled to
reimbursement for all the costs and expenses incurred including reasonable
attorney's fees.
35th Landlord at its sole expense shall supply to Tenant its proportionate share
of matching signage on the outside of the building.
36th Tenant presently occupies the area identified as Exhibit "A", under a lease
which expired on September 30, 1997. The security of $5,500.00 which the tenant
deposited under the prior lease constitutes the deposit paid pursuant to
paragraph 15 of this lease.
GASPAR INDUSTRIES, INC.
By /s/ Steven Saloy
-------------------------------------
INFINITE TECHNOLOGY GROUP, LTD.
By /s/ JAMES McGOWAN
-------------------------------------
<PAGE>
Exhibit "A"
[Diagram of 77 Jericho Turnpike, Mineola, NY 11501]
<PAGE>
Exhibit "B"
[Diagram of Lower Level of 77 Jericho Turnpike, Mineola, NY 11501]
<PAGE>
S CORPORATION TERMINATION, TAX ALLOCATION
AND INDEMNIFICATION AGREEMENT
THIS S CORPORATION TERMINATION, TAX ALLOCATION AND INDEMNIFICATION
AGREEMENT (the "Agreement"), dated as of the 17th day of November, 1999, among
Mark Dresner ("Dresner"), James McGowan ("McGowan") (Dresner and McGowan are
hereinafter sometimes referred to individually as a "Shareholder" and
collectively as the "Shareholders") and Infinite Technology Group Ltd., a New
York corporation (the "Company"), (the Company and the Shareholders are
hereinafter sometimes referred to individually as a "party" and collectively as
the "parties").
WHEREAS, the Company is an S corporation, as defined in Section 1361 of
the Code (as hereinafter defined) and will continue to be an S corporation until
the Termination Date (as hereinafter defined); and
WHEREAS, each of the Shareholders owns 50% of the outstanding capital
stock of the Company; and
WHEREAS, it is anticipated that the Company will effect an initial public
offering of common stock of the Company (the "Offering"), and that Auerbach,
Pollak and Richardson, Inc. (the "Underwriter") shall be the lead underwriter
for the Offering; and
WHEREAS, in connection with the Offering the Company's status as an S
corporation shall automatically terminate; and
WHEREAS, the Shareholders and the Company wish to enter into an agreement
as to the termination of the Company's status as an S corporation, the method
used to allocate the Company's income during its S Termination Year (as
hereinafter defined) pursuant to Code Section 1362(e)(3), and the
indemnification of the Company with respect to certain tax matters.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the following
meanings:
"C SHORT YEAR" means the portion of the S Termination Year of the Company
beginning on the Termination Date and ending on December 31, 1999.
"CODE" means the Internal Revenue Code of 1986, as amended, and, in the
context of a state or local tax, a reference to the Code or a section of the
Code includes any similar applicable provision of state or local law.
<PAGE>
"EXCESS DISTRIBUTIONS" means the excess of cash or property distributions
by the Company to a Shareholder over the federal and state income taxes paid
(less amounts refunded or credited to such Shareholder) by the Shareholder with
respect to the taxable income of the Company for all periods during which the
Company has been an S corporation, including the S Short Year.
"S SHORT YEAR" means that portion of the S Termination Year of the Company
beginning on January 1, 1999, and ending on the Termination Date.
"S TERMINATION YEAR" means the Company's fiscal year beginning January 1,
1999.
"TAXES" means all taxes, however denominated, including any interest,
penalties or additions to tax that may become payable in respect therewith,
imposed by any federal, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income, payroll and employee
withholding, unemployment insurance, social security, sales and use, excise,
profits, value added, ad valorem, occupancy, disability, franchise, gross
receipts, environmental, occupation, real and personal property, stamp,
transfer, license, net worth, real property gains, capital, worker's
compensation taxes.
"TAX RETURNS" means all reports, estimates, information statements and
returns relating to, or required to be filed in connection with, any Taxes.
"TERMINATION DATE" means the date on which S corporation status of the
Company is automatically terminated as a result of the closing of the Offering.
