<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 2000
REGISTRATION NO: 333-88737
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
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:
------------------------
<TABLE>
<S> <C>
CRAIG S. LIBSON, ESQ. KENNETH S. GOODWIN, ESQ.
PARKER DURYEE ROSOFF & HAFT, P.C. COLEMAN, RHINE & GOODWIN LLP
529 FIFTH AVENUE 750 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022
TELEPHONE: (212) 599-0500 TELEPHONE: (212) 317-8880
TELECOPIER: (212) 972-9487 TELECOPIER: (212) 317-1970
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
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 JANUARY 7, 2000
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.
, 2000
<PAGE>
(First fold inside cover)
Copy: Complete Solutions
(Infinite Technology Group Logo)
(Graphic--Wheel with key words identifying
service offerings: hardware/software, applications,
E-Commerce, partners, integration, creative,
security, digital media, internet access, consulting)
(Graphic-desktop computer)
(Inside gate fold)
Copy: Define and Design, Construct and Connect,
Install and Implement.
(Infinite Technology Group Logo)
(Background faded graphic--circuit board;
boardroom of roundtable meeting; internet website
pages and software code)
<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
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 originated in 1993,
principally as a value-added reseller of computer hardware systems and
components. During the past three years we have focused on expanding our
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 have recently expanded our capabilities to become 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 for information technology
projects:
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 currently serve approximately 75 clients in the Northeast, primarily in
the New York metropolitan area. Our clients include 1-800-FLOWERS.com, The 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 a proven track record of systems integration, strategic
relationships with major technology manufacturers, such as SUN Microsystems and
Compaq/Digital Equipment Corporation, and an extensive understanding of Internet
technologies. Our ability to provide not only the design and consulting
services, but also the configuration and integration of the system, the hardware
components, 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.
Historically, we have provided hardware components and related integration
services for Internet architecture projects designed and implemented by third
parties. We are now undertaking these projects directly. These projects
generally fall into two categories:
3
<PAGE>
'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.
'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.
At the same time as 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 this merger as if it occurred prior to this offering.
THE OFFERING
<TABLE>
<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) 1,588
Net income (loss)............. 789 68 281 (120) (354) (563) 1,333
Net income (loss) per share:
Basic.................... $ .13 $ .01 $ .05 $ (.02) $ (.06) $ (.09) $ .21
Diluted.................. $ .13 $ .01 $ .05 $ (.02) $ (.06) $ (.09) $ .20
Pro forma net income
(loss)(1)................... $ 434 $ 37 $ 153 $ (74) $ (242) $ (385) $ 733
Pro forma net income (loss)
per share:
Basic.................... $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.06) $ .12
Diluted.................. $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.06) $ .11
</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 $13,369
Total assets................................................ 17,415 30,935
Short-term debt(3).......................................... 4,100 3,600
Long-term debt.............................................. 308 308
Total liabilities........................................... 15,864 14,264
Shareholders' equity........................................ 1,551 16,671
</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 $1.0 million in bank borrowings; a loan of
$500,000 to Dr. Wolotsky; the liability for the put option for $250,000
relating to the warrants to purchase 25,000 shares of our common stock
issued to Chemical Investments, Inc.; 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 $850,000 to Mr. Dresner and Mr.
McGowan, in recognition of their related personal tax liability. This
distribution is reflected in the pro forma as adjusted balance sheet data as
a reduction of shareholders' equity.
(3) At September 30, 1999, short term debt included $4.0 million outstanding
under our bank line of credit and $100,000 of current portion of our term
loan. Since September 30, 1999, we have borrowed an additional $500,000
under our bank line of credit. The additional borrowings were used to pay
accounts payable. All borrowings under our line of credit mature 30 days
from issuance. Under our arrangement with the bank, however, we will repay
only the amount borrowed under our bank line of credit in excess of $3.5
million at the time our initial public offering is completed, or January 31,
2000, whichever is earlier.
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. As a
result, the trading price of our common stock could decline, and you could lose
all or part of your investment.
WE FACE 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
$1,333,480 for the nine months ended September 30, 1999. At September 30, 1999,
we had shareholders' equity of $1,551,303. 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
$733,480. 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. In addition, 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, these persons would
be difficult to replace and, as a result, we might 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
acceptable to us. The acquisitions we do undertake may involve a number of
special risks, including:
Diversion of management's attention, which may make it difficult to
complete existing projects and bid for new projects;
Potential failure to retain key acquired personnel, who may be difficult
to replace. If we do not retain these individuals, it may be difficult for
us to respond to our clients' needs;
6
<PAGE>
Assumptions of unanticipated contractual liabilities and potential
lawsuits, which could result in significant legal costs and distractions
to our management;
Difficulties integrating systems, operations and cultures, which may lead
to significant unexpected expenditures; and
Amortization of acquired intangible assets, which may adversely affect our
earnings per share, and, consequently, the market price of our common
stock.
WE MAY NOT BE SUCCESSFUL IN EXPANDING OUR INTERNET SOLUTION SERVICES BUSINESS
Historically, we have derived most of our revenues from systems
integration, hardware sales and system maintenance services. Our growth strategy
focuses on our ability to continue to expand our Internet related services. This
shift in focus will divert our management's attention from our traditional
services. We may not be able to successfully generate significant revenues from
the Internet services we plan to deliver or be able to deliver these services
profitably. In addition, our attempt to expand our Internet solution services
business may adversely impact the profitability of our remaining business
activities and limit our ability to grow those components of our business,
placing us at a competitive disadvantage.
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 the growth of our business. As a result, we may lose
important client engagements, which might lead to a decline in our
profitability.
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.
7
<PAGE>
OUR FAILURE TO MEET CLIENT EXPECTATIONS COULD RESULT IN LOSSES AND NEGATIVE
PUBLICITY
We create, implement and maintain applications that are often critical to
our clients' businesses. Any defects or errors in our applications or failure to
meet clients' expectations could result in:
Delayed or lost revenues due to adverse client reaction;
Requirements to provide additional services to a client at no charge;
Negative publicity, which could damage our reputation and adversely affect
our ability to attract or retain clients; and
Claims for substantial damages against us, regardless of our
responsibility for the 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, these contractual provisions may not protect us from liability for
damages in the event we are sued. Any claims for damages, even if not true,
could result in significant legal and other costs and negative publicity.
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,
these 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 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 these services.
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 the new or enhanced products are available. Purchasing delays by
current or new clients will slow our growth and hurt our profitability. 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. If we are unable to keep pace with these changes, we may
lose key clients to our competitors or have difficulty adding new clients,
diminishing our revenues and financial performance.
8
<PAGE>
WE COMPETE IN HIGHLY COMPETITIVE MARKETS AND ARE VULNERABLE TO LARGER AND MORE
EXPERIENCED COMPETITORS
Competition in the systems integration market and Internet solutions
markets is intense. If we fail to compete successfully, our business could be
seriously harmed. Our current competitors include, and may in the future
include, the following:
Systems integrators, such as Andersen Consulting, IBM, Proxicom and
Sapient Corporation;
Information technology consulting services providers, such as
PricewaterhouseCoopers, KPMG, Electronic Data Systems and Computer
Sciences Corporation;
Emerging web consulting firms, such as Agency.com, Razorfish, Scient
Corporation and Viant Corporation;
Internet 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 our intellectual property could be eliminated,
leading to a loss of business opportunities and clients. This would cause our
revenues and profitability to decrease. 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 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
9
<PAGE>
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 THE
MARKET PRICE OF OUR COMMON STOCK TO DECLINE
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.
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
the market price of our common stock to decline.
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.
INVESTORS FACE RISKS RELATING TO THIS OFFERING
OUR OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR STOCK WHICH WILL LIMIT
THE ABILITY OF AN INVESTOR TO INFLUENCE CORPORATE MATTERS
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 our company, and therefore, may cause the
market price of our common stock to decline.
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
$8.52 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
10
<PAGE>
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 OF OUR
COMPANY
Our certificate of incorporation and bylaws may discourage, delay or
prevent a change in control of our company. Our certificate of incorporation and
bylaws:
Authorize the issuance of 'blank check' preferred stock that could be
issued by our board of directors to increase 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.
The existence of these provisions may adversely affect the price of our
common stock, discourage third parties from making a bid for our company, or
reduce any premiums paid to our shareholders for their common stock.
SHARES BECOMING AVAILABLE FOR SALE COULD RESULT IN A DECLINE OF OUR STOCK'S
MARKET 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 90 days after 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.
THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES IN THIS OFFERING
The market price of our common stock is likely to be volatile and its value
could decline. 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.
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 the proceeds to:
repay approximately $1.0 million of our bank debt;
make a payment of $3.5 million toward the acquisition of ITIS;
expand 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 $850,000;
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 $1.0 million of the proceeds of this offering will be used to
repay a portion of our $7.5 million bank line of credit, of which $4.5 million
was outstanding as of January 3, 2000. This 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 January 31, 2000 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
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 by ITIS.
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.
12
<PAGE>
After this offering, we will make an $850,000 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 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
$1.0 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(1)
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 599 $13,369
------- -------
------- -------
Short-term debt(2).......................................... 4,100 3,600
------- -------
Long-term debt.............................................. 308 308
------- -------
Minority interest in ITIS................................... 850 --
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(3).................. 59 80
ITIS common stock, no par value, 200 shares authorized,
150 shares issued and outstanding..................... 10 --
Additional paid-in-capital............................. 4 16,619
Accumulated other comprehensive income................. (28) (28)
Retained earnings...................................... 1,516 --
Less: shareholder notes receivable for ITIS common
stock................................................. (10) --
------- -------
Total shareholders' equity(2)(4).................. 1,551 16,671
------- -------
Total capitalization........................................ $ 6,809 $20,579
------- -------
------- -------
</TABLE>
- ------------
(1) 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 $1.0 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.
(2) At September 30, 1999, short term debt included $4.0 million outstanding
under our bank line of credit and $100,000 of current portion of our term
loan. Since September 30, 1999, we have borrowed an additional $500,000
under our bank line of credit. The additional borrowings were used to pay
accounts payable. All borrowings under our line of credit mature 30 days
from issuance. Under our arrangement with the bank, however, we will repay
only the amount borrowed under our bank line of credit in excess of $3.5
million at the time our initial public offering is completed, or January 31,
2000, whichever is earlier.
(3) 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, and stock warrants to
purchase 25,000 shares of common stock at an exercise price of $.01 per
share.
(4) Immediately following the closing of this offering, we intend to make an
aggregate S corporation distribution of approximately $850,000 to
Mr. Dresner and Mr. McGowan, in recognition of their related personal tax
liability. Such distribution is reflected in pro forma as adjusted balance
sheet data as a reduction of shareholders' equity.
14
<PAGE>
DILUTION
As of September 30, 1999, our net tangible book value was $1,551,303, or
approximately $0.26 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
$850,000 S corporation distribution, our pro forma tangible book value as of
September 30, 1999 would have been $15,821,303, or $1.98 per share. This
represents an immediate increase in net tangible book value of $1.72 per share
to our shareholders and an immediate dilution in net tangible book value of
$8.52 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.................................................. $0.26
Increase in net tangible book value per share
attributable to new shareholders...................... 2.26
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.52
Decrease in net tangible book value per share as a
result of the ITIS Merger and the S corporation
distribution.......................................... (0.54)
-----
Pro forma net tangible book value per share after the
offering, the ITIS Merger and the S corporation
distribution.......................................... 1.98
------
Dilution to new shareholders................................ $ 8.52
------
------
</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 25,000 shares which may be acquired upon
the exercise of outstanding warrants at a price of $.01 per share. The table
also 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 or
warrants 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. In October 1999, we issued warrants to acquire 25,000 shares of common
stock at a purchase price of $.01 per share. If all of these options and
warrants 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 $6,995,698 or $1.01 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 $21,265,698 or approximately $2.35 per share, the
increase in net tangible book value attributable to new investors would have
been $1.34 per share and the dilution in net tangible book value to the new
investors would have been $8.15 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 those 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 those 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 37,772
Operating income
(loss)................. 789 69 328 (29) (177) (434) 1,588
Net income (loss)........ 789 68 281 (120) (354) (563) 1,333
Net income (loss) per
share:
Basic............... $ .13 $ .01 $ .05 $ (.02) $ (.06) $ (.09) $ .21
Diluted............. $ .13 $ .01 $ .05 $ (.02) $ (.06) $ (.09) $ .20
Pro forma net income
(loss)(1).............. 434 37 153 (74) (242) (385) 733
Pro forma net income
(loss) per share:
Basic............... $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.06) $ .12
Diluted............. $ .07 $ .01 $ .03 $ (.01) $ (.04) $ (.06) $ .11
</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 15,864
Shareholders' equity................. 743 833 1,094 854 383 291 1,551
</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 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 focused on expanding our 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 $6,369,100 or 16.2% 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
$3,702,642 or 10.5% 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 these 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
65.7% for the nine months ended September 30, 1999 compared to 70.4% for the
nine months ended September 30, 1998. This decrease was the 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 $1,333,480 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. This increase was a result of the addition of both sales and
technical personnel, together with the costs associated with the expansion of
our helpdesk functionality and software systems required by these 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 rise was due to an increase in bank borrowings resulting
from build up in both accounts receivable and inventory necessary to support the
increased sales level.
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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 171.5% 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 1.09 and .99,
respectively. Working capital at September 30, 1999 was $1,274,262 an increase
of $1,364,975 from the same period last year. The increase was primarily due to
our increased earnings.
Cash used in operating activities was $33,334 and $812,738 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 $899,985 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 January 31, 2000,
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 purchase
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our common stock at an exercise price of $.01 per share over a five year period.
As of January 3, 2000, we had $4,500,000 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
To date we have not experienced any problems arising from the passage of
January 1, 2000, and the potential that computer systems and software products
could fail or malfunction because they may not be able to distinguish 21st
century dates from 20th century dates. 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 compliance for this software. However, any
failure on our part to provide Year 2000 compliant
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applications to our clients could result in financial loss, harm to our
reputation and liability to others and could seriously harm our business. To
date, we have not received notice of any such problems.
If any future situations arise from year 2000 complications, 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 years
beginning after 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 originated in 1993
principally as a value-added reseller of computer hardware systems and
components. During the past three years we have focused on expanding our
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 in addition to our current offerings.
We have recently expanded our capabilities with the goal of becoming 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 focus areas for information
technology projects:
Internet/e-commerce solution design and implementation, including hosting,
maintenance of interactive applications; and
information technology systems integration, system maintenance and
hardware and software sales.
We currently serve approximately 75 clients in the Northeast, primarily in
the New York metropolitan area. Our clients include 1-800-FLOWERS.com, The 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 technology, IT companies are transforming the way
they run their businesses and manage information. According to International
Data Corporation (IDC), an independent market research firm, the information
technology industry has experienced significant growth and IDC projects that:
Overall IT spending in the United States will grow from $351.5 billion in
1998 to approximately $545 billion by 2003;
The systems integration segment of this market will grow from
approximately $50 billion in 1998 to more than $90 billion by 2003; and
The Internet and interactive integration services segment will grow from
approximately $8 billion in 1998 to approximately $79 billion by 2003.
Information technology companies such as ITG provide their clients value by
solving the complex challenges posed by changing technology, including:
The need to constantly adopt and implement new and rapidly changing
technologies, with or without a significant in-house IT staff;
The need to develop long-term IT strategies including incorporation of the
Internet and 'e-business' models;
Achieving the required high degrees of integration among various company
applications, networks, platforms and the Internet and among diverse
business enterprises; and
The need to maintain significant technological infrastructure and support
for all information technology needs including e-business applications and
backup systems, 24 hours a day, 7 days a week.
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
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established companies continue to Internet-enable complex and established
information technology processes. This trend will give interactive information
technology providers such as ITG, with its background of systems integration, a
superior competitive position, compared to firms that emphasize website content
and design.
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 IDC, worldwide e-commerce is expected to soar from
$50.4 billion in 1998 to approximately $1.3 trillion in 2003. 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 STRENGTHS
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 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 and provides us
with a strategic advantage over typical service providers. 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 alliances
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
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data. It also includes providing a system for communications among various
hardware and software components, as well as users of the system.
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.
OUR STRATEGY
Our strategy is to leverage our strengths to provide a one-stop solution to
information technology needs of corporate and institutional clients. We will
continue to provide components of solutions, such as hardware sales, integration
services or Internet hosting, as desired by our clients. However, we believe
that technological advances in hardware and software, computing platforms and
the integration of the Internet and e-commerce have resulted in need to address
the information technology needs of the client with the development of a
complete technology solution This solution will generally encompass many product
and service components. We are continuing to expand our in-house capabilities to
be able to provide existing and new clients with this full range of services.
We are addressing the solution creation process in three phases:
<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
Assess existing technology Integrate multi-platform Provide the e-commerce
and infrastructure legacy systems engine
Explore potential solutions * Develop new Internet * Test and fine tune
Design Internet-based protocol-based environment
solution applications, implement Implement customer support
databases, develop plan
web-enabled interfaces
</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.
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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.
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.
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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 SERVICES
Network Solutions, Hardware and 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 these
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.
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
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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, a major connection point for the Internet, 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 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.
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.
We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of clients. As of September 30, 1999, The
Chase Manhattan Bank and StarMedia accounted for 20% and 14% of our revenues,
respectively. In 1998, The Chase Manhattan Bank, Citibank and The Bank of New
York accounted for 22%, 12% and 11% of our revenues, respectively. In 1997, The
Chase Manhattan Bank, New York Mercantile, The Bank of New York and SIAC
accounted for 28%, 21%, 13% and 13% of our revenues, respectively. 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,
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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 December 15, 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 these
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 December 15, 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
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.............................. 39 Director
Frank J. Tasco............................... 72 Director (designee)
</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.
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 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 positions as a Member of the Board of
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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.
Frank Tasco. Mr. Tasco is the Chairman of Angram Inc., a private company in
the tax lien finance business. From 1993 to 1995, Mr. Tasco served as Chairman
of Borden, Inc. Prior to 1993, Mr. Tasco was the Chairman and Chief Executive
Officer of Marsh and McLennan Companies, Inc. Mr. Tasco currently is a director
of Marsh and McLennan and Travelers Property Casualty Corp. Additionally, Mr.
Tasco is a member of the Board of Governors of St. Francis Hospital, Roslyn, New
York, a member of the board of trustees of New York University, and a director
of the Phoenix House Foundation. Upon the closing of this offering, Mr. Tasco
will be appointed as an additional member of our board of directors.
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
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meetings of the board or committees of the board and will be reimbursed for
travel expenses and other out-of-pocket costs incurred in connection with their
attendance at 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 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(1) .............................. $137,615 -- -- --
Executive Vice President
Daniel Hickey ............................... $ 90,000 -- $138,122(2) 30,000
Vice President, Services
</TABLE>
- ------------
(1) As of November 30, 1999, Mr. Arlo resigned as our Executive Vice President.
(2) 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 our 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.
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<PAGE>
Mr. Dresner's employment agreement contains standard provisions regarding
confidentiality and non-competition during the term of his employment.
We have entered into an employment agreement with James McGowan. Under the
terms of this 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. 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.
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<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
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<PAGE>
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-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, upon each annual meeting of 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 Frank Tasco, a designee for appointment to 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
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<PAGE>
advance to our officers and directors their expenses for a proceeding against
them. We intend to obtain directors' and officers' liability insurance.
CERTAIN TRANSACTIONS
Merger with Infinite Technology Information Services, Inc. and related
transactions
On September 20, 1999, we entered into a merger agreement with ITIS. This
agreement provides that ITIS will merge with and into Mercury Internet Services,
Inc., our wholly-owned subsidiary 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 these 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 these 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 these contract
rights, Wolotsky Enterprises, L.L.C. acquired one-third of the common stock of
ITIS. Wolotsky Enterprises incurred minimal out-of-pocket financial expense in
procuring these contract rights. However, Paul Wolotsky, the principal of
Wolotsky Enterprises, expended significant time and effort to obtain these
contracts.
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 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 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
37
<PAGE>
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. from the service agreement with
ITIS exceed $225,000, generating profits of $10,700 to MCSP, Inc. 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 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 $850,000 to Mr. Dresner and
Mr. McGowan. This amount represents their combined personal tax liability. 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 have
entered 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
have agreed 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. The material terms of these agreements are described
in this prospectus under the heading '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 December 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
Daniel Hickey(4)...................................... 37,500 * *
Bernard Esquenet(5)................................... 20,000 * *
Craig Libson(6)....................................... 20,000 * *
All directors and executive officers as a group
(9 persons)(7)...................................... 6,223,125 100 75.7
</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 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.
(5) 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.
(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 223,125 shares of common stock which may be acquired upon the
exercise of currently exercisable stock options. Does not include 441,875
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 three 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 the 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 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. These provisions, however, could discourage
potential acquisition proposals and could delay or prevent a change of control
of our company. These provisions may also have the effect of preventing changes
in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our 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 this 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 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 ours 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
41
<PAGE>
sell its 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 particular 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.
Six months after the closing of 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 our 1997 and 1999 stock option plans and 1999
directors' plan. Accordingly, shares issued upon exercise of these 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 , 2000, 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 dealers, including the
underwriter, at the offering price less a concession of not more than $ per
share. The underwriter may allow, and these 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 particular 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 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 prospectus without the prior written
consent of the underwriter. In addition, during this 180-day period,
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<PAGE>
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. However, the
Underwriter has indicated that it does not intend to waive 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. None of the persons
who have entered into the lock-up agreements has indicated that he will seek a
waiver of such agreement.
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 160% of the initial public offering price per share of the
common stock offered by this prospectus. The underwriter's warrants may not be
transferred, during a one year period commencing on the date of this prospectus,
except to officers or partners of the underwriter, and members of the selling
group and/or their officers and partners, 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
43
<PAGE>
underwriting compensation. The underwriter's warrants provide for reductions,
which could be material, in the exercise price of the underwriter's warrants
upon the occurrence of particular events, including adjustment of the type of
securities issuable upon exercise of the underwriter's warrants to reflect
changes in the common stock and to reflect stock dividends, stock splits and
mergers, recapitalizations or sales of assets. We have agreed to register the
underwriter's warrants and the underlying shares of common stock under the
Securities Act on one occasion during the warrant exercise term and to include
such underwriter's warrants and shares in any appropriate registration statement
that is filed by us during the warrant exercise term.