ARTICLE II
TERMINATION
2.1 TERMINATION OF S STATUS. The Company's S corporation status shall be
automatically terminated as a result of the Offering. The Company agrees to
execute and file with the Internal Revenue Service any required documentation in
connection with such termination, prior to the closing of the Offering. The
termination of the Company's S corporation status shall be effective on the
closing of the Offering.
2.2 SHAREHOLDER CONSENT. The Shareholders agree to execute and deliver to
the Company an executed unanimous consent, prior to the Termination Date.
ARTICLE III
ALLOCATION OF INCOME
3.1 ALLOCATION ELECTION. The Company agrees to elect and the Shareholders
agree to consent, pursuant to Section 1362(e)(3) of the Code, to allocate tax
items to its S Short Year and C Short Year by the pro rata allocation method
contained in Section 1362(e)(2) of the Code, rather then pursuant to normal tax
accounting rules (the "closing of the books method").
<PAGE>
The Company and the Shareholders agree to take all necessary actions to cause
such election and consents and the revocation election and consents to be
effective for federal income tax purposes, prior to the Termination Date.
Additionally, the Company agrees to execute and attach to its tax return filed
with the Internal Revenue Service an executed election.
ARTICLE IV
TAX RETURNS AND INDEMNIFICATION
4.1 FILING TAX RETURN FOR THE TERMINATION YEAR. The Company shall be
responsible for and shall effect the filing of all Tax Returns required to be
filed by the Company with respect to all taxable periods ending prior to, with
or within the Termination Year. The Company shall cause such returns to include
the Company's income from all sources for all periods covered by such returns.
4.2 SHAREHOLDER INDEMNIFICATION FOR TAX LIABILITIES. Except with respect
to any tax jurisdiction that does not recognize S corporation as pass-through
entities and to the extent any tax jurisdiction does not accord S corporation
tax treatment to nonresident Shareholders, each Shareholder hereby agrees to
indemnify and hold the Company harmless from, against and with respect to up to
50% of any U.S. federal or state income tax liability (including interest and
penalties), if any, resulting from the Company failing to qualify as an S
corporation under Code Section 1361(a)(1) (as enacted and in effect prior to the
Termination Date) for every taxable year on or before the Termination Date as to
which the Company filed or files Tax Returns claiming status as an S
corporation.
4.3 AUDIT AND CONTEST RIGHTS. The parties hereto shall cooperate with each
other in the conduct of any audit or other proceeding relating to Taxes. Within
ten (10) days of the notice of any proposed or threatened adjustment which could
give rise to a claim for indemnification under Section 4.2, the Company shall
notify the Shareholders thereof and thereafter, the Shareholders shall have the
right to control any resulting proceedings and to determine when, whether and to
what extent to settle any such claim, assessment or dispute. The Company shall
not make any election, take any tax return position, or agree to any adjustment
or adjustments that would have the effect of increasing any tax liability with
respect to any period ending on or before the Termination Date without obtaining
the prior written consent of the Shareholders. The Company agrees to execute any
powers of attorney or other documents necessary to permit the Shareholders to
conduct such proceedings.
4.4 PAYMENTS. Each Shareholder shall make such payment required under
Section 4.2 within thirty (30) days after the final determination of any tax
liability resulting in a claim for indemnification. For purposes of this
section, "final determination" shall mean any final tax assessment, judgment or
decree by the Internal Revenue Service or any court or administrative agency for
which no appeal or further hearing is possible or perfected, or a settlement
with the Internal Revenue Service, which settlement is consented to by the
parties hereto.
<PAGE>
4.5 REFUNDS. The Company shall be entitled to any refund of Taxes imposed
on the Company; provided, however, that if the Shareholders are required to make
any payments pursuant to Section 4.2 hereof and the Company thereafter receives
a refund of any Taxes to which such payments relate, the Company, within ten
(10) days of receipt of such refund, shall pay over to each Shareholder a pro
rata amount of such refund, including any interest received with respect
thereto.
ARTICLE V
PAYMENT FOR ESTIMATED TAX LIABILITY
5.1 PAYMENT BY COMPANY. Within sixty (60) days of the Termination Date,
the Company shall make a payment to each Shareholder equal to each Shareholder's
estimated tax liability pursuant to Section 4.2 of this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which collectively shall
constitute an instrument representing the Agreement between the parties hereto.
6.2 CONSTRUCTION OF TERMS. Nothing herein expressed or implied is
intended, or shall be construed, to confer upon or give any person, form or
corporation, other than the parties hereto or their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
INFINITE TECHNOLOGY GROUP LTD.
By: /s/ James McGowan
------------------------------------
Name: James McGowan
Title: President
/s/ Mark Dresner
----------------------------------------
Mark Dresner
/s/ James McGowan
----------------------------------------
James McGowan
<PAGE>
[LOGO]
IVAR Agreement No. _________
SUN MICROSYSTES COMPUTER CORPORATION
U.S. INDIRECT VALUE ADDED RESELLER ("IVAR") AGREEMENT
This AGREEMENT is effective on _______________, 19 __ ("Effective Date") by and
between Sun Microsystems Computer Company ("SMCC"), a division of Sun
Microsystems, Inc. a California corporation, having a place of business at 2550
Garcia Avenue, Mountain View, California 94043 and Infinite Technology Group
LTD ("Reseller") having a place of business at 2 Penn Plaza Suite 1500 New York
City, NY 10121.
1. SCOPE
This Agreement governs Resellers authorization to purchase certain SMCC
products ("Products") from a designated SMCC Authorized master reseller
("Master Reseller") and to resell those Products in the United States to
end users other than the Federal Government ("End Users"). Products,
approved buying and selling locations, and the identity of the designated
Master Reseller are set out in Exhibit A. SMCC may discontinue any Product
upon sixty (60) days' notice.
2. APPOINTMENT
SMCC appoints Resellers as a non-exclusive Indirect Value Added Reseller
("IVAR"). IVAR is authorized to purchase Product from its designated
Master Reseller. Product must be (i) sold, leased or rented (collectively
referred to as "sold") in conjunction with the services and/or products
set out on Exhibit B (collectively referred as "Value Added Services");
(ii) sold directly to End Users on a face-to-face basis; and (iii)
installed at an End User Site in the United States ("Authorized Sale").
The sale of Products to resellers is prohibited. The sale of Products to
the Federal Government is prohibited unless IVAR executes a Government
System Integrator (GSI) Addendum. IVAR's primary business must at all
times be the sale and support of computer systems and related Valued Added
Services.
IVAR has executed the "Representation and Warranty" attached as Exhibit E,
thereby representing and warranting that it currently operates under, and
will maintain for the remainder of the term of this Agreement, a business
model so that at least fifty Percent (50%) of IVAR's aggregate revenue for
any six month period is generated by the sale of Value Added Services.
IVAR agrees, upon reasonable notice and its own expense, to provide to
SMCC in confidence, financial reports and documentation sufficient to
establish that it is in conformity with this Representation and Warranty.
SMCC reserves the right, upon reasonable notice and at SMCC's expense, to
audit IVAR's conformity.
3. RESELLER DEVELOPMENT FUNDS
IVAR shall receive directly from SMCC, Reseller Development Funds ("RDF")
equal to two and thirty-six hundredths percent (2.36%) of the value of its
purchases of Products computed at Sun's list price, excluding Products
purchased from Sun Express, Products not purchased for resale and Products
that IVAR'S Master Reseller did not purchase from SMCC. SMCC may modify
this Section upon ninety (90) days' Notice.
4. BUSINESS PLAN
IVAR has submitted a Business Plan to, and which has been reviewed by,
SMCC (attached as Exhibit C). IVAR has represented to SMCC that the
Business Plan accurately reflects the manner in which it intends to market
and support Products. Either party may initiate a review of the accuracy
of IVAR'S Business Plan upon thirty (30) days' notice, provided that SMCC
shall initiate no more than one review per calendar quarter.
5. IVAR REFERENCE GUIDE
SMCC's IVAR policies are detailed in its VAR Reference Guide ("Guide").