We have agreed to 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 by this prospectus 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 these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The legal matters in connection with this offering will be passed upon for
us 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. The 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 material 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
proscribed 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 9,118,475
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 14,705,721
Term note payable to bank, less current portion....... -- 383,338 308,341
Notes payable to shareholders, less current portion... 42,236 -- --
Minority interest in ITIS............................. -- -- 850,000
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 10,000 10,000
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 1,516,067 666,067
Less: shareholder notes receivable for ITIS
common stock................................... (10,000) (10,000) (10,000) (10,000)
---------- ---------- ----------- --------
Total shareholders' equity.................. 853,648 382,574 1,551,303 $701,303
---------- ---------- ----------- --------
--------
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 31,600,923
Cost of service.......... 528,880 1,087,535 1,348,389 1,146,889 1,389,879
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 37,771,896
----------- ----------- ----------- ----------- -----------
Operating income (loss)....... 328,409 (29,450) (177,295) (433,577) 1,588,006
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) $ 1,333,480
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share:
Basic.................... $ .05 $ (.02) $ (.06) $ (.09) $ .21
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted.................. $ .05 $ (.02) $ (.06) $ (.09) $ .20
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Pro Forma (unaudited):
Income (loss) before
provision for income
taxes.................. $ 281,381 $ (120,328) $ (354,061) $ (562,675) $ 1,333,480
Provision (benefit) for
income taxes........... 128,000 (46,000) (112,000) (178,000) 600,000
----------- ----------- ----------- ----------- -----------
Net income (loss)........ $ 153,381 $ (74,328) $ (242,061) $ (384,675) $ 733,480
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per
share:
Basic............... $ .03 $ (.01) $ (.04) $ (.06) $ .12
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Diluted............. $ .03 $ (.01) $ (.04) $ (.06) $ .11
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
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)............ -- -- -- 1,333,480 --
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 $1,516,067 $(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)............ -- -- -- 1,333,480
Unrealized loss on available for
sale securities (unaudited)..... -- -- -- (26,751)
----------
Total comprehensive income
(unaudited)..................... -- -- -- 1,306,729
Distributions to shareholders
(unaudited)..................... -- -- -- (138,000)
Issuance of common stock in
connection with the acquisition
of the CarNet Services Agreement
(unaudited)..................... 50 -- -- --
--- ------- -------- ----------
Balance at September 30, 1999
(unaudited)......................... 150 $10,000 $(10,000) $1,551,303
--- ------- -------- ----------
--- ------- -------- ----------
</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) $ 1,333,480
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 5,621,385
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'). These companies are under common management. 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
classified as available for sale. Available for sale securities are carried at
fair value, with the unrealized
F-7
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN MARKETABLE SECURITIES (CONTINUED)
gains and losses reported in a separate component of shareholders' equity.
Realized gains and losses and declines in value judged to be other than
temporary on available for sale securities are included in miscellaneous income.
The cost of securities sold is based on the specific identification method.
Interest and dividends on such securities are included in miscellaneous income.
INVENTORIES
Inventories, 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 these 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) or shareholders'
equity. SFAS No. 130 requires unrealized gains or losses on available-for-sale
securities to be included in comprehensive income. There were no items of
comprehensive income prior to January 1, 1998.
EARNINGS PER SHARE
The Company has presented net income (loss) per share in accordance with
the provisions of SFAS No. 128, 'Earnings per Share.' Under the provisions of
SFAS No. 128, basic and diluted net income (loss) per share is computed by
dividing the net income (loss) for the period by the weighted-average number of
common shares outstanding for the period. The calculation of diluted net income
per share for the 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.
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.
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)
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.
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.
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)
Future minimum lease payments under the above leases, excluding real estate
taxes and operating cost escalations, are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999................................................... $283,000
2000................................................... 274,000
2001................................................... 172,000
2002................................................... 60,000
--------
Total minimum lease payments........................... $789,000
--------
--------
</TABLE>
7. RELATED PARTY TRANSACTIONS
In October 1997, the principal shareholders of the Company borrowed
$100,000 from the Company. During 1998, shareholder distributions were declared
which were applied against the amounts due.
In August 1996, the Company borrowed $100,000 from each of the
shareholders. The loans are being repaid over three years at an interest rate of
7%. The balance of the shareholders' notes payable was $110,759 and $36,342 at
December 31, 1997 and 1998, respectively.
8. EMPLOYEE SAVINGS PLAN
Effective April 1, 1997, the Company established a 401(k) Savings Plan
('the Plan'). All employees of the Company employed at the time of adoption were
eligible for the Plan. All individuals subsequently employed must be employed
for three months and over the age of nineteen to be eligible. Employees may
elect to save up to 15% of their annual compensation on a pre-tax basis subject
to certain limits. The Company matches 25% of the first 4% of compensation
contributed to the plan. The Company incurred approximately $5,000 and $15,000
in 401(k) match during 1997 and 1998, respectively.
9. COMMON STOCK
On June 12, 1997, the Company amended its certificate of incorporation to
increase the aggregate number of shares of common stock authorized and issued,
from 200 shares, no par value, to 2,000,000 shares, $.01 par value.
On July 15, 1999, the Company again amended its certificate of
incorporation to increase the aggregate number of shares of common stock
authorized from 2,000,000 shares to 10,000,000 shares of common stock and
2,000,000 of preferred stock. In addition, a stock split of 5.9 shares for each
share previously outstanding was declared resulting in 5,900,000 shares
outstanding after the split. All share amounts have been restated to reflect the
stock split. On September 27, 1999, the Company again amended its certificate of
incorporation to increase the aggregate number of shares of common stock
authorized from 10,000,000 shares to 20,000,000 shares.
10. STOCK INCENTIVE PLAN
On June 16, 1997, the Company established an incentive stock option plan,
whereby incentive stock options and nonqualifying stock options may be granted
to employees and consultants to the Company which entitle them to purchase
shares of the Company's common stock.
The Company's 1997 Incentive Stock Option Plan authorized the grant of up
to 320,000 options to acquire shares of the Company's $.01 par value common
stock. Effective January 1, 1999, the Company increased the number of shares
authorized for issuance under the 1997 Incentive Stock Option Plan to 600,000
from 320,000. All options granted have 10 year terms. Vesting is either 25% on
the grant date
F-11
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
10. STOCK INCENTIVE PLAN (CONTINUED)
and 25% on each anniversary date during the following three years, or 20% on the
date of grant and 20% on each anniversary date during the following four years.
No options were exercised during 1997, 1998 or 1999.
The exercise price per share is determined by the Company's board of
directors at the time of grant of such option provided, however, that in the
case of an incentive stock option, the exercise price may not be less than the
fair market value of the common stock at the time of the grant. The vesting and
expiration periods of options issued under this Plan are determined by the
Company's board of directors as set forth in the applicable option agreement,
provided that such date shall not be later than ten years after the date on
which the options were granted.
During 1997, 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 the
Company's existing eligible non-employee directors was 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 upon each
annual meeting of 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 automatically
be granted to each eligible employee director upon each annual meeting of 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
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)
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 $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 September 30,
1999. Through September 30, 1999, ITIS had no operations.
On August 10, 1999, ITIS entered into a stock purchase agreement (the
'Agreement') with Wolotsky Enterprises, L.L.C., a Maryland limited liability
company owned 100% by Paul Wolotsky. In accordance with the agreement, ITIS
issued 50 new shares of its common stock to Wolotsky Enterprises,
F-13
<PAGE>
INFINITE TECHNOLOGY GROUP LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
12. ITIS (CONTINUED)
L.L.C. in exchange for the right to enter into a services agreement with
WorldOnline, Inc. for the establishment of an auto industry intranet project
(the 'CarNet Services Agreement'). As the result of this transaction, McGowan,
Dresner and Wolotsky Enterprises, L.L.C. each own 50 shares, or one-third, of
ITIS common stock.
On September 20, 1999, the Company and ITIS entered into a merger agreement
providing that ITIS will merge (the 'ITIS Merger') with and into a wholly-owned
subsidiary of the Company upon the closing of the Company's proposed initial
public offering. At the time of the ITIS Merger, all of the outstanding shares
of common stock of ITIS will be exchanged for a total of 100,000 shares of
common stock of the company and $3.5 million in cash to be funded from the
proceeds of the proposed public offering. In connection with the ITIS Merger,
McGowan, Dresner and Wolotsky Enterprises, L.L.C. entered into a consideration
splitting agreement pursuant to which McGowan and Dresner will each receive $1.5
million of the proceeds in cash and Wolotsky Enterprises, L.L.C. will receive
$.5 million in cash and 100,000 shares of Company common stock which will be
valued at a price approximating the Company's initial public offering price.
ITIS recorded the estimated value of the CarNet services agreement at $850,000,
with a corresponding credit to minority interest, based upon the value ascribed
to the Company's shares to be received in the proposed ITIS Merger. The asset
will be amortized to operations over the three-year life of the CarNet services
agreement.
The ITIS Merger will be accounted for as a purchase business combination;
however, as the CarNet Services Agreement was recorded at its fair value upon
acquisition by ITIS on August 19, 1999, and given the September 20, 1999 ITIS
Merger agreement, the value of the CarNet Services Agreement as recorded by ITIS
continues to approximate its fair value in accounting for the ITIS Merger. 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, the Company has 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 the Company's common stock. Paul Wolotsky is the sole officer,
director and shareholder of MCSP, Inc.
13. PRO FORMA INCOME TAXES AND SUBCHAPTER S DISTRIBUTION (UNAUDITED)
As described in Note 2, the Company elected to operate under Subchapter S
of the Internal Revenue Code. In connection with the completion of the Company's
proposed initial public offering, the Company will no longer qualify as an
S corporation and will become subject to corporate income taxes. The Company
estimates that it will establish a deferred tax liability of approximately
$30,000 with a corresponding 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.
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)
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
$850,000 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%).
On December 3, 1999, the Company repaid a note with a bank for $7,300,000
due under its bank line of credit. Simultaneously, the Company borrowed
$5,786,000 under a note with a bank. The note is due December 31, 1999, and
bears interest at the bank's prime rate plus three quarters of one percent (9%).
On December 15, 1999, the Company and its bank agreed to extend the date
under which borrowings under its line of credit automatically reduce to
$3,500,000, to the earlier of January 31, 2000 or the consummation of an initial
public offering of the common stock of the Company.
On December 31, 1999, the Company repaid a note with a bank for $5,786,000
due under its bank line of credit. Simultaneously the Company borrowed
$4,600,000 under a note with a bank, which becomes due January 31, 2000, and
bears interest at the bank's prime rate plus three quarters of one percent (9%).
On January 3, 2000, the Company repaid a note with a bank for $4,600,000
due under its bank line of credit. Simultaneously, the Company borrowed
$4,500,000 under a note with a bank. The note is due January 31, 2000, 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.
Until , 2000 (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.
- --------------------------------------------------------------------------------
, 2000
________________________________________________________________________________
<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 us. 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 ours may and, in certain cases,
must be indemnified by us 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 an 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 our best interests. 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 us, 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
Our certificate of incorporation provides that a director of ours shall not
be personally liable to us or our 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 us or our 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 we will indemnify our 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 ours, 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 our shareholders shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of ours existing at the time of such repeal or
modification.
II-1
<PAGE>
Bylaws
Our bylaws generally provide for indemnification of officers, directors,
employees and agents of ours and persons serving at the request of us in such
capacities for other business organizations against certain losses, costs,
liabilities, and expenses incurred by reason of their positions with our company
or such other business organizations. In the case of non-derivative actions, we
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 our best interests. In the case of derivative actions, we 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 our best interests. We also have policies insuring our
officers and directors and officers and directors of our 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 our
directors and officers in certain circumstances.
Insurance
We intend to maintain a policy of liability insurance to insure our
officers and directors and certain directors and officers of our wholly owned
subsidiaries against losses resulting from certain acts committed by them in
their capacities as officers and directors of ours or our subsidiaries.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1996, we have sold and issued the following securities:
1. Our 1997 Stock Option Plan, as amended, provides for the grant of stock
options to key employees of ours (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. We believe
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, 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.
2. Our 1999 Directors' Stock Option Plan, provides for the grant of stock
options to employee and non-employee directors and committee members of
ours (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 ours for the entirety of the year in which
II-2
<PAGE>
the grant of an option is made; and (iii) the remaining 25%, if the
optionee has continued to serve as a director of ours 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. We believe
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 ours, 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, all of which were granted on September 15, 1999, were outstanding
at an exercise price of $10.00 per share. No such outstanding options
had been exercised.
3. On September, 1 1999, we issued a ten (10) year option to Paul Wolotsky
to purchase up to 300,000 shares of our 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.
We believe 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, we 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 ours. The merger shall be consummated upon
effectiveness of this offering. At consummation of the merger, we shall
issue 100,000 shares of common stock to ITIS as part of the merger
consideration. We believe 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, we issued a five (5) year warrant to Chemical
Investments, Inc. to purchase up to 25,000 shares of our common stock at
an exercise price of $.01 per share, as additional incentive for The
Chase Manhattan Bank to extend our line of credit. The shares underlying
the warrant vest on the earlier of (i) June 30, 2000, or (ii) the
closing of our initial public offering. Pursuant to the terms of the
warrant, Chemical Investments, Inc. has the right, commencing on
June 30, 2000 and ending on the earlier of November 1, 2004 or the
second anniversary of the closing of our initial public offering, to
sell a portion of the warrants back to us, for an aggregate repurchase
price of $250,000. We believe that our issuance of the warrants to
Chemical Investments, Inc. was 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. This transaction represented a distinct financing transaction
from our proposed public offering and was privately negotiated as part
of an extension of a pre-existing credit engagement.
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.*
10.9 -- Letter Agreement, dated December 8, 1999, amending
Employment Agreement of Paul Wolotsky.**
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.*
99.1 -- Consent of Frank Tasco.**
</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
II-4
<PAGE>
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities Act
the information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Mineola, on January 7, 2000.
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 amendment
no. 3 to the registration statement has been signed by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ MARK DRESNER Chairman of the Board and Director January 7, 2000
.........................................
MARK DRESNER
* President, Chief Executive Officer January 7, 2000
......................................... and Director (Principal Executive
JAMES MCGOWAN Officer)
* Director January 7, 2000
.........................................
PAUL WOLOTSKY
* Director January 7, 2000
.........................................
BERNARD ESQUENET
* Director January 7, 2000
.........................................
CRAIG S. LIBSON
* Chief Financial Officer (Principal January 7, 2000
......................................... Financial and Accounting Officer)
DENNIS WILSON
*By: /s/ MARK DRESNER
...............................................
MARK DRESNER
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<C> <S> <C>
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.*....................................
10.9 -- Letter Agreement, dated December 8, 1999, amending
Employment Agreement of Paul Wolotsky.**.................
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.*................................
99.1 -- Consent of Frank Tasco.**................................
</TABLE>
- ------------
* Previously filed.
** Filed herewith.
*** To be filed by amendment.
<PAGE>
Execution Copy 6/4/97
JMB - 40 BROAD STREET ASSOCIATES,
LANDLORD
And
INFINITE TECHNOLOGY GROUP
TENANT
-------------------------
LEASE
-------------------------
DEMISED PREMISES:
40 BROAD STREET
SUITE 1900
NEW YORK, NEW YORK
<PAGE>
TABLE OF CONTENTS
Article Page
1 BASIC LEASE PROVISIONS ..................................................1
2 TERM, PREPARATION AND POSSESSION OF DEMISED PREMISES ....................2
3 USE .....................................................................3
4 FIXED RENT ..............................................................4
5 TAXES ...................................................................4
6 OPERATING EXPENSES ......................................................6
7 ELECTRICITY .............................................................9
8 LANDLORD'S PROPERTY, TENANT'S PROPERTY .................................10
9 REPAIRS, ALTERATIONS AND LIENS .........................................11
10 COMPLIANCE WITH LAWS ...................................................13
11 ASSIGNMENT, SUBLETTING, MORTGAGING .....................................14
12 INSURANCE ..............................................................19
13 DAMAGE OR DESTRUCTION ..................................................21
14 LANDLORD'S LIABILITY ...................................................22
15 CONDEMNATION ...........................................................23
16 CONDITIONS OF LIMITATION ...............................................24
17 RE-ENTRY BY LANDLORD ...................................................25
18 LANDLORD'S REMEDIES, DAMAGES ...........................................26
19 SERVICES AND EQUIPMENT .................................................28
20 ACCESS; RIGHT TO CHANGE PUBLIC PORTIONS OF BUILDING ....................29
21 BROKER .................................................................30
22 SUBORDINATION ..........................................................30
23 LEGAL PROCEEDINGS; WAIVER OF JURY TRIAL ................................31
24 ESTOPPEL CERTIFICATE ...................................................32
25 SURRENDER OF DEMISED PREMISES ..........................................32
26 NOTICES ................................................................33
-i-
<PAGE>
Section Page
- ------- ----
27 SECURITY DEPOSIT .......................................................33
28 COVENANT OF QUIET ENJOYMENT ............................................34
29 PARTNERSHIP TENANT .....................................................34
30 MISCELLANEOUS ..........................................................35
-ii-
<PAGE>
Exhibits
- --------
A FLOOR PLAN
A-1 LANDLORD'S WORK
B CLEANING SCHEDULE
C RULES AND REGULATIONS
-iii-
<PAGE>
THIS LEASE is made as of the 4th day of June, 1997, between JMB-40 Broad
Street Associates, 40 Broad Street, New York, New York 10004 ("Landlord") and
Infinite Technology Group, a New York corporation, having an address at 77
Jericho Turnpike, Mineola, New York 11501 ("Tenant").
W I T N E S S E T H:
Landlord and Tenant hereby covenant and agree as follows:
ARTICLE 1
BASIC LEASE PROVISIONS
The Building: 40 Broad Street
New York, New York
The Land: The land upon which the Building is
located.
Demised Premises A portion of the nineteenth (19th) floor of
the Building consisting of approximately
3,218 square feet shown by hatching on the
floor plan attached hereto as Exhibit A and
made a part hereof.
Commencement Date: That date which is the later to occur of:
(a) seven (7) Business Days following
Substantial Completion of Landlord's Work,
or (b) June 15, 1997.
Expiration Date: That date which is the last day of the
calendar month in which the 5th anniversary
of the Commencement Date occurs.
Landlord's Work: The work described on Exhibit A-1 attached
hereto and made a part hereof. Landlord has
made and makes no representations as to the
date on which it will complete Landlord's
Work and Landlord shall be under no penalty
or liability to Tenant whatsoever by reason
of any delay in such performance and this
Lease and the Commencement Date shall not
be affected thereby. If, for any reason
whatsoever, Landlord's Work is not
substantially completed by the Commencement
Date, then Landlord shall be entitled to
have access to the Demised Premises to
complete Landlord's Work and the payment of
Fixed Rent and additional rent shall not be
affected thereby.
Fixed Rent:
Period Annual Fixed Rent Monthly Installment
- ------ ----------------- -------------------
From the Commencement Date $67,578.00 $5,631.50
through and including the last
day of the twenty-fourth
(24th) month following the
month in which the
Commencement Date occurs
From the first day of the 70,796.00 5,899.66
twenty-fifth (25th) month
following the month in which
the Commencement Date occurs
through and including the last
day of the thirty-sixth (36th)
month
<PAGE>
following the month in
which the Commencement Date
occurs
From the first day of the 74,014.00 6,167.83
thirty-seventh month (37th)
month following the month in
which the Commencement date
occurs through and including
the Expiration Date
Base Tax Year: The fiscal year commencing on July 1, 1997
and ending June 30, 1998.
Tenant's Proportionate Share 1.24% (computed by using a fraction, the
numerator of which is the total number of
square feet in the Demised Premises
(3,218) and the denominator of which is the
total number of square feet in the Building
(259,802)).
Base Operating Year: The twelve (12) month period commencing on
January 1, 1997 through and including
December 31, 1997.
Electricity: Direct Meter with Con Edison as Per Article
7.
Broker: Helmsley-Noyes
Heitman Properties of New York
Security Deposit: $5,631.50
Notices: If to Tenant, Infinite Technology Group
77 Jericho Turnpike
Mineola, New York 11501
a copy to: Farrell Fritz Caemmerer
Cleary Barnosky &
Armentano
EAB Plaza
Uniondale, New York 11566
Attention: Charles M.
Strain, Esq.
If to Landlord, Heitman Properties of New
York Ltd.
40 Broad Street
New York, New York 10004
Attention: Building
Manager
a copy to: Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, NY 10036
Attention: Jeffrey M.
Gussoff, Esq.
ARTICLE 2
TERM, PREPARATION AND POSSESSION OF DEMISED PREMISES
Section 2.01. Landlord hereby leases to Tenant, and Tenant hereby hires
from Landlord, upon and subject to the terms, covenants and conditions of this
Lease, the Demised Premises. Tenant shall have the right to use, for
-2-
<PAGE>
purposes of access to and egress from the Demised Premises, in common with
others, the lobbies, elevators and other public portions of the Building. The
term of this Lease shall commence on the Commencement Date and shall expire on
the Expiration Date, or on such earlier date, if any, on which the term of this
Lease shall be sooner terminated pursuant to any of the conditions or provisions
of this Lease or pursuant to law. Promptly after the occurrence of the
Commencement Date, the parties shall execute and deliver to the other an
agreement in recordable form and content reasonably satisfactory to Landlord
(the "Commencement Date Agreement") which shall state, among other things, the
Commencement Date and Expiration Date of the term hereof. The delay or failure
of the parties to enter into the Commencement Date Agreement shall not affect
the dates herein described as the Commencement Date or Expiration Date.
Section 2.02. Except as otherwise provided in Exhibit A-1 attached hereto
and incorporated by reference herein, Tenant shall take possession of the
Demised Premises "as is", and Landlord shall have no obligation to alter,
improve, decorate or otherwise prepare the Demised Premises for Tenant's
occupancy, except that Landlord shall perform Landlord's Work.
Section 2.03. If Landlord, for any reason whatsoever, shall be unable to
give Tenant possession of the Demised Premises on the Commencement Date,
Landlord shall not be subject to any liability, nor shall the validity of this
Lease or the obligations of Tenant hereunder be thereby affected. Without
limiting the foregoing, the parties hereto expressly waive the provisions of
Section 223-a of the Real Property Law and agree that the foregoing is intended
to constitute an express "provision to the contrary" within the meaning of said
Section 223-a.