IVAR represents that it has read the Guide and will comply with all
applicable rules and procedures. SMCC may modify the Guide from time to
time upon sixty (60) days' Notice.
6. RESELLER COMMISSION PROGRAM
IVAR may participate in SMCC's Reseller Commission Program as detailed in
the Guide.
7. EXHIBITS
The attached Exhibits may be modified only upon the mutual consent of the
parties, except that SMCC may modify Exhibit D (Object Code License) at
any time. The current version of each Exhibit is hereby incorporated by
reference.
8. IVAR's OBLIGATIONS
A. Sale and Support. IVAR shall use its best efforts to promote the
sale of Products, and shall purchase and maintain the demonstration
configuration identified in the Guide for each authorized Product at
each authorized selling location. IVAR shall provide to each End
User, as detailed in the Guide and the Business Plan; (1) complete
pre- and post- installation support, including complete
installation, training, and continuous technical service and (ii)
hardware and software maintenance support. IVAR must submit and SMCC
must approve a detailed, location specific support plan prior to
installing Products at any End User site located more than 200 miles
from an authorized selling location. The sale and direct support of
Products must be performed at all times by full-time employees who
are, SMCC trained and SMCC certified, including at least one full
time SMCC dedicated sales representative and one full time, SMCC
dedicated systems engineer per authorized selling location. Training
and certification may be secured directly from SMCC or from any SMCC
Authorized training provider. SMCC's support options are set out in
the Guide.
B. Spare Parts. The use of spare parts purchased under the authority
granted by this Agreement is strictly limited to (i) resale to an
IVAR's End User for internal use, or (ii) the service of Products
sold and installed by IVAR under this Agreement, except that IVAR
may use such parts to service all of an End User's systems if IVAR
has sold and installed at least twenty-five percent (25%) of the
systems for which service is being provided.
C. Upgrades. The list price of upgrades is based upon the return to
SMCC of specified parts from the system(s) being upgraded, as set
out in the U.S. Price List. IVAR is responsible for assuring that
the specified parts are received by SMCC within thirty (30) days
after shipment of the upgrade to
1
<PAGE>
IVAR. If the specified parts are not timely received, Master
Reseller will invoice and IVAR agrees to pay Master Reseller (net 30
days) for the non-returned parts, the difference between the list
price of the purchased upgrade(s) and the list price of the upgrade
system(s) if purchased new.
D. IVAR Documentation Business Records, and Reports. IVAR shall furnish
to its End Users, at the time of delivery of Products, a sales
receipt stating the date of sale, and, if applicable, the serial
number of Products sold. IVAR shall, during the term of this
Agreement and for five (5) years thereafter, keep and maintain
complete and accurate business records with respect to its purchase
and sale of all Products, including, all documents relating to or
exchanged between IVAR and its End Users, Master Reseller and SMCC.
SMCC may review these records upon request.
IVAR shall provide monthly Productivity Status Reports ("PSRs") to
SMCC as detailed in the Guide. Upon the initial failure to timely
submit a complete PSR; SMCC will put IVAR on notice that it is in
breach of its obligation. If IVAR fails to remedy this initial
breach or subsequently fail to timely submit a PSR, SMCC may cancel
RDF accruals and suspend participation in other programs. Any
subsequent failure to remedy or timely submit a PSR may result in
immediate termination of this Agreement.
E. Indemnity and Insurance. IVAR agrees to indemnify and hold SMCC
harmless from and against all claims from IVAR's End Users or third
parties arising out of any acts and/or omissions of IVAR its
employees or representatives. IVAR shall carry liability insurance
to protect SMCC from all such claims, pay the premiums therefor,
and deliver to SMCC, upon request, proof of such insurance (which
shall require thirty (30) days' written notice to SMCC in event of
modification or termination).
F. Fair representation. IVAR shall display, demonstrate, and represent
Products fairly and shall make no representations concerning SMCC or
its Products which are false, misleading, or inconsistent with those
representations set forth in promotional materials, literature and
manuals published and supplied by SMCC. IVAR shall comply with all
applicable laws and regulations in performing under this Agreement.
G. "SMCC SPARC Only. IVAR shall not sell, lease, or otherwise deal in
any product based on SPARC Architecture, unless such product (i) is
a SMCC Product or (ii) is a "laptop system". A product is a "laptop"
system if it is (i) transportable, (ii) battery operated, (iii)
under sixteen (16) pounds total weight including case, and (iv)
packaged without a CRT. IVAR is not prohibited by this Agreement
from selling any product that does not contain the SPARC
Architecture.
H. IVAR shall purchase all SMCC Products for resale from its designated
Master Reseller unless an exception is granted by SMCC in writing.
Purchase terms and conditions as may be agreed upon between IVAR and
designated Master Reseller shall govern the purchase of Products.
All Product warranties or claims against such warranties shall be
between IVAR and its designated Master Reseller. SMCC will permit
IVAR to change the identity of its designated Master Reseller only
once per year, by Notice (which shall include the effective date of
the transition), during the thirty (30) days' period prior to each
year's Expiration Date.
I. Limited Warranty. IVAR must provide a warranty to its End Users at
least equivalent to the warranty provided by Master Reseller. IVAR
agrees to indemnify SMCC for any liability or damages caused by
IVAR's provision of any other warranty.
J. Failure to comply with any of the foregoing obligations will
constitute a material breach of this Agreement.
9. HIGH RISK ACTIVITIES
A. PRODUCTS ARE NOT FAULT-TOLERANT AND ARE NOT DESIGNED, MANUFACTURED
OR INTENDED FOR USE OR RESALE AS ON-LINE CONTROL EQUIPMENT IN
HAZARDOUS ENVIRONMENTS REQUIRING FAIL-SAFE CONTROLS, SUCH AS IN THE
OPERATION OF NUCLEAR FACILITIES, AIRCRAFT NAVIGATION OR
COMMUNICATION SYSTEMS, AIR TRAFFIC CONTROL, LIFE SUPPORT, OR WEAPONS
SYSTEMS ("HIGH RISK ACTIVITIES"). SMCC SPECIFICALLY DISCLAIMS ANY
EXPRESS OR IMPLIED WARRANTY OF FITNESS FOR SUCH HIGH RISK
ACTIVITIES.
B. IVAR represents and warrants that it will not use, or knowingly
distribute or resell, Products for such High Risk Activities and
that it will ensure that its customers and End-Users of Products are
provided with the notice in A. above.
10. TRADEMARKS, LOGOS AND PRODUCT DESIGNS
A. "Sun Trademarks" means all company names, products names, marks,
logos, designs, trade dress and other designations or brands used by
Sun Microsystems Inc., its subsidiaries and affiliates in connection
with Products, including Sun, Sun Microsystems, the Sun logo,
SPARC station, SPARC server, and all Sun product designs.
B. IVAR is granted no right, title, license or interest in the Sun
Trademarks. IVAR acknowledges Sun's rights in the Sun Trademarks and
agrees that any and all use of the Sun Trademarks by IVAR shall
inure to the sole benefit of Sun. IVAR agrees that it shall take no
action inconsistent with Sun's ownership of the Sun Trademarks and
agrees not to challenge Sun's rights in or attempt to register any
of the Sun Trademarks, or any other name or mark owned or used by
Sun or any mark confusingly similar thereto. If at any time IVAR
acquires any rights in, or any registration or application for, any
of the Sun Trademarks by operation of law or otherwise, it will
immediately upon request by Sun and at no expense to Sun, as-
2
<PAGE>
sign such rights, registrations, or applications to Sun, along with
any and all associated goodwill.
C. IVAR may refer to the Products by their associated Sun Trademarks
provided that such references are truthful and not misleading and
provided that IVAR complies with the then-current Sun Trademark and
Logo Policies.
11. SOFTWARE
A. License. IVAR is granted a non-exclusive nontransferable limited license
to distribute and sublicense Products consisting of software in machine
readable form ("Software") to run on SMCC CPUs sold to End Users in
accordance with the terms of this Agreement. IVAR shall require each of
its End Users to execute a sublicense containing, at a minimum, the
provisions set forth on Exhibit D and shall provide copies to SMCC on
request. IVAR shall keep records specifying the End User, its location,
the serial numbers of the CPU(s) on which the Software was licensed, and
the license capacity (single user or multiuser). The records may be
audited once per year by SMCC.