ARTICLE 3
USE
Section 3.01. Tenants shall use and occupy the Demised Premises solely for
executive and general business office purposes and for no other purpose.
Section 3.02. If any governmental license or permit, other than a
certificate of occupancy for the Building, shall be required for the proper and
lawful conduct of Tenant's business in the Demised Premises or any part thereof,
Tenant, at its expense, shall duly procure and thereafter maintain such license
or permit and furnish a photostatic copy thereof to Landlord upon Landlord's
request therefor. Tenant shall at all times comply with the terms and conditions
of each such license or permit.
Section 3.03. (a) Any provision hereof to the contrary notwithstanding,
Tenant shall not use the Demised Premises or any part thereof or permit the
Demised Premises or any part thereof to be used (i) for a banking, trust
company, depository, guarantee or safe deposit business, (ii) as a savings bank,
or as a savings and loan association or as loan company, (iii) for the sale of
travelers' checks, money orders, drafts, foreign exchange or letters of credit
or for the receipt of money for transmission, (iv) as restaurant or bar or for
the sale of confectionery, soda, beverages, sandwiches, ice cream or baked goods
or for the preparation, dispensing or consumption of food or beverages in any
manner whatsoever, except for a pantry for the preparation of coffee or tea,
(v) as a stock broker's or dealer's office or for the underwriting of
securities, (vi) as a school, (vii) by any agency or department of the United
States Government or the City or State of New York or any foreign government or
instrumentality, (viii) for public stenography, (ix) for an employment or
placement agency, or (x) for the business of photographic or offset printing.
(b) Tenant shall not suffer or permit the Demised Premises or any
part thereof to be used in any manner, or anything to be done therein, or suffer
or permit anything to be brought into or kept therein, which would in any way
(i) violate any of the provisions of any "Superior Lease" or "Superior
Mortgage", as defined herein, the certificate of occupancy for the Demised
Premises or the Building or the requirements of public authorities, (ii) cause,
or in Landlord's reasonable opinion be likely to cause, physical damage to the
Building, (iii) constitute a public or private nuisance, (iv) impair the
appearance, character or reputation of the Building, (v) interfere with the
normal operation of the heating, air-conditioning, ventilating, plumbing or
other mechanical or electrical systems of the Building or the elevators
installed therein, or (vi) impair or interfere with the use of any of the other
areas of the Building by, or occasion discomfort, annoyance or inconvenience to,
Landlord or any of the other tenants or occupants of the Building.
-3-
<PAGE>
ARTICLE 4
FIXED RENT
Section 4.01. Throughout the term of this Lease, Tenant shall pay Fixed
Rent in equal monthly installments, in advance, on the first day of each and
every calendar month during the term of this Lease, except that Tenant shall pay
the first monthly installment of Fixed Rent upon the execution and delivery of
this Lease by Tenant. In the event that the Commencement Date shall be a date
other than the first day of a calendar month, Fixed Rent shall be prorated for
such period from the Commencement Date to the end of such calendar month.
Section 4.02. All costs and expenses (other than Fixed Rent) which Tenant
assumes or agrees to pay to Landlord pursuant to this Lease shall be deemed and
constitute additional rent hereunder, and in the event of nonpayment, Landlord
shall have all the rights and remedies with respect thereto as is herein and at
law provided for in case of nonpayment of Fixed Rent.
Section 4.03. All Fixed Rent and additional rent shall be paid promptly
when due, without notice or demand therefore, and without any abatement,
deduction or set-off for any reason whatsoever, except as may be expressly
provided in this Lease, and shall be paid in lawful money of the United States
to Landlord or Landlord's agent at such place as Landlord or Landlord's agent
may designate by notice to Tenant. Any checks tendered by Tenant in payment of
Fixed Rent, additional rent and adjustments of Fixed Rent, shall be either (a) a
teller's or cashier's or official bank check of a bank which is a member of the
New York Clearing House Association and shall be payable to the order of
Landlord (or Landlord's agent) or (b) Tenant's good, unendorsed check drawn on a
bank which is a member of the New York Clearing House Association and payable to
the order of Landlord (or Landlord's agent).
Section 4.04. If all or any part of the Fixed Rent or additional rent
shall at any time become uncollectable, reduced or required to be refunded by
virtue of any rules, regulations, orders, laws and ordinances (including,
without limitation, rent control or stabilization laws) of governmental or
quasi-governmental authorities (collectively, "Laws and Ordinances"), then, for
the period prescribed by such Laws and Ordinances, Tenant shall pay to Landlord
the maximum amounts permitted pursuant to said Laws and Ordinances. Upon the
expiration of the applicable period of time during which such amounts shall be
uncollectable, reduced or refunded, Tenant shall pay to Landlord all such
uncollected, reduced or refunded amounts that would have been payable for such
period of time absent such Laws and Ordinances to the extent permitted by law.
Section 4.05. In addition to any other remedies Landlord may have under
this Lease, if any Fixed Rent or additional rent payable hereunder by Tenant to
Landlord are not paid within five (5) days after the date due hereunder, (a)
Tenant shall pay to Landlord a late charge equal to $250,000 and (b) such Fixed
Rent or Additional Rent shall bear interest at the rate of one and one-half
(1-1/2%) percent per month or the maximum rate permitted by law, whichever is
less, from the due date thereof until paid, and the amount of such interest
shall be additional rent hereunder.
Section 4.06. Notwithstanding the foregoing, commencing on the
Commencement Date, monthly Fixed Rent shall abate for the first three (3)
calendar months of the Term; provided, however, that if at any time during the
term of this Lease (including any extensions or renewals thereof), Tenant fails
to cure a default within the applicable cure period under this Lease, then with
respect to the abatement of any prospective monthly Fixed Rent shall immediately
become null and void, and within ten (10) days after request by Landlord, Tenant
shall pay to Landlord an amount equal to any and all Monthly Fixed Rent
previously abated. The abatement of monthly Fixed Rent provided herein shall not
relieve Tenant from the performance of Tenant's other obligations under this
Lease including the obligation to pay on a timely basis all Rent Adjustments and
all other additional rent and other obligations under this Lease, which shall
become due and payable during the term.
ARTICLE 5
TAXES
Section 5.01. In addition to the Fixed Rent hereinbefore reserved, Tenant
covenants and agrees to pay to Landlord, as additional rent, sums computed in
accordance with the following sections hereof.
Section 5.02. For the purposes of this Article and other provisions of
this lease:
-4-
<PAGE>
(a) The term "Taxes" shall mean all real estate taxes, assessments,
special assessments, water and sewer rents, governmental levies, county taxes or
any other governmental charge, general or special, ordinary or extraordinary,
unforeseen as well as foreseen, of any and every kind or nature whatsoever,
which are or may be assessed or imposed upon the Land, the Building and the
sidewalks, plazas, streets and alleys in front of or adjacent thereto, and any
rights or interests appurtenant thereto under the laws of the United States, the
State of New York or any political subdivision thereof or by the City of New
York, or any political subdivision thereof. If, due to a future change in the
method of taxation or in the taxing authority, a franchise, income, transit,
profit or other tax or governmental imposition, however designated (including
without limitation any tax, excise or fee, measured by or payable with respect
to any rents, licenses or other charges received by Landlord and levied against
Landlord and/or the Land and/or Building) be shall levied against Landlord
and/or the Land and/or the Building in substitution, in whole or in part, or as
an addition to or in lieu of any Taxes, then such franchise, income, transit,
profit or other tax or governmental imposition shall be deemed to be included
within the definition of the term "Taxes" for the purposes hereof, excluding any
income, corporate franchise, estate, inheritance, succession, capital stock or
transfer tax levied on Landlord. Only Landlord shall be eligible to institute
tax reduction or other proceedings to reduce the assessed valuation of the Land
or the Building. If Landlord shall receive a refund of Taxes for any Tax Year in
respect of which Tenant has made a Tenant's Tax Payment, Landlord shall, at
Landlord's option, either pay to Tenant or credit against the next payment of
additional rent payable by Tenant pursuant to this Lease, Tenant's Proportionate
Share of the net refund (after deducting from such total refund the costs and
expenses, including, but not limited to, appraisal, accounting and legal fees of
obtaining the same.
(b) The term "Tax Year" shall mean each twelve (12) month period
following the Base Tax Year, any portion of which period occurs during the term
of this Lease.
Section 5.03 Tenant shall pay to Landlord, as additional rent hereunder,
an amount (the "Tax Payment") equal to Tenant's Proportionate Share of the
amount, if any, by which the Taxes for any Tax Year, any part of which shall
occur during the term of this Lease, shall exceed the Taxes payable for the Base
Tax Year, whether such increase results from a higher tax rate or an increase in
the assessed valuation of the Land or the Building, or both, or from any other
cause or reason whatsoever. A copy of the tax bill of The City of New York or
other taxing authority imposing Taxes on the Land or the Building shall be
sufficient evidence of the amount of Taxes. Notwithstanding the fact that the
aforesaid additional rent is measured by Taxes, such amount is additional rent
and shall be paid by Tenant as provided herein regardless of the fact that
Tenant may be exempt, in whole or in part, from the payment of any Taxes by
reason of Tenant's diplomatic status or for any other reason whatsoever.
Section 5.04. With respect to each Tax Year occurring in whole or in part
during the term of this Lease, Tenant shall pay to Landlord the Tax Payment, in
equal monthly installments during the calendar year in which such Tax Year
commences, in the manner hereinafter described. At any time during the calendar
year in which a Tax Year commences, Landlord may furnish to Tenant a written
estimate (a "Tax Estimate") setting forth Landlord's estimate of the Tax Payment
for such Tax Year ("Estimated Tax Payment"). Such estimate shall be determined
by Landlord by applying to the most recently announced assessed value of the
Land and Building (whether final or otherwise) such tax rate as Landlord shall
anticipate is the tax rate to be finally determined for such Tax Year. Subject
to adjustment as hereinafter provided, Tenant shall pay Landlord on the first
day of each month during each calendar year occurring in whole or in part during
the term hereof, an amount equal to one-twelfth (1/12th) of the Estimated Tax
Payment for the Tax Year commenting during such calendar year. If Landlord
furnishes a Tax Estimate for the Tax Year subsequent to the commencement of the
calendar year in which such Tax Year begins, then (a) until the first day of the
month following the month in which the Tax Estimate is furnished to Tenant,
Tenant shall continue to pay to Landlord on the first day of each month and
amount equal to the monthly sum payable by Tenant to Landlord with respect to
the previous Tax Year, (b) promptly after the Tax Estimate is furnished to
Tenant, Landlord shall give notice to Tenant stating whether the amount
previously paid by Tenant to Landlord during such calendar year was greater or
less than the installments of the Estimated Tax Payment to be paid during such
calendar year in accordance with the Tax Estimate, and (i) if there shall be a
deficiency, Tenant shall pay the amount thereof within ten (10) days after
demand therefor, or (ii) if there shall have been an overpayment, Landlord shall
credit the amount thereof against the next monthly installments of the
additional rent payable under this Lease, and (c) on the first day of the month
following the furnishing to Tenant of the Tax Estimate, and monthly thereafter
until the rendering to Tenant of a Tax Statement (hereinafter defined) for such
Tax Year, Tenant shall pay to Landlord an amount equal to one-twelfth (1/12) of
the amount shown on such Tax Estimate. At any time during or after such Tax
Year, (x) Landlord shall furnish to Tenant a written statement (a "Tax
Statement") setting forth the Tax Payment for such Tax Year, and stating whether
the sum of the installments previously paid by Tenant to Landlord pursuant to
the sum of the installments previously paid by Tenant to Landlord pursuant to
the Tax Estimate or otherwise for such Tax Year was greater or less than the sum
of the installments
-5-
<PAGE>
of the Tax Payment to be paid for such Tax Year in accordance with the Tax
Statement, (y) any deficiency or overpayment shall be disposed of in the manner
of a deficiency or overpayment in Estimated Tax Payment, and (z) on the first
day of the month following the month in which the Tax Statement is furnished to
Tenant, and monthly thereafter until a new Tax Estimate or Tax Statement is
furnished to Tenant, Tenant shall pay to Landlord an amount equal to one-twelfth
(1/12th) of the Tax Payment shown on the Tax Statement.
ARTICLE 6
OPERATING EXPENSES
Section 6.01. In addition to the annual Fixed Rent, Tenant covenants and
agrees to pay, as additional rent, sums computed in accordance with the
following sections hereof.
Section 6.02. For the purposes of this Article 6 and other provisions of
this Lease:
(a) The term "Operating Expenses" shall mean all costs and expenses
paid or incurred by Landlord or on Landlord's behalf which are properly
allocable to the ownership, management, repair, maintenance, replacement,
restoration or operation of the Building, the Land and any plazas, sidewalks,
curbs and appurtenances thereto, including, without limitation, the following
items (which items are illustrative of items to be included in Operating
Expenses):
(1) "Labor Costs" (as such term is hereinafter defined) of
persons performing services required in connection with the operation, repair
and maintenance of the Land or the Building;
(2) the cost of (including, without limitation, any rental
cost of) materials and supplies used in the operation, cleaning, safety,
security, renovation, replacement, repair and maintenance of the Building, its
plazas, sidewalks, curbs and appurtenances, and any plant, equipment, facilities
and systems designed to supply heat, ventilation, air conditioning or any other
services or utilities, or comprising any portion of the electrical, gas, steam,
plumbing, sprinkler, mechanical, communications, alarm, security or fire/life
safety systems or equipment, including any sales and other taxes thereon;
(3) the depreciation for, or the rental cost or value
(including applicable sales taxes) of, hand tools and other movable equipment
used in the operation, cleaning, safety, security, repair or maintenance of the
Building, its plazas, sidewalks, curbs and appurtenances;
(4) reasonable legal, accounting and other professional fees
incurred in connection with the operation or management of the Land or the
Building;
(5) amounts charged to Landlord by independent contractors
for services, materials and supplies furnished in connection with the operation,
repair and maintenance of any part of the Building, its plazas, sidewalks, curbs
and appurtenances, including the heating, air-conditioning, ventilation,
plumbing, electrical, elevator, safety and other systems of the Building;
(6) the cost of all charges for window cleaning and other
cleaning, janitorial, security and other services, in and about the Building,
its plazas, sidewalks, curbs and appurtenances;
(7) premiums paid by Landlord for rent, casualty, boiler,
sprinkler, plate-glass, liability and fidelity insurance with respect to the
Land or Building, its plazas, sidewalks, curbs and appurtenances, and any other
insurance Landlord maintains or is required to maintain with regard to the Land
or the Building or the maintenance or operating thereof;
(8) costs (including all applicable taxes) for electricity
(as measured by the Building's dedicated electric meters and evaluated under the
same rate classification and frequency that Landlord is charged by the public
utility furnishing electricity to the Building), steam, telephone, and other
utilities for the portions of the Land and the Building not leased and occupied
by tenants in the Building and for utilities and electricity (so measured and
evaluated)
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consumed in connection with the operation of the heating, ventilating and air
conditioning equipment servicing the Building, including the tenanted portions
thereof;
(9) water charges and sewer rents or charges to the extent not
specifically reimbursable by tenants of the Building;
(10) the cost of painting and otherwise decorating any
non-tenant areas of the Building, its plazas and sidewalks;
(11) holiday decorations for the lobby and other public
portions of the Building, its plazas and sidewalks;
(12) dues, fees and contributions paid to civic organizations
and associations representing Landlord, or of which Landlord is a member, in the
City of New York;
(13) franchise, license and similar fees and charges paid by
Landlord to any governmental agency for the privilege of owning, leasing,
operating, maintaining or servicing the Building or any of its equipment,
property or appurtenances;
(14) the cost of exterior and interior landscaping of
non-tenant areas of the Land, the Building, its plazas and sidewalks;
(15) the cost of uniforms, work clothes and dry cleaning for
personnel of the Building;
(16) the cost or value, or the cost or value of the rental,
together with the cost of installation, of any Building security or other system
used in connection with life or property protection installed after the Base
Year (including the cost, or the cost or value of the rental, of all machinery,
electronic systems and other equipment comprising any part thereof), as well as
the cost of the operation and repair of any such system in operation during the
Base Year;
(17) whether or not capitalized under generally accepted
accounting principles, costs for alterations and improvements to the Building
made after the Base Year by reason of the laws and requirements of any public
authorities or the requirements of insurance bodies or Landlord's insurer,
provided, however, that to the extent such costs are capitalized under generally
accepted accounting principles, such cost shall be amortized over a period of
five years;
(18) management fees or, if no managing agent is employed by
Landlord, a sum in lieu thereof which is not in excess of the then prevailing
rates for management fees of other first class office buildings in New York
County;
(19) whether or not capitalized under generally accepted
accounting principles, the cost of improvements, equipment or machinery
installed for the purpose of reducing energy consumption or reducing other
Operating Expenses, provided, however that to the extent such costs are
capitalized under generally accepted accounting principles, such costs shall be
amortized over a period of five years;
(20) all other charges properly allocable to the repair,
ownership, management, maintenance, replacement, restoration or operation of the
Building in accordance with real estate accounting practices customarily used in
New York City.
The term "Labor Costs" shall mean all expenses incurred by Landlord
or on Landlord's behalf which shall be related to employment of personnel,
including without limitation amounts incurred for wages, salaries and other
compensation for services, payroll, social security, unemployment and other
similar taxes. Workers' Compensation insurance, liability benefits, pensions,
hospitalization, retirement plans and insurance (including, without limitation,
group life and disability), uniforms and working clothes and the cleaning
thereof, and expenses imposed on or on behalf of Landlord pursuant to any
collective bargaining agreement relating to such employees. With respect to
employees who
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are not employed on a full-time basis with respect to the Building, a prorata
portion of expenses allocable to the time any such employee is employed with
respect to the Building shall be included in Labor Costs.
(b) The following items are to be excluded from Operating Expenses:
(1) Labor costs in respect of officers and executives of Landlord, unless for
work actually performed in or about the Building ordinarily done by a third
person, and then only at compensation no higher than that which would have been
paid to such third person; (2) legal or other fees, leasing commissions,
advertising expenses, promotional expenses and other costs incurred in leasing
or attempting to lease any portion of the Building; (3) any insurance premium to
the extent that Landlord is specifically entitled to be reimbursed therefor by
Tenant pursuant to this Lease (other than pursuant to this Article) or by any
other tenant or other occupant of the Building pursuant to its lease (other than
pursuant to an operating expenses escalation clause contained therein); (4) the
cost of any items for which Landlord is reimbursed by insurance or otherwise
compensated, including reimbursement by any tenant; (5) the cost of any
alterations, additions, changes, replacements, improvements and repairs and
other items which are made in order to prepare space for occupancy by a new
tenant; (6) the cost of electricity furnished to the Demised Premises or any
other space in the Building leased to tenants and for which tenants are
specifically billed in accordance with the terms of their leases; (7) all Taxes;
and (8) refinancing costs.
(c) The cost of any item which was included in Operating Expenses
for the Base Year and which is no longer being incurred by Landlord by reason of
the installation of a labor saving device or other capital improvement shall be
deleted from Operating Expenses for the Base Year in connection with the
calculation of the Operating Payment for all Operating Years from and after the
Operating Year in which such installation occurs.
(d) If during all or part of any Operating Year, Landlord shall not
furnish any particular item(s) of work or service (which would otherwise
constitute an Operating Expense hereunder) to portions of the Building due to
the fact that (i) such portions are not occupied or leased, (ii) such item of
work or service is not required or desired by the tenant of such portion, (iii)
such tenant is itself obtaining and providing such item of work or service or
(iv) for any other reason, then, for the purposes of computing Operating
Expenses, the amount for such item and for such period shall be deemed to be
increased by an amount equal to the additional costs and expenses of furnishing
such item or work or services to such portion of the Building or to such tenant.
(e) The term "Operating Year" shall mean each twelve (12) month
period following the Base Operating Year, any portion of which period occurs
during the term of this Lease.
(f) The term "Operating Statement" shall mean a written statement
prepared by Landlord or its agent, setting forth Landlord's computation of the
sum payable by Tenant under this Article for a specified Operating Year.
Section 6.03. For each Operating Year, any part of which shall occur
during the term of this Lease, Tenant shall pay an amount (the "Operating
Payment") equal to Tenant's Proportionate Share of the amount, if any, by which
Operating Expenses for such Operating Year shall exceed the Operating Expenses
for the Base Operating Year, provided, however, that if the Commencement Date
shall occur other than on the first day of an Operating Year or if the term of
this Lease shall expire or be sooner terminated on other than the last day of an
Operating Year, then the Operating Payment in respect thereof shall be prorated
to correspond to that portion of such Operating Year occurring within the term
of this Lease.
Section 6.04. At any time during each Operating Year, Landlord may furnish
to Tenant a written statement (an "Estimate Statement") setting forth Landlord's
estimate of the Operating Payment for such Operating Year (the "Estimated
Payment"). Tenant shall pay to Landlord on the first day of each month during
each Operating Year an amount equal to one twelfth (1/12th) of the Estimated
Payment. If Landlord furnishes an Estimate Statement for an Operating Year
subsequent to the commencement thereof, then (i) until the first day of the
month following the month in which the Estimate Statement is furnished to
Tenant, Tenant shall continue to pay to Landlord on the first day of each month
an amount equal to the monthly sum payable by Tenant to Landlord with respect to
the previous Operating Year, (ii) promptly after the Estimate Statement is
furnished to Tenant, Landlord shall give notice to Tenant stating whether the
amount previously paid by Tenant to Landlord for the current Operating Year was
greater or less than the installment of the Estimated Payment to be paid for the
current Operating Year, and (a) if there shall be a deficiency, Tenant shall pay
the amount thereof within ten (10) days after demand therefor, or (b) if there
shall have been an overpayment, Landlord shall credit the amount thereof against
the next monthly installments of the additional rent payable under this Lease;
and
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(iii) on the first day of the month following the month in which the Estimate
Statement is furnished to Tenant, and monthly thereafter throughout the
remainder of the Operating Year, Tenant shall pay to Landlord an amount equal to
one-twelfth (1/12th) of the Estimated Payment shown on the Estimate Statement.
Landlord may, not more than twice during each Operating Year, furnish to Tenant
a revised Estimate Statement; if a revised Estimate Statement is furnished to
Tenant, the Estimated Payment for such Operating Year shall be adjusted in the
same manner as provided in the preceding sentence.