B. Internal Use. The provisions of Exhibit D (Object Code License) shall
govern IVAR'S internal use of Software, including use for demonstration,
development or training purposes.
C. Restrictions. Title to all copies of Software is retained by SMCC or its
Licensor. IVAR agrees not to decompile, disassemble, or otherwise reverse
engineer Software.
12. TERM AND TERMINATION
A. Term. This agreement shall commence on the Effective Date and shall remain
in force until the date established according to the following schedule:
Effective Date: Expiration Date:
(of each following year):
January 1 -- March 31 March 31
April 1 -- June 30 June 30
July 1 -- September 30 September 30
October 1 -- December 31 December 31
It shall be automatically renewed on an annual basis thereafter, unless at
least thirty (30) days prior to any years Expiration Date, SMCC or IVAR
tenders Notice of intention not to renew.
B. Termination.
(1) This agreement (which, for purposes of termination by SMCC, may be
construed as referring to individual authorized buying or selling
locations) may be terminated by either party (i) without cause, for
any reason, on ninety (90) days' Notice to the other party, (ii)
immediately, by Notice, upon material breach by the other party, if
such breach cannot be remedied; (iii) by Notice, if the other party
fails to cure any, material remediable breach of this Agreement
within thirty (30) days of receipt of Notice of such breach, or (iv)
immediately by Notice upon the second commission of a previously
remedied material breach.
(2) SMCC may terminate this Agreement immediately, by Notice in the
event that (i) there is any material change in the management or
control of IVAR, or transfer of any substantial part of IVAR's
business, (ii) SMCC discovers that IVAR has make a material
misrepresentation or omission in its Reseller Application, (iii)
IVAR makes an unauthorized sale, or (iv) IVAR fails to maintain the
business model set out in Section 2, herein.
C. Effect of Termination. Upon any termination or expiration of this
Agreement, IVAR shall no longer be authorized to purchase Products from
Master Reseller. With the exception of those rights and obligations which
by their nature should survive, all rights and licenses granted to IVAR
under this Agreement shall immediately cease and terminate. Neither party,
shall be liable to the other for damages of any kind, on account of the
termination or expiration of this Agreement in accordance with its terms
and conditions.
13. LIMITATION OF LIABILITY
Except for express obligations to indemnify under this Agreement, and/or
breach of Sections 9 (High Risk Activity), 11 (Software), or 15
(Confidentiality):
A. Each party's liability to the other for claims related to this Agreement,
whether for breach or in tort, shall be limited to $10,000, and
B. IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INDIRECT, PUNITIVE,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGE IN CONNECTION WITH OR RELATED
TO THIS AGREEMENT (INCLUDING LOSS OF PROFITS, USE, DATA OR OTHER ECONOMIC
ADVANTAGE), HOWSOEVER ARISING, WHETHER FOR BREACH OF THIS AGREEMENT,
INCLUDING BREACH OF WARRANTY, OR IN TORT, EVEN IF THAT PARTY HAS BEEN
PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
14. DISCLAIMER OF WARRANTY
EXCEPT AS SPECIFIED IN THIS AGREEMENT, ALL EXPRESS OR IMPLIED
REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT, ARE
HEREBY EXCLUDED.
15. CONFIDENTIALITY
If SMCC desires that information provided to IVAR under this Agreement be
held in confidence, SMCC agrees to identify such information as
"Confidential" or "Proprietary" ("Confidential Information"). All
Software is Confidential Information. IVAR will not disclose Confidential
Information and will use it only for purposes specifically related to this
Agreement. This Agreement shall not affect any confidential disclosure
agreement between the parties.
16. NO EXPORTATION
IVAR agrees that it shall resell Products only to End Users in the
Continental United States, Alaska, and Hawaii, unless IVAR has been
accepted into SMCC's Passport Program and has executed a Passport Addendum
to this Agreement. Products, including technical data, are subject to the
U.S. Export Administration Act and its associated regulations and may be
subject to export or import regulations in other countries. IVAR
IVAR agrees to comply strictly with all such regulations and acknowledges
that it has the responsibility to obtain licenses to export or re-export
Products.