Section 6.05. At any time during or after each Operating Year, Landlord
shall furnish to Tenant an annual statement (the "Annual Statement") for such
Operating Year. If the Annual Statement shows that the Estimated Payment (or
other payments) for such Operating Year exceed the Operating Payment which
should have been paid for Operating Year, Landlord shall credit the amount of
such excess against the next monthly installment of Fixed Rent payable under
this Lease; if the Annual Statement for such Operating Year shows that the
Estimated Payment for such Operating Year was less than the Operating Payment
(or other payments) which should have been paid for such Operating Year, Tenant
shall pay the amount of such deficiency within ten (10) days after receipt of
the Annual Statement.
Section 6.06. Each Annual Statement shall be conclusive and binding upon
Tenant unless, within thirty (30) days after receipt thereof, Tenant shall
notify Landlord that it disputes the correctness of the Annual Statement,
specifying the particular respects in which the Annual Statement is claimed to
be incorrect. If such notice is sent, provided Tenant shall pay the amount shown
to be due to Landlord on the disputed Annual Statement, the parties agree that,
due to the confidential nature of Landlord's books and records, either party may
refer the decision of the issue raised to a reputable independent firm of
certified public accountants selected by Landlord, and the decision of such
accountants shall be conclusive and binding upon the parties. The fees and
expenses involved in such decision shall be borne by the unsuccessful party (and
if both parties are partially unsuccessful, the accountants shall apportion the
fees and expenses between the parties based on the degree of success of each
party).
ARTICLE 7
ELECTRICITY
Section 7.01. As part of Landlord's Work, Landlord shall install (to the
extent not already installed) one or more electric meters in the Demised
Premises to measure electrical consumption. Tenant shall obtain and pay for
Tenant's entire separate supply of electric current to the Demised Premises
(including the heating and air-conditioning equipment located therein) by direct
application to and arrangement with the public utility company servicing the
Building. Tenant shall, at its sole cost and expense, maintain in good working
order, electric meters ("Meters"), feeders, risers and wiring serving the Demise
Premises to distribute and measure the electricity consumed by Tenant in the
Demised Premises. Landlord will permit its electric feeders, risers and wiring
serving the Demised PRemises to be used by Tenant to the extent available and
safely capable of being sued for such purpose.
Section 7.02. Any additional risers, feeders or other equipment or service
proper or necessary to supply Tenant's electrical requirements, upon written
request of Tenant, will be installed by Landlord, at the sole cost and expense
of Tenant, if in Landlord's sole judgment, the same are necessary and will not
cause permanent damage or injury to the Building or the Demised Premises or
cause or create a dangerous or hazardous condition or entail excessive or
unreasonable alterations, repairs or expense or interfere with or disturb other
tenants or occupants. All such additional electrical work and installations
shall comply with the regulations of Landlord then in effect regarding the type
and quality of such additional electrical equipment and installations.
Section 7.03. Landlord shall not in any way be liable or responsible to
Tenant for any loss or damage or expense which Tenant may sustain or incur if
either the quantity or character of electric service is changed or is no longer
available or suitable for Tenant's requirements for any reason whatsoever. If
either the quantity of the electrical service is changed by the utility company
supplying electrical service to the Building or is no longer available or
suitable for Tenant's requirements, no such change, unavailability or
unsuitability shall (a) constitute an actual or constructive eviction in whole
or in part, (b) entitle Tenant to any abatement or diminution of Fixed Rent or
additional rent, (c) relieve tenant from any of its obligations under this
Lease, or (d) impose any liability upon Landlord, or its agents, by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise.
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Section 7.04. Tenant agrees not to connect any additional electrical
equipment of any type to the Building electric distribution system, beyond that
on Tenant's approved plans for initial occupancy, other than lamps,
typewriters, desktop computers and other office machines which consume
comparable amounts of electricity, without the Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed. Tenant covenants
and agrees that at all times its use of electric current shall never exceed the
capacity of the then existing feeders to the Building or the risers or wiring
installation servicing the Demised Premises. Tenant agrees to indemnify and hold
Landlord harmless from and against any claims, liabilities, damages, losses
and expenses arising out or in connection with the use by Tenant of such
feeders, risers and wiring serving the Demised Premises in violation of the
foregoing.
Section 7.05. Landlord shall furnish, install and replace, as required
all lighting tubes, lamps, bulbs and ballasts required in the Demised Premises,
at Tenant's sole cost and expense. All lighting tubes, lamps, bulbs and
ballasts so installed shall become Landlord's Property upon the expiration or
sooner termination of this Lease.
Section 7.06. To the extent not previously provided for in Section
6.02(a)(8), if any tax is imposed upon Landlord with respect to electrical
energy furnished as a service to Tenant by any federal, state or municipal
authority, Tenant covenants and agrees that Tenant's prorata share of such taxes
shall be reimbursed by Tenant to Landlord as additional rent.
ARTICLE 8
LANDLORD'S PROPERTY, TENANT'S PROPERTY
Section 8.01. Except to the extent provided in Section 8.02 hereof, all
alterations, decorations, installations, additions, fixtures, equipment,
improvements and appurtenances attached to or built into the Demised Premises at
the commencement of or during the term of this Lease, including, without
limitation, any and all paneling, partitions, railings, mezzanine floors,
galleries and the like, and whether or not by or at the expense of Tenant
(herein collectively called "Landlord's Property") shall be and remain a part of
the Demised Premises, shall be deemed the property of Landlord and shall not be
removed by Tenant. Any carpeting or other personal property in the Demised
Premises on the Commencement Date, unless installed and paid for by Tenant,
shall also fall within the definition of and constitute part of Landlord's
Property and shall not be removed by Tenant unless Tenant shall simultaneously
therewith or promptly thereafter install like replacements of equivalent or
better quality, in which event any such replacement(s) shall be deemed
Landlord's Property.
Section 8.02. All moveable partitions, business and trade fixtures,
machinery and equipment, including communications equipment and office
equipment, whether or not attached to or built into the Demised Premises, which
are installed in the Demised Premises by or for the account of Tenant without
expense to Landlord and can be removed without structural damage to the Building
(except (i) where same is a replacement of an item theretofore furnished and
paid for by Landlord or against which Tenant has received a credit, any such
replacement being deemed Landlord's Property, and (ii) all other articles of
moveable property which constitute Landlord's Property) and all furniture,
furnishings and other articles of moveable property owned by Tenant and located
in the Demised Premises (herein collectively called "Tenant's Property") shall
be and shall remain the property of Tenant and may be removed by Tenant at any
time during the term of this Lease; provided, however, that if any of Tenant's
Property is removed, Tenant, at Landlord's option, shall repair or pay to
Landlord, Landlord's reasonable and necessary costs (including, in either case,
a fifteen percent (15%) supervisory fee) of repairing any damage to the Demised
Premises or to the Building resulting from the removal thereof or caused by the
original installation thereof. Any equipment or other property for which
Landlord shall have granted any allowance or credit to Tenant shall not be
deemed to have been installed by or for the account of Tenant without expense to
Landlord and shall not be considered Tenant's property but shall instead be
deemed Landlord's Property.
Section 8.03. At or before the Expiration Date of the term of this Lease
or the date of any earlier termination of this Lease, Tenant, at its expense,
shall remove from the Demised Premises all of Tenant's Property. Upon any
removal of Tenant's Property, Tenant, at Tenant's sole cost and expense, shall
promptly restore the portion(s) of the Demised Premises affected by such removal
to their original condition and shall repair any damage to the Demised Premises
or the Building resulting from any such removal and/or the original installation
of Tenant's Property.
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Section 8.04. Any items of Tenant's Property which shall remain in the
Demised Premises following Tenant's moving therefrom and after the Expiration
Date of the term of this Lease, or after any earlier termination date, may, at
the option of Landlord, be deemed to have been abandoned, and in any such case
such items may be retained by Landlord as its property or disposed of by
Landlord, without accountability, in such manner as Landlord shall determine at
Tenant's expense and Tenant shall pay to Landlord promptly upon being billed
therefor, all of Landlord's reasonable and necessary costs incurred in
connection with any such removal and disposition as well as in connection with
any restoration of the Demised Premises required by such removal.
ARTICLE 9
REPAIRS, ALTERATIONS AND LIENS
Section 9.01. (a) Tenant, at its sole cost and expense, throughout the
term of this Lease, shall take good care of the interior non-structural elements
of (i) the Demised Premises, (ii) the electrical, plumbing, sprinkler, air
conditioning, heating and venting systems installed by or on behalf of Tenant
therein or (iii) Tenant's fixtures and appurtenances therein, (iv) Tenant's
Property, (v) Landlord's Property (excluding any portions thereof which comprise
a part of any Building system, Tenant's obligations with respect to which are
set forth in the following sentence), and (vi) Tenant's Changes and Tenant's
Work, and shall make all repairs and repairs and replacements thereto as and
when needed to preserve them in good working order and condition. Tenant shall,
as its sole cost and expense, promptly replace all scratched, damaged or broken
doors and glass in and to the Demised Premises and shall be responsible for all
repairs, maintenance and replacements of wall and floor coverings in the Demised
Premises and for the repair, maintenance and replacements of all sanitary,
plumbing, and electrical fixtures and equipment located therein and exclusively
servicing the Demised Premises, except for repairs, maintenance or replacement
of the sanitary and plumbing systems (including, without limitation the faucets
and flushometers) servicing the core lavatories on the floors on which the
Demised Premises are located which shall be Landlord's responsibility unless
damaged by Tenant, its agents or contractors or their respective employees. In
addition, Tenant shall be responsible, as its sole cost and expense, for making
all repairs, interior and exterior, structural and non-structural, ordinary and
extraordinary, in and to the Demised Premises and the Building and the
facilities and systems thereof, the need for which is caused by or arises out of
(i) the performance or existence of any Tenant's work or alterations, (ii), the
installation, use or operation of any Tenant's Property or Landlord's Property
in the Demised Premises, (iii) the moving of any Tenant's Property or any
Landlord's Property in or out of the Building, and (iv) the acts, omission,
neglect, improper conduct or other cause of Tenant or any of its sublessees, or
its or their employees, agents, contractors, visitors, licensees or invitees.
(b) All repairs, maintenance and replacements for which Tenant is
responsible for pursuant to this Section shall be performed in accordance with
the requirements of this Article 9. If Tenant fails to make any repairs,
restorations or replacements for which Tenant is responsible under this Lease,
Landlord, after notice to Tenant and reasonable opportunity to do so, except in
an emergency when no notice shall be required, may (but shall not be obligated
to) make same and Landlord's costs of doing so, plus a fifteen percent (15%)
supervisory fee to Landlord, shall be collectible as additional rent hereunder
and shall be paid by Tenant to Landlord within five (5) days after rendition of
Landlord's bill or statement therefor.
(c) Tenant agrees that the design and construction of the entrance
to the Demised Premises, including limitation all signage, shall be subject to
the approval of Landlord as provided for herein and shall conform to the
Building's standard for multi-tenanted floors.
Section 9.02. Except for those matters which are Tenant's responsibility
as provided in Section 9.01 hereof, Landlord, at its expense, shall maintain and
keep the public portions of the Building, the structural portions of the
Building and the Demised Premises and the systems and facilities servicing the
Demised Premises in good working order, condition and repair. Tenant shall give
Landlord prompt notice of any defective condition of which it has knowledge in
any Building plumbing, heating or cooling system or electrical line located in,
servicing or passing through the Demised Premises. Landlord shall use reasonable
efforts to minimize disruption to the conduct of Tenant's business in connection
with any repairs or maintenance of the Building or the Demised Premises.
Section 9.03. Except as otherwise may be expressly provided in this Lease,
Landlord shall have no liability to Tenant, nor shall Tenant's covenants and
obligations under this Lease be reduced or abated in any manner whatsoever by
reason of any inconvenience, annoyance, interruption or injury to business
arising from Landlord's making any repairs
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or changes which Landlord is required or permitted by this Lease, or required by
Law, to make in or to any portion of the Building or of the Demised Premises, or
in or to the fixtures, equipment, systems or appurtenances of the Building or
the Demised Premises.
Section 9.04. Tenant shall make no alterations, decorations,
installations, additions or improvements in or to the Demised Premises ("Tenant
Changes") or perform any other work without Landlord's prior written consent,
which consent shall not be unreasonable withheld or delayed, and then only by
contractors or mechanics selected from Landlord's then approved list, or
selected by Tenant and approved by Landlord; provided, however, if Tenant
selects such contractor or mechanic not on Landlord's then approved list but
approved by Landlord, Tenant agrees to pay to Landlord as a supervisory fee an
amount equal to fifteen percent (15%) of the cost of Tenant Changes (such fee
shall be paid to Landlord prior to the commencement of any such Tenant Changes,
based on the estimated cost of such Tenant Changes, and, upon the completion of
such Tenant Changes, Tenant shall pay to Landlord the difference, if any, of (a)
15% of the actual cost of such Tenant Changes and (b) the amount previously paid
as the supervisory fee prior to the commencement of such Tenant Changes). Tenant
agrees to supply Landlord with financial and other information about such
contractors and mechanics as Landlord may reasonably request prior to any
bidding for any such work. All Tenant Changes shall be done at Tenant's sole
cost and expense at such times and in such manner as Landlord may from time to
time designate and in full compliance with all laws, rules and regulations of
all governmental bodies having jurisdiction thereover. Landlord shall not be
liable for any failure of the air-conditioning, and heating and ventilating
equipment in the Demised Premises installed by Landlord, which is caused by
Tenant Changes, and Tenant shall correct any condition causing such failure.
Section 9.05. Prior to commencing any Tenant Changes or any other work
pursuant to the provisions of this Article, and as a condition to Landlord
granting its consent, Tenant shall furnish Landlord for its approval with:
(a) copies of all governmental permits and authorizations which may
be required in connection with such work.
(b) a certificate evidencing that Tenant (or Tenant's contractors)
has (have) procured Workers Compensation insurance covering all persons employed
in connection with the work who might assert claims for death or bodily injury
against Landlord, any Superior Lessor, Superior Mortgagee, Tenant or the
Building.
(c) such additional personal injury and property damage insurance
(over and above the insurance required to be carried by Tenant pursuant to the
provisions of Article 12 hereof) as Landlord or Landlord's managing agent may
reasonably require.
(d) Such security (including, without limitation, a bond issued by a
surety licensed to do business in the State of New York) in form and amount as
Landlord shall deem reasonable necessary.
(e) To the extent permitted by law, unconditional waivers of
mechanic's liens signed by contractors, subcontractors, materialmen and laborers
to become involved in such work.
(f) plans and specifications (including architectural, engineering,
mechanical, electrical and plumbing drawings, if applicable) for the work to be
done and copies of all contractors and subcontractors selected by Tenant.
Section 9.06. Tenant shall keep accurate and complete cost records of
Tenant Changes and shall furnish photostatic copies thereof and of all contracts
entered into and work orders issued by Tenant in connection therewith to
Landlord's managing agent, certified as correct by Tenant, within 45 days of
Landlord's managing agent's request therefor.
Section 9.07. Tenant will not do any act of suffer any act which will, in
any way, encumber the title of Landlord (or Tenant) in and to the Demised
Premises nor will the interest or estate of Landlord or Tenant in the Demised
Premises be in any way subject to any claim by way of lien or encumbrance,
whether by operation of law or by virtue of any express or implied contract by
Tenant.
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Section 9.08. Tenant will not suffer or permit any liens to be filed
against the Demised Premises, the Building or any part thereof, by reason of any
work, labor, services or materials done for, or supplied, or claimed to have
been done for, or supplied to Tenant, or anyone holding the Demised Premises, or
any part thereof, through or under Tenant. If any such lien is at any time filed
against the Demised Premises or the Building, Tenant will cause the same to be
discharged of record within ten (10) days after the date of filing the same, by
either payment, deposit or bonding and if Tenant shall fail to do so, then, in
addition to any other right or remedy of Landlord, Landlord may, but shall not
be obligated to, procure the discharge of the same either by paying the amount
claimed to be due by deposit in court or bonding, and/or Landlord will be
entitled, if Landlord so elects, to compel the prosecution of an action for the
foreclosure of such lien by the lienor and to pay the amount of the judgment,
if any, in favor of the lienor with interest, costs and allowances. Any amount
paid or deposited by Landlord for any of the aforesaid purposes, and all legal
and other expenses of Landlord, including reasonable attorneys' fees, in
defending such action or in procuring the discharge of such lien, with all
necessary disbursements in connection therewith, will become due and payable as
additional rent on the date of payment or deposit as the case may be.
Section 9.09. Nothing in this Lease shall be deemed to be, or construed in
any way as constituting, the consent or request of Landlord, express or implied
by inference or otherwise, to any person, firm or corporation for the
performance of any labor or the furnishing of any materials for any
construction, rebuilding, alteration or repair of or to the Demised Premises or
any part thereof, nor as giving Tenant any right, power or authority to contract
for or permit the rendering of any services or the furnishing of any materials
which might in any way give rise to a right to file any lien against Landlord's
interest in the Demised Premises.
ARTICLE 10
COMPLIANCE WITH LAWS
Section 10.01. Tenant shall give prompt notice to Landlord of any notice
that Tenant may receive of the violation of any law, ordinance, order,
regulation, or requirement of any public authority or direction of any public
officer or official applicable to the Demised Premises.
Section 10.02. Tenant, at its expense, shall comply with all laws, orders,
ordinances, regulations and requirements of any public authorities and
directions made pursuant to law by any public officer or officers which, in
respect of the Demised Premises or the use and occupancy thereof or the
abatement of any nuisance in, on or about the Demised Premises, shall impose any
violation, order or duty upon Landlord or Tenant arising from (a) Tenant's
occupancy, use or manner of use of the Demised Premises, (b) any installations,
equipment or other property therein, (c) any cause or condition created by or at
the instance of Tenant, or (d) any breach of any of Tenant's obligations
hereunder, and Tenant shall pay to Landlord, as additional rent hereunder,
promptly upon being billed therefor, amounts equal to all costs, expenses,
fines, penalties and damages which may be imposed upon or incurred by Landlord
or any Superior Lessor by reason of or arising out of Tenant's failure to fully
and promptly comply with and observe the provisions of this Section. Subject to
the provisions of Section 10.03 hereof, Tenant may defer compliance with any
such law, requirement or direction so long as Tenant shall be contesting the
validity thereof or the applicability thereof to the Demised Premises, in
accordance with the provisions of Section 10.03. Notwithstanding the foregoing,
Tenant shall not be required to make any alterations to the Demised Premises to
comply with any such laws for which compliance requires alterations to be made
to the other portions of the Building for general office use as distinct from
Tenant's particular manner of use.
Section 10.03. Tenant, at its expense, after notice to Landlord, may
contest, by appropriate proceedings prosecuted diligently and in good faith, the
validity, or applicability to the Demised Premises, of any law or requirement of
any public authority, or direction of any public officer provided that:
(a) Landlord shall not be subject to civil or criminal penalty or to
prosecution for a crime, nor shall the Demised Premises or any part thereof be
subject to being condemned or vacated, by reason of non-compliance or otherwise
by reason of such contest;
(b) before the commencement of such contest, Tenant shall furnish to
Landlord either (i) the bond of a surety company satisfactory to Landlord, and
shall be, as to its provisions and form, satisfactory to Landlord, and in an
amount at least equal to one hundred and twenty five (125%) percent of the cost
of such compliance
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(as estimated by a reputable contractor designated by Landlord) and shall
indemnify Landlord against the cost thereof and against all liability for
damages, interest, penalties, expenses (including reasonable attorneys' fees and
expenses) resulting from or incurred in connection with such contest or
non-compliance, or (ii) other security in place of such bond satisfactory to
Landlord;
(c) such non-compliance or contest shall not constitute or result in
any violation of any Superior Lease or Superior Mortgage, or any such Superior
Lease and/or Superior Mortgage shall permit such non-compliance or contest on
condition of the taking of action or furnishing of security by Landlord, such
action shall be taken and such security shall be furnished at the expense of the
Tenant; and
(d) Tenant shall keep Landlord advised as to the status of such
proceedings.
Without limiting the application of the foregoing, Landlord shall be
deemed subject to prosecution for a crime if Landlord, or its managing agent, or
any officer, director, partner, shareholder or employee of Landlord or its
managing agent, as an individual, is charged with a crime of any kind or degree
whatever, whether by service of a summons or otherwise, unless such charge is
withdrawn before Landlord or its managing agent, or such officer, director,
partner, shareholder or employee of Landlord or its managing agent, as the case
may be, is required to plead or answer thereto.
Section 10.04. To the extent that compliance is not Tenant's obligation
pursuant to Section 10.02 hereof, Landlord, at Landlord's expense, shall comply
with or cause to be complied with, all laws, orders, ordinances regulations and
requirements of any public authority or lawful direction of any public official
or officer which, with respect to the public portions of the Building, shall
affect Tenant's access to the Demised Premises or which shall affect the
Building systems servicing the Demised Premises. Landlord, however, may defer
such compliance so long as Landlord shall be contesting the validity or
applicability thereof.
ARTICLE 11
ASSIGNMENT, SUBLETTING, MORTGAGING
Section 11.01. Except as otherwise provided for in this Article 11, Tenant
shall not, whether voluntarily or involuntarily, by operation of law or
otherwise, (a) assign or otherwise transfer this Lease or any interest therein
or offer or advertise to do so, (b) sublet or suffer or permit the Demised
Premises or any part thereof to be used, occupied or utilized by anyone other
than Tenant or offer or advertise to do so, or (c) mortgage, pledge, encumber or
otherwise hypothecate (any of which shall be referred to as a "Mortgaging") this
Lease or the Demised Premises or any part thereof in any manner whatsoever. The
consent by Landlord to any assignment, subletting or mortgaging shall not in any
manner be construed to relieve Tenant, or any assignee or sublessee from
obtaining Landlord's prior express written consent to any other or further
assignment, subletting, or Mortgaging. In no event shall any permitted sublessee
assign or encumber its sublease or further sublet all or a portion of its sublet
space, or otherwise suffer or permit the sublet space or any part thereof to be
used or occupied by others.
Section 11.02. (a) For purposes of this Article, (i) the transfer by any
means of the legal or beneficial interests in either voting power, capital or
profits in Tenant or in any corporation, partnership or other entity directly,
or indirectly comprising Tenant, of the majority of the issued and outstanding
capital stock of any corporate Tenant or subtenant, or the transfer of a
majority of the beneficial interest in any other entity (partnership or
otherwise) which is the Tenant or a subtenant, however accomplished, whether in
a single transaction or in a series of related or unrelated transactions, shall
be deemed an assignment of this Lease or a sublease, as the case may be, (ii) a
takeover agreement shall be deemed an assignment of this Lease, (iii) a
modification, amendment or extension of a sublease previously consented to shall
be deemed a new sublease, (iv) a merger or consolidation of Tenant with another
entity shall be deemed an assignment of this Lease and (v) the sale of all or
substantially all of the assets of Tenant shall be deemed an assignment of this
Lease. Tenant agrees to furnish Landlord with such information as Landlord may
reasonably request from time to time in order to assure Landlord that neither
Tenant nor any subtenant have violated the provisions of this Article 11.
Notwithstanding the foregoing, Section 11.01 shall not prohibit the merger or
consolidation of a corporate Tenant with a corporation or the transfer of
substantially all of a corporate Tenant's assets to a corporation, which
corporation in either circumstance is controlled by Tenant or is under common
control with Tenant, provided that in any of such events:
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(x) such merger, consolidation or transfer of assets is being
consummated for a good business purpose, and not principally for the purpose of
transferring Tenant's interest in this Lease,
(y) the successor to Tenant has a net worth computed in accordance
with generally accepted accounting principles at least equal to the greater of
(A) the net worth of Tenant immediately prior to such merger, consolidation or
transfer, or (B) the net worth of Tenant herein named on the date of this Lease,
and
(z) proof reasonable satisfactory to Landlord of such business
purpose and net worth shall have been delivered to Landlord at least ten (10)
days prior to the effective date of any such transaction.
Section 11.03. (a) If Tenant desires to assign this Lease or sublet all or
any portion of the Demised Premises, Tenant agrees to use as its exclusive
rental agent for such purpose the then managing agent of the Building and to
notify such managing agent of its desire to so assign this Lease or sublet all
or part of the Demised Premises. (In the event of such an assignment or
subletting, Tenant shall pay to such managing agent, at agent's then prevailing
commission rates, a full leasing commission on account thereof.) Upon obtaining
a proposed assignee or sublessee, upon terms satisfactory to Tenant, Tenant
shall give notice ("Tenant's Notice") thereof to Landlord and in such notice
shall set forth in reasonable detail (i) the name and address of the proposed
assignee or sublessee, (ii) the nature and character of the business of the
proposed assignee or sublessee and its proposed use of the Demised Premises,
(iii) current financial information with respect to the proposed assignee or
sublessee including, without limitation, its most recent financial report, (iv)
the business terms and conditions of the proposed assignment or subletting, the
effective date of which shall be not less than forty-five (45) days after the
giving of Tenant's Notice, (v) in the event of a desired subletting of less than
all of the Demised Premises, a description and floor plan of the proposed
subleased premises, and (vi) any other information reasonable requested by
Landlord.
(b) Within thirty (30) days following receipt of Tenant's Notice
containing the above required information, Landlord may elect any of the options
hereinafter set forth in this subsection 11.03(b):
(1) In the event of a proposed assignment or in the event of a
proposed subletting of all or substantially all of the Demised Premises,
Landlord, at its option, exercisable by notice given to Tenant within the
aforesaid thirty (30) day period, may (i) terminate this Lease, or (ii) in the
event of a proposed assignment, require Tenant to assign this Lease to Landlord
or its designee, or (iii) in the event of a proposed subletting, require Tenant
to enter into a sublease of the Demised Premises to Landlord or its designee
upon the terms set forth in Section 11.04 hereof, in all cases effective as of a
date specified in Landlord's termination notice which date shall be the later of
(x) the effective date proposed by Tenant for such assignment or subletting, or
(y) a date, as Landlord may determine in its sole discretion, which shall be not
more than ninety (90) days after giving of Landlord's termination notice. If
Landlord shall exercise such termination option, then the term of this Lease
shall cease and expire on the date specified in Landlord's termination notice
with the same force and effect as if such date were originally provided herein
as the Expiration Date of the term hereof.
(2) In the event of a proposed sublease for less than all or
substantially all of the Demised Premises but for all or substantially all of
the balance of the term hereof, Landlord, at its option, exercisable by notice
given to Tenant within said thirty (30) day period, may (i) terminate this Lease
only as to the portion of the Demised Premises which the proposed sublease would
cover, or (ii) require Tenant to enter into a sublease of such portion of the
Demised Premises to Landlord or its designee upon the terms set forth in Section
11.04 hereof, in both cases effective as of date specified in Landlord's
termination notice which date shall be the later of (x) the effective date
proposed by Tenant for such subletting, or (y) a date, as Landlord may determine
in its sole discretion, which shall be not more than ninety (90) days after the
giving of Landlord's termination notice. In the event Landlord shall exercise
such termination option (A) the term of this Lease with respect only to such
portion of the Demised Premises shall cease and expire on the date specified in
Landlord's termination notice, (B) the Fixed Rent and additional rent payable
hereunder shall be respectively reduced, effective as of 11:59 p.m. on said
date, by the amounts thereof allocable to such portion of the Demised Premises,
and (C) the parties shall then (or prior thereto or promptly thereafter as
Landlord may request) enter into a modification agreement of this Lease
reflecting the deletion of such portion from the Demised Premises effective as
of said date and the reduction of Fixed Rent, additional rent and Tenant's
Proportionate Share required thereby. In the event Landlord shall exercise
either of its foregoing options, Tenant shall be responsible for the cost of
construction any necessary demising walls required by the deletion or subletting
of such portion of the Demised Premises and complying with any laws and
requirements of public authority pertaining thereto.
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(3) In the event of a proposed sublease for less than all or
substantially all of the Demised Premises and for less than all or substantially
all of the balance of the term hereof, Landlord, at its option, exercisable by
notice given to Tenant within said thirty (30) day period, may require Tenant to
enter into a sublease of such portion of the Demised Premises to Landlord or its
designees as sublessee upon the terms set forth in Section 11.04 hereof, which
sublease shall be effective as of a date specified in Landlord's notice, which
date shall be the later of (i) the effective date proposed by Tenant for such
subletting or (ii) a date, as Landlord may determine in its sole discretion,
which shall be not more than ninety (90) days after the giving of Landlord's
notice. In the event Landlord shall exercise the foregoing option, Tenant shall
be responsible for the cost of constructing any necessary demising walls and
complying with any laws and requirements of any public authority pertaining
thereto.
For purposes of this subsection 11.03(b), as used herein the term
"substantially all" shall mean in excess of eighty percent (80%) of the Demised
Premises, or the remaining term of the Lease, as the case may be.
Section 11.04. If Landlord exercises its option to sublet the premises
proposed to be subleased, such sublease to Landlord (or its designee) as
sublessee, shall be at the lower of (1) the portions of the Fixed Rent and
additional rents then payable hereunder allocable to the sublease premises, or
(2) the rentals set forth in Tenant's notice of the business terms of the
proposed sublease, and shall be for the same term as that of the proposed
subletting, and:
(a) such sublease shall be expressly subject to all of the
covenants, agreements, terms, provisions and conditions of this Lease except
such as are irrelevant or inapplicable, and except as otherwise expressly set
forth to the contrary in this Section;
(b) such sublease shall be upon the same terms and conditions as
those contained in the proposed sublease, except such as are irrelevant or
inapplicable and except as otherwise expressly set forth to the contrary in this
Section;
(c) such sublease shall give the sublessee the unqualified and
unrestricted right, without Tenant's permission, to assign such sublease or any
interest therein and/or to sublet the space covered by such sublease or any part
or parts of such space and to make any and all changes, alterations and
improvements in the space covered by such sublease;
(d) such sublease shall provide that any assignee or further
assignee or further sublessee(s) of the sublessee's interest thereunder, may, at
the election of Landlord, be permitted to make alterations, decorations, and
installations in such space or any part thereof and shall also provide in
substance that any such alterations, decorations and installations in such space
therein made by any assignee or sublessee may be removed, in whole or in part,
by such assignee or sublessee, at its option, prior to or upon the expiration or
other termination of such sublease provided that such assignee or sublessee, at
its expense, shall repair any damage and injury to such space so sublet caused
by such removal; and
(e) such sublease shall also provide that (i) the parties to such
sublease expressly negate any intention that any estate created under such
sublease be merged with any other estate held by either of said parties, (ii)
any assignment or subletting by Landlord or its designee (as the sublessee) may
be for any purpose or purposes that Landlord, in Landlord's sole discretion,
shall deem suitable or appropriate, (iii) Tenant, at Tenant's expense, shall and
will at all times provide and permit reasonable appropriate means of ingress to
and egress from such space to be sublet by Tenant to the Landlord or designee,
and (iv) that at the expiration of the term of such sublease, Tenant will accept
the space covered by such sublease in its then existing condition, subject to
the obligations of the sublessee to make such repairs thereto as may be
necessary to preserve the premises demised by such sublease in good order and
condition.
Section 11.05. In the event Tenant shall have duly complied with the
provisions of Section 11.03 and Landlord shall not have exercised any of its
options pursuant to Section 11.03, and on condition that Tenant is not then in
default in the payment of any Fixed Rent or additional rent due hereunder and is
not otherwise in material default with respect to any of Tenant's other
obligations under this Lease, Landlord's consent (which shall be in writing and
in form satisfactory to Landlord) to the proposed assignment or sublease shall
not be unreasonable withheld, provided, however, that Landlord may withhold
consent thereto if, in the exercise of its sole but reasonable judgment, it
determines that:
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(a) the financial condition (as shall be reasonable evidenced to
Landlord by Tenant) and general reputation of the proposed assignee or sublessee
are not commensurate with the financial obligations imposed by the proposed
assignment or sublease, or the character and dignity of the Building and the
existing tenancies thereof;
(b) the proposed use of the Demised Premises or the relevant part
thereof (i) is not appropriate for the Building or consistent with the character
of the existing tenancies thereof or (ii) violate the permitted use(s) set forth
in Section 3.01 or will violate any negative covenant as to use contained in any
other lease of space in the Building;
(c) the nature of the occupancy of the proposed assignee or
sublessee will cause an excessive density of employees or traffic or make
excessive demands on the Building's services, or facilities or in any other way
will lessen the character or dignity of the Building;
(d) the proposed assignee or sublessee (or any person or entity
which directly or indirectly controls, is controlled by or is under common
control with the proposed assignee or sublessee or any person who controls the
proposed assignee or sublessee) is then an occupancy of any part of the Building
or any other building in the County of New York owned or operated under a ground
or underlying lease by Landlord or any person or entity which directly or
indirectly controls, is controlled by, or is under common control with Landlord
or any person or entity which controls Landlord;
(e) the proposed assignee or sublessee is a person or entity with
whom Landlord was negotiating to lease space in the Building at any time during
the previous six (6) month period;
(f) the proposed sublease or assignment does not comply with the
applicable provisions of this Article;
(g) there would be, as a result of the proposed assignment or
subletting, more than the legal number of occupants (including Tenant and
Landlord or its designees) of the Demised Premises; and
(h) the amount of the aggregate rent payable under the proposed
sublease is less than the aggregate rent that Landlord is then asking for other
space in the Building.
As a condition of Landlord's consent to any assignment or subletting,
Tenant shall reimburse Landlord on demand for any costs that may be incurred by
Landlord in connection with said assignment or sublease, including, without
limitation, the cost of making investigations as to the acceptability of the
proposed assignee or sublessee and reasonable attorneys' fees incurred in
connection with the reviewing of the assignment or sublease and preparing any
consent thereto.
Section 11.06. Except for any subletting by Tenant to Landlord or its
designee pursuant to the provisions of this Article, each subletting pursuant to
this Article shall be subject to all of the covenants, agreements, terms,
provisions and conditions contained in this Lease. Notwithstanding any such
subletting to Landlord or any such subletting to any other sublessee and/or
acceptance of rent or additional rent by Landlord from any sublessee, Tenant
shall and will remain fully liable for the payment of the Fixed Rent and
additional rent due and to become due hereunder and for the performance of all
the covenants, agreements, terms, provisions and conditions contained in this
Lease on the part of Tenant to be performed and all acts and omissions of any
licensee or sublessee or anyone claiming under or through any sublessee which
shall be in violation of any of the obligations of this Lease, and any such
violation shall be deemed to be a violation by Tenant. If Landlord shall decline
to give its consent to any proposed assignment or sublease, or if Landlord shall
exercise any of its options under Section 11.03, Tenant shall indemnify, defend
and hold harmless Landlord against and from any and all loss, liability,
damages, cost and expense, including reasonable attorneys' fees, resulting from
any claims that may be made against Landlord by the proposed assignee or
sublessee or by any brokers or other persons claiming a commission or similar
compensation in connection with the proposed assignment or sublease.
Section 11.07. In the event that (a) Landlord fails to exercise any of its
options under Section 11.03, and (b) Tenant fails to deliver the fully executed
assignment or sublease within forty five (45) days after the expiration of
Landlord's options period pursuant to said Section then Tenant shall again
comply with all of the provisions and conditions of Section 11.03 before
assigning this Lease or subletting the Demised Premises or the relevant part
thereof.
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Section 11.08. With respect to each and every sublease or subletting
authorized by Landlord under the provisions of this Lease (except for a
subletting by Landlord pursuant to Section 11.04 hereof), it is further agreed
that:
(a) no subletting shall be for a term ending later than one day
prior to the expiration date of this Lease:
(b) no sublease shall be valid, and no sublessee shall take
possession of the Demised Premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Landlord;
(c) Tenant, whether through a broker, agent, representative, or
otherwise shall not have (i) advertised or publicized in any way the
availability of the Demised Premises or the relevant part thereof without prior
notice to and written approval thereof by Landlord, nor shall any advertisement
state the name (as distinguished from the address) of the Building or the
proposed rents, or (ii) listed the Demised Premises or relevant part thereof for
subletting, at a rental rate less than the greater of (y) the Fixed Rent and
additional rent then payable hereunder for such space or (z) the fixed rent and
additional rent at which Landlord is then offering to lease other space in the
Building; and
(d) each sublease shall provide that it is subject and subordinate
to this Lease and to the matters to which this Lease is or shall be subordinate,
and that in the event of termination, re-entry or dispossess by Landlord under
this Lease, Landlord may, at its option, take over all of the right, title and
interest of Tenant, as sublessor, under such sublease, and such sublessee shall,
at Landlord's option, attorn to Landlord with respect to the executory
provisions of such sublease except that Landlord shall not (i) be liable for any
previous act or omission of the sublessor under such sublease, (ii) be subject
to any offset, not expressly provided in such sublease, which theretofore
accrued to such sublessee against Tenant, or (iii) be bound by any previous
modification of such sublease to which Landlord shall not have consented in
writing or by any previous prepayment of more than one month's rent or
additional rent thereunder.
Section 11.09. If the Landlord shall give its consent to any assignment of
this Lease or to any sublease Tenant shall in consideration therefor, pay to
Landlord, as additional rent hereunder, the following sums, (each of which shall
hereinafter be referred to as "Profit"):
(a) in the case of an assignment, fifty percent (50%) of the excess,
if any, of (i) the sum and other consideration paid to Tenant and/or its
designee for or by reason of such assignment (including, but not limited to,
sums paid for the sale or rental of Tenant's fixtures, leasehold improvements,
equipment, furniture or other personal property) less, (ii) any reasonable and
customary brokerage fees actually incurred in connection with such assignment;
and
(b) in the case of a sublease, fifty percent (50%) of the excess, if
any, of (i) the sum of (A) all rents, additional rents and other consideration
paid under the sublease to Tenant by the sublessee and (B) all other sums and
consideration paid to Tenant or its designee for or by reason of such subletting
(including, but not limited to, sums paid for the sale or rental of Tenant's
fixtures, leasehold improvements, equipment, furniture or other personal
property) less (ii) the sum of (X) that part of the Fixed Rent and additional
rent hereunder allocable to the subleased space and accruing for the
corresponding period during the term of the sublease and (Y) any reasonable and
customary brokerage fees actually incurred in connection with such sublease.
Any amount(s) payable under this Section 11.09 shall be paid to Landlord
as and when sums on account thereof are paid by or on behalf of any assignee(s)
and/or any sublessee(s) to Tenant or its designee, and Tenant agrees to promptly
advise Landlord thereof and furnish such information with regard thereto as
Landlord may reasonably request from time to time.
Tenant shall furnish to Landlord in the January calendar month immediately
following each calendar year during any part of which any such sublease shall be
in effect, a reasonable detailed financial statement certified as being correct
by an executive financial officer or, if Tenant is not a corporation, a
principal of Tenant, setting forth all sums accruing during the prior calendar
year and realized by Tenant from such sublease and a computation of the Profit
realized by Tenant during such prior calendar year. Tenant shall remit to
Landlord together with such statement any Profit or portion thereof on account
of such calendar year not previously remitted to Landlord.
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Anything contained in the foregoing provisions of this section to the
contrary notwithstanding, neither Tenant nor any other person having an interest
in possession, use, occupancy or utilization of the Demised Premises shall enter
into any lease, sublease, license, concession or other agreement for use,
occupancy or utilization based, in whole or in part, on the net income or
profits derived by any person from such portion of the Demised Premises so
leased, used, occupied, or utilized (other than amount used on a fixed
percentage or percentages of receipts or sales), and any such purported, or
utilized (other than an amount based on a fixed percentage or percentages of
receipts or sales), and any such purported lease, sublease, license, concession
or other agreement shall be absolutely void and ineffective as a conveyance of
any right or interest in the possession, use, occupancy or utilization of any
such part of the Demised Premises.
Section 11.010. If this Lease shall be assigned, or if the Demised
Premises or any part thereof be sublet or occupied by any person or persons
other than Tenant, Landlord may, after default by Tenant, collect rent from the
assignee, sublessee or occupant and apply the net amount collected to the Fixed
Rent and additional rent herein reserved, but no such assignment, subletting,
occupancy or collection of rent shall be deemed a waiver of the covenants in
this Article, nor shall it be deemed acceptance of the assignee, sublessee or
occupants as a tenant, or a release of Tenant from the full performance by
Tenant of all the terms, conditions and covenants of this Lease.
Section 11.011. Each assignee or transferee shall assume and be deemed to
have assumed this Lease and shall be and remain liable jointly and severally
with Tenant for the payment of the fixed Rent, additional rent and adjustments
of rent, and for the due performance of all of the terms, covenants, conditions
and agreements herein contained on Tenants' parts part to be performed for the
term of this Lease and shall agree that the provisions of this Article,
notwithstanding such assignment or transfer, continue to be binding upon it in
the future. No assignment shall be binding on Landlord unless such assignee or
Tenant shall deliver to Landlord a duplicate original of the instrument of
assignment with contains a covenant of assumption by the assignee of all of the
obligations aforesaid and shall obtain from Landlord its aforesaid written
consent thereto. The joint and several liability of Tenant and any immediate or
remote successor in interest of Tenant and the due performance of the
obligations of this Lease on Tenant's part to be performed or observed shall not
be discharged, released or impaired in any respect by any agreement or
stipulation made by Landlord extending the time for performance of, or modifying
any of the obligations of, this Lease, or by any waiver or failure of Landlord
to enforce any of the obligations of Tenant pursuant to this Lease.
Section 11.012. The listing of any name other than that of Tenant, whether
on the doors of the Demised Premises, on the Building directory or otherwise
shall not operate to vest any right or interest in this Lease or the Demised
Premises nor shall it be deemed to be the consent of Landlord to any assignment
or transfer of this Lease or to any sublease of the Demised Premises or to the
use or occupancy thereof by third parties. It is expressly understood that any
such listing is a privilege extended by Landlord that is revocable at will by
written notice to Tenant.
ARTICLE 12
INSURANCE
Section 12.01. Landlord shall maintain during the term of this Lease a
policy or policies of insurance insuring the Building against loss or damage due
to fire and other casualties covered within the classification of fire and
extended coverage, vandalism coverage and malicious mischief, sprinkler leakage,
water damage and special extended coverage on the Building. Such coverage shall
be in such amounts as Landlord may from time to time determine. Additionally, at
the option of Landlord, such insurance coverage may include the risks of
earthquakes and/or floor damage and additional hazards, a rental loss
endorsement and one or more loss payee endorsements in favor of the holders of
any mortgages or deeds of trust encumbering the interest of Landlord in the Land
or Building or the ground or underlying lessors of the Land or Building, or any
portion thereof. Tenant shall neither use the Demised Premises nor permit the
Demised Premises to be used or acts to be done therein which will (a) increase
the premium of any insurance described in this Article; (b) cause a cancellation
of or be in conflict with any such insurance policies; (c) result in a refusal
by insurance companies of good standing to insure the Building or the Land in
amounts reasonably satisfactory to Landlord; or (d) subject Landlord to any
liability or responsibility for injury to any person or property by reason of
any operation being conducted in the Demised Premises. Tenant shall, at Tenant's
expense, comply as to the Demised Premises with all insurance company
requirements pertaining to the use of the Demised Premises. If Tenant's conduct
or use of the Demised Premises causes any increase in the premium for such
insurance policies, then Tenant shall reimburse Landlord for any such increase.
Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and with any similar body.
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Section 12.02. Tenant shall maintain during the term of this Lease the
following coverages:
(a) Comprehensive General Liability Insurance covering the insured
against claims of bodily injury, personal injury and property damage arising out
of Tenant's operations, assumed liabilities or use of the Demised Premises,
including a Broad Form Comprehensive General Liability endorsement covering the
insuring provisions of this Lease and the performance by Tenant of the indemnity
agreements set forth in this Article, for limits of liability not less than:
Bodily Injury and $3,000,000 each occurrence
Property Damage Liability $3,000,000 annual aggregate
Personal Injury Liability $3,000,000 each occurrence
$3,000,000 annual aggregate
0% Insured's participation
(b) Physical Damage Insurance covering (i) all office furniture,
trade fixtures, office equipment, merchandise and all other items of Tenant's
property on the Demised Premises installed by, for, or at the expense of Tenant,
(ii) the Tenant's improvements, and (iii) all other improvements, alterations
and additions to the Demised Premises. Such insurance shall be written on all
"all risks" physical loss or damage basis, for the full replacement cost value
new without deduction for depreciation of the covered items and in amounts that
meet any co-insurance clauses of the policies of insurance and shall include a
vandalism and malicious mischief endorsement, sprinkler leakage coverage.