3
<PAGE>
agrees to comply strictly with all such regulations and acknowledges that
it has the responsibility to obtain licenses to export or re-export
Products.
17. GENERAL
A. Dispute Resolution. Any action related to this Agreement will be
governed by California law, excluding choice of law rules, and will
be brought exclusively in the United States District Court for
Northern California or the California Superior Court for the County
of Santa Clara. The parties hereby submit to the personal
jurisdiction and venue of such courts.
B. Relationship. The parties are independent contractors under this
Agreement and no other relationship is intended, including a
partnership, franchise, joint venture, agency, employer/employee, or
master/servant relationship. Neither party shall be authorized to
bind the other, or act in a manner which expresses or implies a
relationship other than that of independent contractor.
C. Assignment. IVAR may not assign or otherwise transfer any of its
rights or obligations under this Agreement, without the prior
written consent of SMCC.
D. Waiver or Delay. Any waiver of any provision of this Agreement, or a
delay by either party in the enforcement of any right hereunder,
shall neither be construed as a continuing waiver, nor create an
expectation of non-enforcement, of that or any other provision or
right.
E. Force Majeure. A party is not liable for non-performance of this
Agreement, to the extent to which the non-performance is caused by
events or conditions beyond that party's control, and the party
gives prompt Notice and makes all reasonable efforts to perform.
F. Notice. All Notices (upper-case N") under this Agreement must be in
writing and delivered either in person or by a means evidenced by a
delivery receipt, to the address specified, below. Notice will be
effective upon receipt.
If to SMCC:
Sun Microsystems Computer Corporation
2550 Garcia Avenue, M/S MIL06-20
Mountain View, CA 94043
Attn: Manager, Sales Contracts
If to IVAR:
Infinite Technology Group LTD
2 Penn Plaza Suite 1500
New York City, NY 10121
G. Execution. This Agreement shall become effective only after it has been
signed by an authorized officer of IVAR and an authorized officer of SMCC.
H. Entire Agreement. This Agreement, including all attachments incorporated
by reference, is the parties' entire agreement relating to Products and:
(i) supersedes all prior or contemporaneous oral or written
communications, proposals and representations with respect to its subject
matter; and (ii) prevails over any conflicting or additional terms of any
quote, order, acknowledgement, or similar communication between the
parties during the term of this Agreement. No modification to this
Agreement will be binding, unless in writing and signed by a duly
authorized representative of each party.
SUN MICROSYSTEMS COMPUTER CORPORATION: IVAR
By: By: /s/ Mark Dresner
--------------------------------- ----------------------------------
Name: Name: Mark Dresner
-------------------------------- ---------------------------------
Title: Title: Executive V.P.
------------------------------ -------------------------------
Date: Date: 4/25/95
------------------------------- --------------------------------
4
<PAGE>
July 31, 1999
[LOGO] Sun microsystems
Steve Baronian
Infinite Technology Group LTD
77 Jericho Turnpike
Mineola, NY 11501
RE: Sun Microsystems Inc. ("SMI")
U.S. Value Added Reseller Agreement ("Agreement")
#IV-0932PSN
Renewal Notification
Pursuant to the terms of your Agreement with Sun Microsystems Inc. (SMI), SMI is
pleased to renew your Agreement for an additional 12 months. Your next renewal
date is August 31, 2000.
Additionally, in accordance with the terms of the Agreement, we have provided
you a blank copy of our most recent Reseller Business Plan. Please complete and
return the enclosed to SMI Contracts Management, 16000 North Dallas Parkway,
Ste. 700, Dallas, TX 75248 M/S: UDFW04.
If you have any questions, please contact your SMI Sales Representative.
Sincerely,
/s/ Mary Tobias
Mary Tobias
Contracts Coordinator
SMI Contracts Management
<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 Amendment No. 1 to 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
November 19, 1999
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