(c) The minimum limits of policies of insurance required of Tenant
under this Lease shall in no event limit the liability of Tenant under this
Lease. Such insurance shall (i) name Landlord, and any other party it so
specifies, as an additional insured; (ii) specifically cover the liability
assumed by Tenant under this Lease, including, but not limited to, Tenant's
obligations under this Article; (iii) be issued by an insurance company having a
rating of not less than A-X in Best's Insurance Guide or which is otherwise
acceptable to Landlord and licensed to do business in the State of New York;
(iv) be primary insurance as to all claims thereunder and provide that any
insurance carried by Landlord is excess and non-contributing with any insurance
requirement of Tenant; (v) provide that said insurance shall not be cancelled or
coverage changed unless thirty (30) days' prior written notice shall have been
given to Landlord and any mortgagee of Landlord; and (vi) contain a
cross-liability endorsement or severability of interest clause acceptable to
Landlord. Tenant shall deliver duplicate copies of said policy or policies or
original certificates thereof to Landlord on or before the Lease Commencement
Date and at least thirty (30) days before the expiration dates thereof. In the
event Tenant shall fail to procure such insurance, or to deliver such policies
or certificate, Landlord may, at its option, procure such policies for the
account of Tenant, and the cost thereof shall be paid to Landlord as additional
rent within five (5) days after delivery to Tenant of bills therefor.
(d) Tenant shall carry and maintain during the entire term of this
Lease, at Tenant's sole cost and expense, increased amounts of the insurance
required to be carried by Tenant pursuant to this Article, and such other
reasonable types of insurance coverage and in such reasonable amounts covering
the Demises Premises and Tenant's operations therein, as may be reasonably
requested by Landlord; provided that such types and/or amounts of insurance are
comparable to those being required by other landlord of first class office
building located in the Borough of Manhattan.
Section 12.03. Landlord and Tenant agree to have their respective
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant. As long as
such waivers of subrogation are contained in their respective insurance
policies, Landlord and Tenant hereby waive any right that either may have
against the other on account of any loss or damage to their respective property
to the extent such loss or damage is insurable under policies of insurance for
fire and all risk coverage, theft, public liability, or other similar insurance.
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ARTICLE 13
DAMAGE OR DESTRUCTION
Section 13.01. If the Building or the Demised Premises shall be partially
or totally damaged or destroyed by fire or other cause (whether or not the
damage or destruction shall have resulted from the fault or neglect of Tenant,
or its employees, agents or visitors) and if this Lease shall not have been
terminated in accordance with this Article, then Landlord, to the extent
permitted by available insurance proceeds, shall repair the damage and restore
and rebuild the Building and/or the Demised Premises with reasonable dispatch
after notice to Landlord of the damage or destruction; provided, however, that
Landlord shall not be required to repair or replace any of Tenant's Property or
the property that is deemed Landlord's Property. Notwithstanding anything
contained herein to the contrary, in no event shall Tenant be relieved of
liability or responsibility for damage or destruction resulting from the acts or
neglect of Tenant or any of its sublessees or its or their employees, agents,
contractors, visitors, licensees or invitees, if the insurance policies carried
by Landlord on the Building do not contain a waiver of the right of subrogation,
nor shall Landlord be deemed to have waived any of its rights under this Lease
or at law or in equity.
Section 13.02. In the event all or a portion of the Demised Premises shall
be so damaged by fire or other casualty as to be rendered completely or
partially untenantable or in the event the Building shall be so damaged
(irrespective of whether or not the Demised Premises are damaged) so that all or
a portion of the Demised Premises shall be rendered untenantable, then, and in
any such event, Fixed Rent and the additional rent payable pursuant to Article 5
and 6 hereof shall be (a) completely abated in the event all of the Demised
Premises shall be untenantable, or (b) in the event only a portion of the
Demised Premises shall be untenantable, partially abated to the extent that such
Fixed Rent and additional rent shall be allocable to such untenantable portion
of the Demised Premises.
In either case, such abatement shall be only for the period from the date
of such damage to the date (i) such damage shall be substantially repaired, or
(ii) if the Demised Premises are not damaged but rendered untenantable because
of damage to the Building, the date on which the Demised Premises are again
tenantable, provided, however, that if Tenant (or any sublessee(s) or
licensee(s) of Tenant) should reoccupy all or part of such untenantable space
for the conduct of business therein prior to the date that the damage thereto is
substantially repaired or such space is again tenantable, then abatement of
Fixed Rent and additional rent pursuant to Article 5 and 6 hereof allocable to
such reoccupied space shall cease as of the date of such reoccupancy. The term
"substantially repaired " as used herein shall mean repaired except for such
minor details or so called "punch-list" items, the non-performance of which
shall not preclude Tenant from reoccupying the affected portion or all of the
Demised Premises, as the case may be, and conducting its business therein.
Section 13.03. In the event the Building or the Demised Premised shall be
totally damaged or destroyed by fire or other casualty, or in the event the
Building shall be so damaged or destroyed by fire or other casualty
(irrespective of whether or not the Demised Premises are damaged thereby) that
Landlord shall decide to demolish or rebuild it, or if its repair or restoration
requires the expenditure (as estimated by a reputable contractor or architect
designated by Landlord) of more than twenty percent (20%) of the full insurable
value of the Building immediately prior to the casualty, then, and in any of
said events, Landlord shall have the option exercisable by notice given to
Tenant within ninety (90) days after the date of the casualty, to cancel and
terminate this Lease as of a date specified in Landlord's termination notice
which date shall be not more than (30) days after the giving of Landlord's
termination notice, in which event the term of this Lease shall cease and expire
on the date specified in Landlord's notice with the same force and effect as if
such date were originally provided herein as the expiration date of the term
hereof.
Section 13.04. In the event of any damage or destruction mentioned in this
Article which shall cause the Demised Premises to be untenantable, and if
Landlord has not substantially completed the making of the repairs and
restoration required to be made by Landlord pursuant to the provisions of this
Article within a period of twelve (12) months from the date of such damage or
destruction, which period, however, shall be extended by the number of days, if
any, as shall equal the aggregate number of days that Landlord may have been
delayed in making such repairs and restoration by reason of labor trouble,
governmental controls, act of God, adjustment of insurance loss or any other
cause beyond Landlord's reasonable control, then Tenant may terminate this Lease
by notice given to Landlord within thirty (30) days after the expiration of such
twelve (12) months or longer (by reason of any such extension) period, effective
as of date specified in such notice, which shall be not more than thirty (30)
days after giving thereof, and the term of this Lease shall expire on such date
with the same force and effect as if such date were originally provided herein
as the expiration date of the term hereof.
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Section 13.05. No damages, compensation or claim shall be payable by
Landlord for inconvenience, loss of business or annoyance arising from any
repair or restoration of any portion of the Demised Premises or of the Building
pursuant to this Article. Landlord shall endeavor to effect such repair or
restoration promptly and in such a manner (working, however, during Business
Hours of Business Days unless Landlord in its sole discretion shall otherwise
determine) as not to unreasonably interfere with Tenant's use and occupancy of
the Demised Premises.
Section 13.06. Notwithstanding any of the foregoing provisions of this
Article 13, if Landlord or any Superior Lessor or the holder of any Superior
Mortgage shall be unable to collect all of the insurance proceeds (including,
without limitation thereof, rent insurance proceeds) applicable to damage or
destruction of the Demised Premises or the Building by fire or other cause, by
reason of some action or inaction on the part of the Tenant or any of its
employees, agents or contractors, then without prejudice to any other remedies
which may be available against Tenant, there shall be no abatement of Fixed Rent
or additional rent until the total amount of such rents not abated which would
otherwise have been abated equals the amount of uncollected insurance proceeds.
Section 13.07. Landlord will not carry separate insurance of any kind on
Tenant's Property or on property which is deemed Landlord's Property pursuant to
Section 8.01 hereof and Landlord shall not be obligated to repair any damage
thereto or restore or replace same, the repair, restoration and replacement of
which shall be Tenant's responsibility and Tenant shall carry appropriate
insurance thereon and on all improvements and betterments made for or on behalf
of Tenant in the Demised Premises as required by this Lease.
Section 13.08. In the event of the termination of this Lease pursuant to
any of the provisions of this Article, this Lease and the term and estate hereby
granted shall expire as of the date of such termination with the same effect as
if such date were the date originally set forth herein as the expiration date of
the term hereof, and the Fixed Rent and additional rent payable hereunder shall
be apportioned as of such date subject, however, to any applicable abatement to
which Tenant may be entitled pursuant to the provisions hereof.
Section 13.09. The provisions of this Article shall be considered an
express agreement governing any case of damage or destruction of the Demised
Premises by fire or other casualty, and Section 227 of the Real Property Law of
the State of New York, providing for a contingency in the absence of an express
agreement and any other law of like import, now or hereafter in force, shall
have no application to the Demised Premises and this Lease.
ARTICLE 14
LANDLORD'S LIABILITY
Section 14.01. The Landlord shall not be liable to Tenant for (a) any
loss, injury or damage to property of Tenant or of others entrusted to employees
of the Building, or for any loss of or damage to any property of Tenant or
others by theft or action by a third party, (b) any injury or damage to persons
or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain or snow leaks from any part of said Building or from
the pipes, appliances or plumbing works or from the roof, street or subsurface
or from any other place or by dampness or by any other cause of whatsoever
nature, unless caused by or due to the negligence of Landlord, (c) any of the
foregoing damage, loss or injury caused by other tenants or persons in the
Building or caused by operations in construction of any private, public or
quasi-public work, (d) any damage, loss or injury caused by or attributable, in
whole or in part, to any latent defect in the Demised Premises or in the
Building, and (e) consequential damages arising out of any claim by Tenant
against Landlord under this Lease, whether or not caused by the negligence of
Landlord, including (without limitation) claims for any loss of use of, or loss
or damage to, all or any part of the Demised Premises or any equipment or
facilities therein.
Section 14.02. Tenant shall indemnify and hold harmless Landlord and all
Superior Lessors, Superior Mortgagees and its and their respective partners,
directors, officers, agents and employees from and against any and all claims,
together with all costs, expenses and liabilities incurred in or in connection
with each such claim or action or proceeding brought thereon, including, without
limitation, attorney's fees and expenses, arising from or in connection with:
(a) the conduct or management of the Demised Premises or of any
business therein, or any work or thing whatsoever done, or any condition created
(other than by Landlord) in or about the Demised Premises during
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the term of this Lease or any holdover period or during the period of time, if
any, prior to the Commencement Date that Tenant may have been given access to
the Demised Premises;
(b) any act, omission or negligence of Tenant or any of its
subtenants or licensees or its or their partners, directors, officers, agents,
employees or contractors;
(c) any accident, injury or damage whatever (unless caused solely by
Landlord's negligence) occurring in, at or upon the Demised Premises; and
(d) any breach or default by Tenant in the full and prompt payment
and performance of Tenant's obligations under this Lease. In case any action or
proceeding be brought against Landlord and/or any Superior Lessor or Superior
Mortgagee and/or its or their partners, directors, officers, agents and/or
employees by reason of any such claim, Tenant, at its expense, upon notice from
Landlord or such Superior Lessor, shall resist and defend such action or
proceeding by counsel reasonably satisfactory to Landlord and/or such Superior
Lessor or Superior Mortgagee.
Section 14.03. The obligations of Landlord under this Lease shall not be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building and/or the Land, as the case may be, and in the event of any
such sale, conveyance, assignment or transfer, Landlord shall be and hereby is
entirely freed and relieved of all covenants and obligations of Landlord
hereunder, and it shall be deemed and construed without further agreement
between the parties or their successors in interest, or between the parties and
the purchaser, grantee, assignee or other transferee that such purchaser,
grantee, assignee or other transferee has assumed and agreed to carry out any
and all covenants and obligations of Landlord hereunder. In no event shall any
trustee, advisor, beneficiary, director, officer, partner, employee, owner or
principal or any partner or other person or entity comprising the Landlord
(collectively, the "Parties"), be liable for the performance of Landlord's
obligations under this Lease. Tenant shall look solely to Landlord to enforce
Landlord's obligations hereunder and shall not seek any damages against any of
the Parties. The liability of Landlord for Landlord's obligations under this
Lease shall not exceed and shall be limited to Landlord's interest in the
Building and/or the Land and Tenant shall not look to any other property or
assets of Landlord or the property or assets of any of the Parties in seeking
either to enforce Landlord's obligations under this Lease or to satisfy a
judgment for Landlord's failure to perform such obligations.
ARTICLE 15
CONDEMNATION
Section 15.01. If the whole Building or the Demised Premises shall be
taken by condemnation or in any other manner for which any public or
quasi-public use or purpose (other than in a temporary taking for use, as to
which Section 15.04 shall apply) this Lease and the term and estate hereby
granted shall terminate as of this date of vesting of title on such taking
(herein called the "Date of the Taking"), and the Fixed Rent and additional rent
shall be prorated and adjusted as of such date.
Section 15.02. If any part of the Building shall be so taken this Lease
shall be unaffected by such taking, except that
(a) Landlord may, at its option, terminate this Lease by giving
Tenant notice to that effect within ninety days (90) after the Date of the
Taking, and
(b) if fifty percent (50%) or more of the Demised Premises shall be
so taken and the remaining area of the Demised Premised shall not be reasonably
sufficient for Tenant to continue the feasible operation of its business
therein, Tenant may terminate this Lease by giving Landlord notice to that
effect within ninety (90) days after the Date of the Taking. This lease shall
terminate on the date specified in such notice from Landlord or Tenant which
shall be not less than (90) days from the date of such notice, and the Fixed
Rent and additional rent shall be prorated and adjusted as of such termination
date. Upon such partial taking and this Lease continuing in force as to any part
of the Demised Premises, the Fixed Rent and additional rent shall be adjusted
according to the rentable area remaining.
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Section 15.03. Landlord shall be entitled to receive the entire award
payment in connection with any taking without deduction therefrom for any estate
vested in Tenant by this Lease and Tenant shall receive no part of such award
except as hereinafter expressly provided in this Article. Tenant hereby
expressly assigns to Landlord all of its rights, title and interest now or
hereinafter arising in and to every such award or payment. Notwithstanding the
foregoing, in the event of a termination of this Lease by reason of any taking,
Tenant may make separate claims for its fixtures actually taken and for moving
expenses.
Section 15.04. If the temporary use or occupancy of all or any part of the
Demised Premises shall be taken by condemnation or in any other manner for any
public or quasi-public use or purpose during the term of this Lease, Tenant
shall be entitled, except as hereinafter set forth, to receive that portion of
the award or payment for such taking which represents compensation for use and
occupancy of the Demised Premises, for the taking of Tenant's Property and for
moving expenses, and Landlord shall be entitled to receive that portion which
represents reimbursement for the cost of restoration of the Demised Premises.
This Lease shall be and remain unaffected by such taking and Tenant shall
continue being responsible for all of its obligations hereunder insofar as such
obligations are not affected by such taking and shall continue to pay in full
the Fixed Rent and additional rent when due. If the period of temporary use of
occupancy shall be extended beyond the expiration date of this Lease, that part
of the award which represents compensation for the use and occupancy of the
Demised Premises (or a part thereof) shall be appointed between Landlord and
Tenant so that Landlord shall receive for his own account so much thereof as
shall be allocable to the period after such expiration date, and such portion
thereof as shall be allocable up to an including such expiration date shall be
received, held and applied by Landlord as a trust fund for payment of the Fixed
Rent and additional rent becoming due hereunder during such period.
Section 15.05. In the event of any taking of less than the whole of the
Building and/or the Land which does not result in a termination of this Lease,
or in the event of a taking for a temporary use or occupancy of all or any part
of the demised Premises which does not result in a termination of this Lease,
Landlord, at its expense, and whether or not any award or awards shall be
sufficient for the purpose, shall proceed with reasonable diligence to repair
the remaining parts of the Building and Demised Premises (other than those parts
of the Demised Premises which are Tenant's Property) to substantially their
former condition to the extent that the same may be feasible (subject to
reasonable changes which Landlord shall deem desirable) and so as to constitute
a tenantable Building and Demised Premises.
ARTICLE 16
CONDITIONS OF LIMITATION
Section 16.01. This Lease and the term and estate hereby granted are
subject to the limitations that:
(a) if Tenant shall file a voluntary petition in bankruptcy or
insolvency, or shall file a voluntary petition or answer seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the present or any future federal bankruptcy act or any
other present or future applicable federal, state or other statute or law
(foreign or domestic) or shall make an assignment for benefit of creditors, or
shall seek or consent or acquiesce in the appointment of any trustee, receiver
or liquidator of Tenant or of all or any part of the property or assets of
Tenant; or
(b) if, within sixty (60) days after the commencement of any
proceeding against Tenant, whether by the filing of a petition or otherwise,
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future applicable federal,
state or other statute or law (foreign or domestic,) such proceeding shall not
have been dismissed, or if within sixty (60) days after the appointment of any
trustee, receiver or liquidator of Tenant or of all or any part of Tenant's
Property, without the consent or acquiescence of Tenant, such appointment shall
not have been vacated or otherwise discharged; or
(c) if any execution or attachment shall be issued against Tenant or
any of Tenant's Property pursuant to which the Demised Premised shall be taken
or occupied or attempted to be taken or occupied, then Landlord at any time
after the occurrence of any such event, may give Tenant a notice of intention to
end the term of this Lease at the expiration of three (3) days from the date of
the giving of such notice of intention, and upon the expiration of said (3) day
period this Lease and the term and estate hereby granted, whether or not the
term shall theretofore have commenced, shall terminate with the same effect as
if that day were the expiration date of this Lease, but Tenant shall remain
liable for damages as provided in Article 18 hereof.
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Section 16.02. This Lease and the term and estate hereby granted are
subject to the further limitations that:
(a) if Tenant shall default in the payment of any Fixed Rent or
additional rent, and such default shall continue uncured for five (5) days after
notice by Landlord to Tenant of such default; or
(b) if Tenant shall, whether by action or inaction, be in default of
any of its obligations under this Lease other than a default in the payment of
any Fixed Rent or additional rent and such default shall continue and not be
remedied within fifteen (15) days after notice by Landlord to Tenant of such
default, or, if such default is of such a nature that it cannot with due
diligence be remedied within said period of fifteen (15) days, if Tenant shall
not (i) promptly upon the giving by Landlord of such notice, give notice to
Landlord of Tenant's intention to institute all steps necessary to remedy such
default (ii) promptly institute and thereafter diligently and with continuity
prosecute to completion all steps necessary to remedy the default, and (iii)
complete such remedy within a reasonable time (not to exceed 60 days) after the
date of the giving of said notice by Landlord and in any event prior to such
time as would either (x) subject Landlord, or any directors, officers, partners
or employees or agents of Landlord, or any Superior Lessor, or Superior
Mortgagee to prosecution for a crime or (y) cause a default under a Superior
Lease or any Superior Mortgage; or
(c) if there shall be any default by Tenant of the provisions of
Article 11 hereof; or
(d) if Tenant shall vacate or abandon the Demised Premises; or
(e) deleted prior to execution;
then and in any of said events, Landlord may give to Tenant a notice of
intention to terminate this Lease and to end the term and estate hereby granted
at the expiration of three (3) days from the date of the giving of such notice,
and upon the expiration of said three (3) day period, this Lease and the term
and estate hereby granted, whether or not the term shall theretofore have
commenced, shall terminate with the same effect as if such third day were
expiration date of this Lease, but Tenant shall remain liable for damages as
provided in Article 18 hereof.
Section 16.03. Nothing in Sections 16.01 or 16.02 shall be deemed to
require Landlord to give the notices therein provided for prior to the
commencement of a summary proceeding for nonpayment of rent or a plenary action
for recovery of rent on account of any default in the payment of the same, it
being intended that such notices are for the sole purpose of creating a
conditional limitation hereunder pursuant to which this Lease shall terminate
and if Tenant thereafter remains in possession after such a termination, it
shall do so as a holdover tenant.
ARTICLE 17
RE-ENTRY BY LANDLORD
Section 17.01. If Tenant shall default in the payment of any Fixed Rent or
additional rent, and such default shall continue for five (5) days after notice
by Landlord to Tenant of such default, or if this Lease shall terminate as
provided in Article 16 of any other provision of this Lease:
(a) Landlord or Landlord's agent or employees may immediately or at
any time thereafter re-enter the Demised Premises, or any part thereof, either
by summary dispossess proceedings or by any other suitable action or proceeding
at law, or by force or otherwise (without liable to indictment, prosecution or
damages therefore) and may repossess the same and dispossess Tenant and any
other person(s) from the Demised Premises and may remove Tenant or any and all
of their property and effects therefrom, without liability for damages thereto
or accountability therefor, to the end that Landlord may have, hold and enjoy
the Demised Premises, provided however, in no event, shall any such re-entry be
deemed an acceptance of surrender under this Lease:
(b) Landlord, at its option, may relet the whole or any portion(s)
of the Demised Premises from time to time, either in name of the landlord or
otherwise, to such tenant or tenants, for such term or terms ending before, or
on or after the date originally provided herein as the expiration date of the
term hereof, at such rentals and upon such other conditions, which may include
concessions and free rent period, a Landlord in its sole discretion may
determine. Landlord shall have no obligation to relet the Demised Premises or
any portion thereof and shall in no event be liable for refusal or failure to
relet the Demised Premises or any portion thereof or, in the event of any such
reletting,
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for failure to collect any rent due upon such reletting, and no such refusal or
failure shall operate to release or relieve Tenant from any liability under this
Lease or otherwise to affect such liability. Further, Landlord may make such
repairs, improvements, alterations, additions, decorations and other physical
changes in and to the Demised Premises as Landlord in its sole discretion
considers advisable or necessary in connection with any such reletting or
proposed reletting, without releasing or relieving Tenant from any liability
under this Lease or otherwise affecting any such liability; and
(c) If this Lease is terminated under the provisions of Article 16,
or if Landlord shall re-enter the Demised Premises pursuant to the provisions of
this Article, or in the event of the termination of this Lease, or of re-entry,
by or pursuant to any summary dispossess or other proceedings or action or any
provision of law by reason of default hereunder on the part of the Tenant:
(i) Tenant shall thereupon pay to Landlord the Fixed Rent and
additional rent payable up to the time of such termination of this Lease, or of
such recovery of possession of the Demised Premises by Landlord, as the case may
be.
(ii) Tenant shall also pay to Landlord damages as provided in
Article 18, and
(iii) Landlord shall be entitled to retain all monies, if any,
paid by Tenant to Landlord, whether as advance rent, security or otherwise, but
such monies shall be credited by Landlord against any Fixed Rent or additional
rent due from Tenant at the time of such termination or re-entry or, at
Landlords option, against any damages payable by Tenant under Article 18 or
pursuant to law.
Section 17.02. Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant including all creditors, does hereby expressly
waive any and all rights, so far as is permitted by law, which Tenant and all
such persons might otherwise have to:
(a) the service of any notice of intention to re-enter or to
institute legal proceedings to that end;
(b) redeem the Demised Premises or any interest therein;
(c) re-enter or repossess the Demised Premises; or
(d) restore the operation of this Lease after Tenant shall have been
dispossessed by a judgment or by a warrant of any court or judge, or after any
re-entry by Landlord, or after any termination of this Lease, whether such
dispossess, re-entry by Landlord or termination shall be by operation of law or
pursuant to the provisions of this Lease.
Section 17.03. In the event of a breach or threatened breach by Tenant of
any of its obligations under this Lease, Landlord shall also have the right of
injunction. The special remedies to which Landlord may resort hereunder are
cumulative and are not intended to be exclusive of any other remedies to which
Landlord may lawfully be entitled at any time and Landlord may invoke any remedy
allowed at law or in equity as if specific remedies were not provided for
herein. The words "re-enter", "re-entry" and "re-entered" as used in this Lease
shall not be deemed to be restricted to their technical legal meanings.
ARTICLE 18
LANDLORD'S REMEDIES, DAMAGES
Section 18.01. If this Lease is terminated pursuant to the provisions of
Article 16 or otherwise in accordance with this Lease, or if Landlord shall
re-enter the Demised Premises pursuant to the provisions of Article 17, or in
the event of the termination of this Lease, or of re-entry, by or pursuant to
any summary dispossess or other proceeding or action or any provision of law by
reason of default hereunder on the part of Tenant, Tenant shall pay to Landlord
as damages, at the election of Landlord, either
(a) a sum which at the time of such termination of this Lease or at
the time of such re-entry by Landlord, as the case may be, represents the
present value of the aggregate amount of the Fixed Rent and the additional
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rent under Articles 5 and 6 which would have been payable by Tenant for the
period commencing with such earlier termination of this Lease or the date of
such re-entry, as the case may be, and ending with the date contemplated as the
expiration date hereof if this Lease had not so terminated or if Landlord had
not so re-entered the Demised Premises for the same period, or
(b) sums equal to the Fixed Rent and the additional rent which would
have been payable by Tenant had this Lease not so terminated, or had Landlord
not so re-entered the Demised Premises, payable upon the due dates therefor
specified herein following such termination or such re-entry and until the date
contemplated as the expiration date hereof if this Lease had not so terminated
or if Landlord had not so re-entered the Demised Premises during said period,
provided, however, that if Landlord shall relet the Demised Premises during said
period, Landlord shall credit Tenant with the net rents received by Landlord for
such reletting, such net rents to be determined by first deducting from the
gross rents as and when received by Landlord from such reletting the expenses
incurred or paid by Landlord in terminating this Lease or in re-entering the
Demised Premises and in securing possession thereof, as well as the expenses of
reletting, including, without limitation, altering and preparing the Demised
Premises for new tenants, brokers' commissions, legal fees, and all other
expenses properly chargeable against the Demised Premises and the rental
therefrom, it being understood that any such reletting may be for a period
shorter or longer than the remaining term of this Lease and that such reletting
may be of all or portion(s) of the Demised Premises either alone or together
with other space in the Building (in which event the cut rents therefrom and the
expenses of reletting shall be equitably apportioned); but in no event shall
Tenant be entitled to receive any excess of such net rents over the sums payable
by Tenant to Landlord hereunder, nor shall Tenant be entitled in any suit for
the collection of damages pursuant to this subdivision to a credit in respect of
any net rents from a reletting, except to the extent that such net rents are
actually received by Landlord.
If the Demised Premises or any portion(s) thereof shall be relet by
Landlord for the unexpired portion of the term of this Lease, or any portion
thereof, before presentation of proof of such damages to any court, commission
or tribunal, the amount of rent reserved upon such reletting shall, prima facie,
be the fair and reasonable rental value for the Demised Premises, or portion
thereof, so relet during the term of the reletting.
Section 18.02. An action or actions for the recovery of such damages, or
any installments thereof, may be brought by Landlord from time to time at its
election, and nothing contained herein shall be:
(a) deemed to require Landlord to postpone action until the date
when the term of this Lease would have expired if it had not been so terminated
under the provisions of Article 17, or under any provision of law, or had
Landlord not re-entered the Demised Premises;
(b) construed to limit or preclude recovery by Landlord against
Tenant of any sums or damages to which, in addition to the damages particularly
provided above, Landlord may lawfully be entitled by reason of any default
hereunder on the part of Tenant; or
(c) construed to limit or prejudice the right of Landlord to prove
for and obtain as damages by reason of the termination of this Lease or re-entry
in the Demised Premises for the default of Tenant under this Lease an amount
equal to the maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, such damages are to be proved
whether or not such amount be greater, equal to, or less than any of the sums
referred to in Section 18.01.
Section 18.03. In addition, if this Lease is terminated under the
provisions of Article 16, or if Landlord shall re-enter the Demised Premises
under the provisions of Article 17, Tenant agrees that:
(a) the Demised Premises then shall be in the same condition as that
in which Tenant has agreed to surrender the same to Landlord at the expiration
of the term hereof;
(b) Tenant shall have performed prior to any such termination any
covenant of Tenant contained in this Lease for the making of any alteration or
for restoring or rebuilding the Demised Premises or the Building, or any part
thereof; and
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(c) for the breach of any covenant of Tenant set forth above in this
Section 18.03, Landlord shall be entitled immediately, without notice or other
action by Landlord, to recover, and Tenant shall pay, as and for liquidated
damages therefor, the cost of complying with such covenant (as estimated by an
independent contractor elected by Landlord).
Section 18.04. If Tenant shall default in the observance or performance of
any term or covenant on its part to be observed or performed under or by virtue
of any of the terms or provisions in any Article of this Lease, Landlord,
without being under any obligation to do so and without thereby waiving such
default, may remedy such default for the account and at the expense of Tenant,
without notice in the event of an emergency, and in any other event only if such
default shall continue uncured after (i) notice of such default shall have been
given by Landlord to Tenant, and (ii) any applicable grace period for curing
same shall have expired. Tenant shall reimburse Landlord, as additional rent
hereunder, within five (5) days after Landlords delivery of a statement therefor
for all expenditures made by, or damages or fines sustained or obligations
incurred by Landlord including, without limitation, reasonable counsel fees and
legal fees in instituting, prosecuting or defending any action or proceedings,
due to non-performance or non-compliance with or breach or failure to observe
any term, covenant or condition of this Lease upon Tenant's part to be kept,
observed, performed or complied with.
ARTICLE 19
SERVICES AND EQUIPMENT
Section 19.01. For purposes of this Lease,
(a) the term Business Days" shall mean all days excluding Saturdays,
Sundays and days observed by the City of New York, the State of New York or
Federal Government as legal holidays, and further excluding holidays established
by any union contract applicable to Building employees, and
(b) the term "Business Hours" shall mean the hours from 8:00 a.m. to
6:00 p.m. of Business Days.
Section 19.02. So long as Tenant is not in default under any of the
covenants of this Lease, Landlord shall, at its cost and expense:
(a) provide necessary elevator facilities during Business Hours of
Business Days and shall have sufficient elevators available at all other times;
(b) maintain and keep in good order and repair the air conditioning,
heating and ventilating systems installed by Landlord and operate the aforesaid
systems when seasonably required during Business Hours on Business Days;
(c) provide Building standard cleaning and janitorial services in
accordance with the provisions of Exhibit B hereof;
(d) furnish hot and cold water for lavatory and drinking and office
cleaning purposes; and
(e) Tenant shall have access to the Demised Premises seven days each
week, 24 hours a day.
Landlord shall have no responsibility or liability for the ventilating
conditions and/or temperature of the Demised Premises during the hours or days
Landlord is not required to furnish heat, ventilation or air conditioning
pursuant to this section. Landlord has informed Tenant that the windows of the
Demised Premises and the Building are or may be sealed, and that the Demised
Premises may become uninhabitable and the air therein may become unwholesome
during the hours or days when Landlord is not required pursuant to this
paragraph to furnish heat, ventilation or air conditioning. Any use or occupancy
of the Demised Premises during the hours or days Landlord is not so required to
furnish heat, ventilation or air conditioning to the Demised Premises shall be
at the sole risk, responsibility and hazard of Tenant. Such condition of the
Demised Premises shall not constitute nor be deemed to be a breach or a
violation of this Lease or of any provision thereof, nor shall it be deemed an
eviction nor shall Tenant claim or be entitled to claim any abatement of rent
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nor make any claim for any damages or compensation by reason of such condition
of the Demised Premises. Tenant shall in any event cause all of the windows in
the Demised Premises to be kept closed and shall cause and keep entirely
unobstructed all of the vents, intakes, outlets and grilles, at all times and
shall comply with and observe all regulations and requirements prescribed by
Landlord for the proper functioning of the heating, ventilating and
air-conditioning systems. In the event that Tenant shall require air
conditioning, heating or ventilation at times when same are not required to be
furnished by Landlord, Tenant shall give Landlord at least twenty-four (24)
hours' advance notice of such requirement and, if same is furnished by Landlord,
Tenant agrees to pay Landlord's then established charges therefor as additional
rent. Landlord shall have no responsibility or liability of any kind or nature
whatsoever in connection with the installation, operation, maintenance or repair
of Tenant's supplemental autonomous heating, ventilating and/or air conditioning
units, and Tenant agrees to pay Landlord's then established charges for
condenser water if furnished for the operation thereof. If Tenant requires, uses
or consumes water for any other purposes, Landlord may install a meter or meters
or use other means to measure Tenant's water consumption for all purposes, and
Tenant shall reimburse Landlord for the cost of the meter or meters and the
installation thereof, and shall pay for the maintenance of said meter equipment
and/or pay Landlord's cost of other means of measuring such water consumption by
Tenant. Tenant shall reimburse Landlord for the cost of all water consumed, as
measured by said meter or meters or as otherwise measured, including sewer
rents.
Section 19.03. Landlord reserves the right to interrupt, curtail or
suspend the services required to be furnished by Landlord under this Article 19
when the necessity therefore arises by reason of accident, emergency, mechanical
breakdown, or when required by any law, order or regulation of any federal,
state, county or municipal authority, or for any other cause beyond the
reasonable control of Landlord. Landlord shall use reasonable efforts to
complete all repairs or other work so that Tenant's inconvenience resulting
therefrom may be for as short a period of time as circumstances will permit.
Section 19.04. Tenant shall reimburse Landlord for the cost to Landlord of
removal from the Demised Premises and the Building of so much of any refuse and
rubbish of Tenant as shall exceed that ordinarily accumulated daily in the
routine of business office occupancy or by any use of the Demised Premises
during other than Business Hours.
Section 19.05. It is expressly agreed that only Landlord or any one or
more persons, firms or corporations authorized in writing by Landlord will be
permitted to furnish laundry, linen, towels, drinking water, ice and other
similar supplies and services to tenants and occupants of the Building. Tenant
agrees to employ such office maintenance contractor as Landlord may from time to
time designate for all waxing, polishing, lamp replacement, cleaning (other than
those cleaning services Landlord is obligated to furnish) and the maintenance
work in the Demised Premises, provided that the quality thereof and the charges
therefor are reasonably comparable to that of other contractors. Tenant, at its
sole cost and expense, shall cause the Demised Premises to be exterminated on at
least a monthly basis to the satisfaction of Landlord and shall for such
purposes employ exterminators designated by Landlord.
ARTICLE 20
ACCESS; RIGHT TO CHANGE PUBLIC PORTIONS OF BUILDING
Section 20.01. Except for the space within the inside surfaces of all
walls, hung ceilings, floors, windows (which term "windows" shall include any
film now or hereafter installed thereon by Landlord, at its option, to conserve
energy in the Building) and doors bounding the Demised Premises, all of the
Building, including, without limitation, exterior Building walls, core corridor
walls and doors and any core corridor entrance, any terraces or roofs adjacent
to the Demised Premises and any space in or adjacent to the Demised Premises
used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other Building facilities, and the use thereof, as well as
access thereto through the Demised Premises for the purposes of operation,
maintenance, decoration and repair, are reserved to Landlord.
Section 20.02. Landlord reserves the right, and Tenant shall permit
Landlord, (a) to install, erect, use and maintain pipes, ducts and conduits in
and through the Demised Premises and (b) to make such repairs, changes,
alterations, additions and improvements in or to the Demised Premises and/or in
or to any portion(s) of the Building facilities, equipment and systems located
in or passing through the Demised Premises as Landlord is required or desires to
make. Landlord shall be allowed to take all materials into and upon the Demised
Premises that may be required in connection therewith without any liability to
Tenant and without the same constituting an eviction of Tenant, in whole or
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in part, and without any abatement or reduction in Fixed Rent or additional rent
payable hereunder or any reduction of Tenant's covenants and obligations
hereunder. Landlord shall use its reasonable efforts to minimize any disruption
to Tenant in connection with any alterations or repairs.
Section 20.03. Landlord and its employees and agents shall have the right
to enter and/or pass through the Demised Premises upon reasonable notice (which
may be oral) and at reasonable times to examine the Demised Premises and to show
same to actual and prospective tenants, lessors, mortgagees, purchasers, or
lessees of the Land and/or the Building or any interest therein, except,
however, in the event of an emergency, in which case Landlord and its employees
and agents may enter the Demised Premises at any time without any requirement of
notice. If Tenant is not present to open and permit an entry into the Demised
Premises, Landlord or Landlord's agent may enter the same whenever such entry
may be necessary or permissible by master key or forcibly and provided
reasonable care is exercised to safeguard Tenant's Property and such entry shall
not render Landlord or its agents liable therefor, nor in any event shall the
obligations of Tenant hereunder be affected.
Section 20.04. If at any time any windows of the Demised Premises are
temporarily darkened or obstructed by reason of any repairs, improvements,
rigging, maintenance and/or cleaning in or about the Building, or if any part of
the Building other than the Demised Premises is temporarily or permanently
closed or inoperable, the same shall be without liability to Landlord and
without any reduction or diminution of Tenant's obligations under this Lease.
Section 20.05. If, during the last two (2) months of the term of this
Lease, Tenant has removed all or substantially all of Tenant's Property from the
Demised Premises, Landlord may, without notice to Tenant, immediately enter the
Demised Premises and alter, renovate and decorate the same, without liability to
Tenant and without reducing or otherwise affecting Tenant's covenants and
obligations hereunder.
Section 20.06. Landlord reserves the right at any time, without incurring
any liability to Tenant therefor, and without affecting or reducing any of
Tenant's covenants and obligations hereunder, to make such changes, alterations,
additions and improvements in or to the Building and the fixtures and equipment
thereof, as well as in or to the street entrances, doors, halls, passageways,
elevators, escalators and stairways thereof, and other public parts of the
Building, as Landlord shall deem necessary or desirable, provided that in no
event shall the services provided to Tenant by Landlord be materially diminished
as a result of such changes.
ARTICLE 21
BROKER
Section 21.01. Tenant warrants and represents that it has not dealt with
any broker, finder or agent other than the Broker in connection with this Lease
or the leasing of the Demised Premises, and that Tenant had no conversations or
negotiations with any broker, finder or agent (other than Broker) concerning
this Lease or the leasing of the Demised Premises. Tenant agrees to indemnify
and hold Landlord harmless against and from any claims, costs, expenses and
liabilities, including, without limitation, attorneys' fees and expenses,
imposed upon, incurred by or asserted against Landlord arising out of any breach
of the foregoing representation. Landlord agrees to pay any commission or
compensation to the Broker in connection with this Lease and the leasing of the
Demised Premises pursuant to separate agreements.
ARTICLE 22
SUBORDINATION
Section 22.01. This Lease and all rights of Tenant hereunder are subject
and subordinate to all ground leases, overriding leases and underlying leases of
the Land and/or the Building now or hereafter existing (any of the foregoing
being herein referred to as a "Superior Lease") and to all mortgages which may
now or hereafter affect the Land, the Building, and/or any Superior Lease (any
of the foregoing being herein referred to as a "Superior Mortgage") whether or
not such Superior Mortgages shall also cover other lands and/or buildings and/or
leases, to each and every advance made or hereafter to be made under such
Superior Mortgages, and to all renewals, modifications, consolidations,
replacements and extensions of such Superior Leases and such Superior Mortgages.
This Section shall be self-operative and no further instrument of subordination
shall be required. In confirmation of such subordination, Tenant shall promptly
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execute, acknowledge and deliver any certificate that Landlord, the lessor under
any Superior Lease, the holder of any Superior Mortgage, or any of their
respective successors in interest may reasonably request to evidence such
subordination. If Tenant fails to execute, acknowledge or deliver any such
instruments within seven (7) days after request therefor, Tenant hereby
irrevocably constitutes and appoints Landlord as Tenants attorney-in-fact,
coupled with an interest, to execute any such certificate or certificates for
and on behalf of Tenant.
Section 22.02. At the option of Landlord or any successor landlord,
including the holder of any Superior Mortgage, the purchaser of the mortgaged
premises in foreclosure and any lessor under any Superior Lease who shall
succeed to the Landlord's interest herein (collectively the "Successor
Landlord"), Tenant agrees that neither the foreclosure of a Superior Mortgage,
nor the institution of any suit, action, summary or other proceeding against the
Landlord or any Successor Landlord, nor any foreclosure proceeding brought by
the holder of any such Superior Mortgage to recover possession of the premises
covered thereby, shall by operation of the law or otherwise result in
cancellation or termination of this Lease or the obligations of the Tenant
hereunder, and at the option and upon the request of any such Successor
Landlord, Tenant covenants and agrees to attorn to and recognize such Successor
Landlord as Tenant's landlord under this Lease and shall promptly execute and
deliver any instrument that such Successor Landlord may reasonably request to
evidence such attornment. Upon such attornment, this Lease shall continue in
full force and effect as a direct Lease between the Successor Landlord and
Tenant upon all of the terms, conditions and covenants as are set forth in this
Lease except that the Successor Landlord shall not:
(a) be liable for any previous act or omission of Landlord under
this Lease;
(b) be subject to any offset not expressly provided for in this
Lease, which theretofore shall have accrued to Tenant against Landlord; and
(c) be bound by any previous modification of this Lease or by any
previous prepayment of more than one month's Fixed Rent or additional rent,
unless such modification or prepayment shall have been expressly approved in
writing by the lessor of the Superior Lease or the holder of the Superior
Mortgagee, through or by reason of which the Successor Landlord shall have
succeeded to the rights of Landlord under this Lease.
Section 22.03. In the event of any act or omission by Landlord which would
give Tenant the right to terminate this Lease or to claim a partial or total
eviction pursuant to the terms of this Lease, Tenant will not exercise any such
right until (a) Tenant has given written notice of such act or omission to the
holders of any Superior Mortgages and the lessors under any Superior Leases
whose names and addresses shall previously have been furnished to Tenant, and
(b) a reasonable period for remedying such act or omission shall have elapsed
following the giving of such notice during which none of such parties has given
notice to Tenant of its intention to remedy such act or omission or to cause the
same to be remedied and promptly commences and thereafter continues such remedy
with reasonable diligence.
Section 22.04. If, in connection with obtaining financing, a banking,
insurance or other recognized institutional lender shall request reasonable
modifications of this Lease as a condition to such financing, Tenant will not
unreasonably withhold, delay or defer its consent thereto, provided that such
modifications do not, in Tenant's reasonable opinion, materially increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's use and enjoyment of the Demised Premises.
Nothing contained in this Section 22.04 shall be construed to require
modifications to this Lease that increase the economic obligations of the Tenant
under this Lease or decrease the Landlord's obligations under the terms of this
Lease.
ARTICLE 23
LEGAL PROCEEDINGS; WAIVER OF JURY TRIAL
Section 23.01. If Tenant or Landlord shall bring any action or suit for
any relief against the other, declaratory or otherwise, arising out of this
Lease or Tenant's occupancy of the Demised Premises, the parties hereto agree to
and hereby waive any right to a trial by jury, and the losing party shall pay
the successful party a reasonable sum for attorney's fees in such action or
suit.
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Section 23.02. Tenant hereby waives the right to interpose a counterclaim
(other than compulsory counterclaims) in any summary proceeding instituted by
Landlord against Tenant or in any action instituted by Landlord for unpaid Fixed
Rent or additional rent under this Lease.
Section 23.03. In the event the Tenant claims or asserts that the Landlord
has violated or failed to perform a covenant of Landlord not to unreasonably
withhold or delay Landlord's consent or approval, or in any case where
Landlord's reasonableness in exercising its judgment is in issue, Tenant's sole
remedy shall be an action for specific performance, declaratory judgment or
injunction and in no event shall Tenant be entitled to any money damages for a
breach of such covenant and in no event shall Tenant claim or assert any claims
for money damages in any action or by way of set-off, defense or counterclaim
and Tenant hereby specifically waives the right to any money damages or other
remedies. Whenever Landlord's consent or approval is required under this Lease,
and this Lease does not specify that such consent or approval shall not be
unreasonably withheld or delayed, Landlord may determine whether to grant or
withhold such consent or approval in its sole and absolute discretion,
regardless of whether such refusal to consent or approve may be deemed
arbitrary.
Section 23.04. Whenever this Lease requires Landlord's consent or
approval, Tenant shall reimburse Landlord on demand as a condition to granting
such consent or approval any costs that may be incurred in connection with
reviewing the request for consent or approval, including, without limitation,
reasonable attorneys fees.
ARTICLE 24
ESTOPPEL CERTIFICATE
Section 24.01. Tenant agrees, at any time, and from time to time, upon not
less than seven (7) days prior notice by Landlord, to execute, acknowledge and
deliver to Landlord, a statement in writing addressed to Landlord or Landlord's
designee certifying that this Lease is unmodified and in full force and effect
(or, if there have been modifications, that the same is in full force and effect
as modified and stating the modifications), stating the dates to which Fixed
Rent and additional rent have been paid and stating whether or not to the best
knowledge of the signer of such certificate, there exists any default in the
performance of any covenant, agreement, term, provision or condition contained
in this Lease, and any claim or offset in favor of the Tenant, and, if any,
specifying each such default, claim or offset in favor of the Tenant, of which
signer may have knowledge, and stating whether or not, to the best knowledge of
the signer, any event has occurred which with the giving of notice or the
passage of time or both, would constitute such a default and, if so, specifying
each such event, it being intended that any such statement delivered pursuant
hereto shall be deemed a representation and warranty which may be relied upon,
regardless of independent investigation, by Landlord and others with whom
Landlord may be dealing including, without limitation, any purchaser or
prospective purchaser of the Land and/or the Building and/or Landlord's interest
under any Superior Lease, and by any mortgagee or prospective mortgagee of any
Superior Mortgage and/or Landlord's interest in any Superior Lease, and by any
landlord under a Superior Lease. If Tenant fails to execute, acknowledge or
deliver any such instruments within seven (7) days after request therefor,
Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's
attorney-in-fact, coupled with an interest, to execute any such certificate or
certificates for and on behalf of Tenant.
Section 24.02. Within ten (10) days of delivery of written request by
Landlord but not more frequently than two (2) times in any twelve month period,
Tenant shall deliver to Landlord (a) copies of the most current financial
statements of Tenant and of any guarantor of Tenants obligations under the Lease
certified by an independent certified public accountant and (b) such further
detailed financial information with respect to Tenant and any such guarantors as
Landlord or the holder or any Superior Mortgage or Superior Lease may reasonably
request.
ARTICLE 25
SURRENDER OF DEMISED PREMISES
Section 25.01. Upon the expiration or other termination of the term of
this Lease, Tenant shall quit and surrender the Demised Premises in good order
and condition, ordinary wear and tear and damage by fire or other casualty
excepted, and shall remove all property therefrom, required to be removed as in
Article 8 provided. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of the term of this Lease.
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Section 25.02. No act or thing done by Landlord or its agents shall be
deemed an acceptance of a surrender of the Demised Premises, and no agreement to
accept such surrender shall be valid unless in writing and signed by Landlord.
Section 25.03. Tenant agrees it shall indemnify and save Landlord harmless
against all costs, claims, loss or liability resulting from delay by Tenant in
surrendering the Demised Premises upon the expiration or sooner termination of
the term of this Lease, including, without limitation, any claims made by any
succeeding tenant founded on such delay. The parties recognize and agree that
the damage to landlord resulting from any failure by Tenant timely to surrender
the Demised Premises will be substantial, will exceed the amount of monthly rent
theretofore payable hereunder, and will be impossible of accurate measurement.
Tenant therefore agrees that if possession of the Demised Premises is not
surrendered to Landlord upon the Expiration Date or sooner termination of the
term of this Lease, then Tenant will pay Landlord as liquidated damages for each
month and for each portion of any month during which Tenant holds over in the
Demised Premises after expiration or sooner termination of the term of this
Lease, a sum (the "Holdover Rent") equal to two (2) times the average of the
monthly installments of Fixed Rent and additional rent which was payable per
month under this Lease during the six (6) months period preceding such
expiration or sooner termination of the term of this Lease, which Holdover Rent
shall be in addition to all other costs, claims, losses or liabilities which
Tenant has agreed to indemnify Landlord against pursuant to this Section. If
Landlord shall, at any time after the expiration or sooner termination of the
term hereof, proceed to remove Tenant from the Demised Premises as a holdover
tenant, Tenant shall pay the Holdover Rent for the use and occupancy of the
Demised Premises during any holdover period. Tenant's aforesaid obligations
shall survive the expiration or earlier termination of the term of this Lease.
ARTICLE 26
NOTICES
Section 26.01. (a) Except as expressly stated otherwise in this Lease, any
notice or other communication required or permitted to be given or made by
either Landlord or Tenant to the other pursuant to this Lease or pursuant to any
applicable law or requirement of public authority shall be in writing and shall
be delivered to such other party personally, or sent by registered or certified
mail (return receipt requested) or by a nationally recognized overnight courier,
addressed to Tenant at the Building and to Landlord, c/o Heitman Properties
Ltd., 180 North LaSalle Street, Chicago, Illinois 60601, Attention: Property
Management Department, or at such other address designated by such party in
accordance with this Article. The date of the giving of such bill, statement,
notice or communication shall be deemed to be the date of personal delivery or
mailing. Either party may, by notice from time to time to the other party,
designate a different address (which, however, shall be located in the
continental United States and shall not be a Post Office Box) for notices
intended for it. Any notice of change of address shall be deemed to have been
given when received by the party to whom such notice is given. Tenant agrees
that any notice required to be given to Tenant by Landlord under the provisions
of this Lease may be given by Landlord's agents or attorneys, as same are set
forth above, and in such event, such notice shall be deemed to have been given
by Landlord.
(b) A copy of all notices to Tenant and Landlord shall be sent to
the addresses set forth in Article 1, and otherwise in accordance with the
provisions of this Article.
ARTICLE 27
SECURITY DEPOSIT
Section 27.01. Tenant has delivered to Landlord the Security Deposit as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this Lease; it is agreed that in the event Tenant
defaults in respect to any of the terms, provisions and conditions of this
Lease, including, but not limited to, the payment of Fixed Rent and additional
rent, Landlord may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any Fixed Rent and
additional rent or any other sum as to which Tenant is in default or for any sum
which Landlord may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of this Lease,
including but not limited to, any damages or deficiency in the reletting of the
Demised Premises, whether such damages or deficiency accrued before or after
summary proceedings or other re-entry by Landlord. Tenant further agrees that
the security deposited and held hereunder shall be increased from time to time
as the Fixed Rent hereunder increases so that at all times the security shall be
in an amount equal to
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one (1) month of the Fixed Rent. In the event that Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants and conditions of
this Lease, the security shall be returned to Tenant after the Expiration Date
and after delivery of entire possession of the Demised Premises to Landlord. If
Landlord applies or retains any part of the security so deposited, Tenant, upon
demand, shall deposit with Landlord the amount so applied or retained, so that
Landlord shall have the full deposit on hand at all times during the term of
this Lease. In the event of a sale of the Land and Building or leasing
conveyance or transfer of the Building, of which the Demised Premises form a
part, Landlord shall have the right to transfer the security to the vendee,
lessee or transferee and Landlord shall thereupon be released by Tenant from all
liability for the return of such security; and Tenant agrees to look to the new
Landlord solely for the return of said security and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new landlord. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Landlord nor its successors or assigns shall be bound
by any assignment, encumbrance, attempted assignment or attempted encumbrance.
ARTICLE 28
COVENANT OF QUIET ENJOYMENT
Section 28.01. Landlord covenants that upon Tenant paying all Fixed Rent
and additional rent and observing and performing all the terms, covenants and
provisions of this Lease on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the Demised Premises without interference by any
person lawfully claiming by or through Landlord, subject nevertheless to the
terms and conditions of this Lease, and provided further that this covenant
shall bind and be enforceable against Landlord, subject to the terms hereof,
only so long as Landlord is the holder of the Landlord's interest in this Lease
and is collecting rent from Tenant but not thereafter.
ARTICLE 29
PARTNERSHIP TENANT
Section 29.01. If Tenant is a partnership (or is comprised of two (2) or
more persons, individually and as co-partners of a partnership) or if Tenant's
interest in this Lease shall be assigned to a partnership (or to two (2) or more
persons, individually and as co-partners of a partnership) pursuant to Article
11 (any such partnership and such persons are referred to in this Article as
"Partnership Tenant"), the following provisions of this Article shall apply to
such Partnership Tenant: (a) the liability of each of the parties comprising
Partnership Tenant shall be joint and several, (b) each of the parties
comprising Partnership Tenant hereby consents in advance to, and agrees to be
bound by, any written instrument which may hereafter be executed changing,
modifying or discharging this Lease, in whole or in part, or surrendering all or
any part of the Demised Premises to Landlord, and by any notices, demands,
requests or other communications which may hereafter be given by Partnership
Tenant or by any of the parties comprising Partnership Tenant, (c) any bills,
statements, notices, demands, requests or other communications given or rendered
to Partnership Tenant or to any of the parties comprising Partnership Tenant
shall be binding upon Partnership Tenant and all such parties, (d) if
Partnership Tenant shall admit new partners, all of such new partners shall, by
their admission to Partnership Tenant, be deemed to have assumed performance of
all of the terms, covenants and conditions of this Lease on Tenant's part to be
observed and performed, (e) Partnership Tenant shall give prompt notice to
Landlord of the admission of any such new partners, and upon demand of Landlord,
shall cause each such new partner to execute and deliver to Landlord an
agreement in form satisfactory to Landlord, wherein each such new partner shall
assume performance of all the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed (but neither Landlord's failure to
request any such agreement nor the failure of any such new partner to execute or
deliver any such agreement to Landlord shall vitiate the provisions of
subdivision (d) of this Article) and (f) on each anniversary of the Commencement
Date, Partnership Tenant shall deliver to Landlord a list of the names of all
partners and their current residential addresses.
Section 29.02. If any partner in Tenant is a professional corporation,
Tenant agrees to cause such professional corporation and each individual
shareholder thereof to execute such guaranties and other instruments, agreements
or documents as Landlord may reasonably request confirming that such individual
shareholder shall have the same obligations and liability under this Lease as
such shareholder would have had if he, and not such professional corporation,
were a partner in Tenant.
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<PAGE>
Section 29.03. Tenant and each of the partners/shareholders of Tenant
hereby waive any Requirements of Law that may require that Landlord to first
look to the assets of Tenant for recovery of any sums due hereunder, it being
the intention of the parties hereto that Landlord may, at its election, proceed
against the assets of Tenant and/or the assets of the individual
partners/shareholders of Tenant, whether simultaneously, or in such order of
priority as Landlord may determine in its sole discretion. The provisions of
this Article are not intended to mean that Landlord shall have limited or waived
its rights to any other available remedies hereunder or under applicable law as
to Tenant, including the right to look to the assets of Tenant for recovery of
any sums due hereunder.
Section 29.04. If any partner/shareholder of Tenant shall retire or
withdraw from the Tenant, such retiring or withdrawing partner/shareholder shall
have no liability to Landlord for the breach of any term, covenant or condition
contained in this Lease occurring after the date of such retirement or
withdrawal or for any act or omission of Tenant occurring after the date of such
retirement or withdrawal, provided that not less than one-half (1/2) of the
number of active partners/shareholders of Tenant as of the Commencement Date
(the "Minimum Amount") shall remain following such withdrawal or retirement. If
fewer than the Minimum Amount of active partners/shareholders of Tenant shall
remain following such withdrawal or retirement, such retiring or withdrawing
partner/shareholder shall (with all other partner/shareholder of Tenant who are
otherwise liable) remain liable as set forth herein, providing that such
retiring or withdrawing partner/shareholder shall be released from liability
arising under this Lease from and after the date there are at least the Minimum
Amount of active partners/shareholders of Tenant.
Section 29.05. The partners/shareholders of Tenant hereby consent and
submit to the jurisdiction of any court of record of New York State located in
New York County, or of the United States District Court for the Southern
District of New York and agree that service of process in any action or
proceeding brought by Landlord may be made upon any or all partners/shareholders
by mailing a copy of the summons to such partner(s)/shareholder(s) either at
their respective addresses or at the Demised Premises, by registered or
certified mail, return receipt requested. Notwithstanding the foregoing, the
residence of any partner/shareholder of Tenant shall not be a basis for a choice
of venue or for a motion by a partner/shareholder of Tenant for transfer of
venue or forum non conveniens pursuant to any rule of common law and/or any
applicable state or federal provision or statute, and each partner/shareholder
of Tenant and Tenant hereby waives the right to choose venue or to move for
transfer of venue or forum non conveniens on the grounds that an individual
partner/shareholder of the Tenant resides in a particular jurisdiction.
ARTICLE 30
MISCELLANEOUS
Section 30.01. Tenant shall not move any safe, heavy equipment or bulky
matter in or out of the Building without Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed. Tenant shall not place a
load upon any floor of the Demised Premises which exceeds the load per square
foot which such floor was designed to carry and which is allowed by law.
Business machines and mechanical equipment belonging to Tenant which cause noise
or vibration that may be transmitted to the structure of the Building or to the
Demised Premises to such a degree as to be objectionable to Landlord shall be
placed and maintained by the party owning the machines or equipment, at such
party's expense, in settings of cork, rubber or spring type vibration
eliminators sufficient to eliminate noise or vibration.
Section 30.02. Tenant will not clean, nor require, permit, suffer or allow
any window in the Demised Premises to be cleaned from the outside in violation
of Section 202 of the Labor Law or the rules of the Board of Standards and
Appeals or of any other board or body having or asserting jurisdiction.
Section 30.03. If any term, covenant, condition or provision of this Lease
or the application thereof to any circumstance or to any person, firm or
corporation shall be invalid or unenforceable to any extent, the remaining
terms, covenants, conditions and provisions of this Lease, or the application
thereof to any circumstances or to any person, firm or corporation other than
those as to which any term, covenant, condition or provision is held invalid or
unenforceable, shall not be affected thereby and each remaining term, covenant,
condition and provision of this Lease shall be valid and shall be enforceable to
the fullest extent permitted by law.
Section 30.04. In the event that an excavation should be made for building
or other purposes upon land adjacent to the Building, or should be authorized to
be made, Tenant shall, if necessary, afford to the person or persons
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<PAGE>
causing or authorized to cause such excavation, license to enter upon the
Demised Premises for the purpose of doing such work as shall reasonably be
necessary to protect or preserve the wall or walls of the Building, or the
Building, from injury or damage and to support them by proper foundations,
pinning and/or underpinning.
Section 30.05. Tenant, its servants, employees, agents, visitors, and
licensees shall observe faithfully and comply strictly with the rules and
regulations (the "Rules and Regulations") set forth in Exhibit C attached hereto
and made a part hereof. Landlord shall have the right from time to time during
the term of this Lease to make reasonable changes in and additions to the Rules
and Regulations.
Section 30.06. The failure of Landlord to seek redress for violation of,
or to insist upon the strict performance of, any covenant or condition of this
Lease, or any of the rules and regulations set forth or hereafter adopted by
Landlord shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. The receipt by Landlord of rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach. No provision
of this Lease shall be deemed to have been waived by Landlord, unless such
waiver be in writing signed by Landlord. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly rent herein stipulated shall be
deemed to be other than on account of the earliest stipulated rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment of rent be deemed an accord and satisfaction, and Landlord may accept
and deposit such check or payment without prejudice to Landlord's right to
recover the balance of such rent or pursue any other remedy in this Lease
provided.
Section 30.07. This Lease with the Exhibits annexed hereto, if any,
contains the entire agreement between Landlord and Tenant and shall not be
changed, modified, waived, released, discharged, terminated, in whole or in
part, except in a writing expressly designated for the purpose of effecting such
change, modification, waiver, release, discharge or termination and signed by
both Landlord and Tenant.
Section 30.08. The captions of Articles in this Lease are inserted only as
a matter of convenience and for reference and they in no way define, limit or
describe the scope of this Lease or the intent of any provision thereof.
Section 30.09. The Building may be known as or by such name as Landlord,
in its sole discretion, may determine, and Landlord shall have the right, at any
time and from time to time, to change the name and/or the address of the
Building without Tenant's consent.
Section 30.010. Landlord or Landlord's agents have made no representations
or promises with respect to the Building, the Land or the Demised Premises
except as herein expressly set forth and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this Lease. The taking of possession of the Demised Premises
by Tenant shall be conclusive evidence that Tenant accepts the Demised Premises
and that the Demised Premises and the Building were in good and satisfactory
condition at the time such possession was so taken.
Section 30.011. The covenants, conditions and agreements contained in this
Lease shall bind and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and, except as otherwise
provided herein, their assigns.
Section 30.012. Submission to Tenant by Landlord of the within Lease for
review and execution by Tenant shall confer no rights nor impose any obligations
on either party unless and until both Landlord and Tenant shall have executed
this Lease and duplicate originals thereof have been delivered to the respective
parties hereto.
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<PAGE>
Section 30.013. This Lease shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first and above written.
Landlord: JMB-40 BROAD STREET ASSOCIATES
By: JMB Income Properties Ltd. - XII, General
Partner
By: JMB Realty Corporation, Managing
General Partner
By: /s/ [ILLEGIBLE]
-------------------------------------
Tenant: INFINITE TECHNOLOGY GROUP
By: /s/ [ILLEGIBLE]
-----------------------------------------
OPS. MGR.
Federal I.D. No. 11-3140209
----------------------------
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<PAGE>
EXHIBIT A
FLOOR PLAN
This floor plan is annexed to and made a part of this Lease solely to
indicate the Demised Premises by outlining and diagonal markings. All areas,
conditions, dimensions and locations are approximate.
A-1
<PAGE>
EXHIBIT A-1
LANDLORD'S WORK
See Attached
A-1.2
<PAGE>
INFINITE TECHNOLOGY
EXHIBIT A-1
WORK LETTER AGREEMENT
This Work Letter Agreement ("Work Letter") is executed simultaneously with
that certain office Lease (the "lease") between INFINITE TECHNOLOGY GROUP, as
"Tenant", and JMB-40 BROAD STREET ASSOCIATES, as "Landlord", relating to demised
premises ("Premises") at the building commonly known as 40 BROAD STREET, NEW
YORK, NEW YORK (the "Building"), which Premises are more fully identified in the
Lease. Capitalized terms used herein, unless otherwise defined in this Work
Letter, shall have the respective meanings ascribed to them in the Lease.
For and in consideration of the agreement to lease the Premises and the
mutual covenants contained herein and in the Lease, Landlord and Tenant hereby
agree as follows:
1. Tenant's Initial Plans: the Work. Tenant desires Landlord to perform
certain leasehold improvement work in the Premises in substantial accordance
with the plan or plans (collectively, the "Initial Plan"), a copy or copies of
which is/are attached hereto as Schedule 1. Such work, as shown in the Initial
Plan and as more fully detailed in the Working Drawings (as defined and
described in Paragraph 2 below), shall be hereinafter referred to as the "Work".
Not later than five (5) days after request by Landlord, Tenant shall furnish to
Landlord such additional plans, drawings, specifications and furnish details as
Landlord may reasonably request to enable Landlord's architects and engineers to
prepare mechanical, electrical and plumbing plans and to prepare the Working
Drawings, including a final telephone layout and special electrical connection
requirements, if any. All plans, drawings, specifications and other details
describing the Work which have been or are hereafter furnished by or on behalf
of Tenant shall be subject to Landlord's approval, which Landlord agrees shall
not be unreasonably withheld. Landlord shall not be deemed to have acted
unreasonably if it withholds its approval of any plans, specifications, drawings
or other details or of any Additional Work (as defined in Paragraph 7 below)
because, in Landlord's reasonable opinion, the work, as described in any such
item, or the Additional Work, as the case may be: (a) is likely to adversely
affect Building systems, the structure of the Building or the safety of the
Building and/or its occupants; (b) might impair Landlord's ability to furnish
services to Tenant or other tenants in the Building; (c) would increase the cost
of operating the Building; (d) would violate all governmental laws, rules or
ordinances (or interpretations thereof); (e) contains or uses hazardous or toxic
materials or substances; (f) would adversely affect the appearance of the
Building; (g) might adversely affect another Tenant's premises; (h) is
prohibited by any ground lease affecting the Building or any mortgage, trust
deed or other
<PAGE>
instrument encumbering the Building; or (i) is likely to be substantially
delayed because of unavailability or shortage of labor or materials necessary to
perform such work or the difficulties or unusual nature of such work. The
foregoing reasons, however, shall not be the only reasons for which Landlord may
withhold its approval, whether or not such other reasons are similar or
dissimilar to the foregoing. Neither the approval by Landlord of the Work or the
Initial Plan or any other plans, drawings, specifications or other items
associated with the Work nor Landlord's performance, supervision or monitoring
of the Work shall constitute any warranty by Landlord to Tenant of the adequacy
of the design for Tenant's intended use of the Premises.
2. Working Drawings. If necessary for the performance of Work and not
included as part of the Initial Plan attached hereto, Landlord shall prepare or
cause to be prepared final working drawings and specifications for the Work (the
"Working Drawings") based on and consistent with the Initial Plan and the other
plans, drawings, specifications, finish details and other information furnished
by Tenant to Landlord and approved by Landlord pursuant to Paragraph I above. So
long as the Working Drawings are consistent with the Initial Plan, Tenant shall
approve the Working Drawings within three (3) days after receipt of same from
Landlord by initialing and returning to Landlord each sheet of the Working
Drawings or by executing Landlord's approval form then in use, whichever method
of approval Landlord may designate.
3. Performance of the Work. Landlord shall cause the performance of the
Work using building standard materials, quantities and procedures then in use by
Landlord ("Building Standards").
4. Authorization to Proceed. Landlord may proceed with the Work at any
time after the execution of this Work Letter and the completion of the Working
Drawings, if applicable; provided, however, that Landlord, at its option, may
request Tenant to execute and deliver to Landlord a separate written
authorization (in the form then in use by Landlord) to proceed with the Work, in
which even Tenant shall execute and deliver such written authorization within
three (3) days after Landlord's request therefor, and, at Landlord's option, no
work shall be commenced until Tenant has executed and delivered to Landlord such
authorization.
5. Substantial Completion. Landlord shall cause the work to be
substantially completed on or before the scheduled date of commencement of the
term of the Lease as specified in Section 1.05 of the Lease, subject to delays
caused by strikes, lockouts, boycotts or other labor problems, casualties,
discontinuance of any utility or other service required for performance of the
Work, unavailability or shortages of materials or other problems in obtaining
materials necessary for performance of the Work or any other matter beyond the
control of Landlord (or beyond the control
2
<PAGE>
of Landlord's contractors or subcontractors performing the Work) and also
subject to "Tenant Delays" (as defined and described in Paragraph 6 of this Work
Letter). The Work shall be deemed to be Substantially Completed for all purposes
under this Work Letter and the Lease if and when Landlord's architect issues a
written certificate to Landlord and Tenant, certifying that the Work has been
substantially completed (i.e., completed except for "punchlist" items listed in
such architect's certificate) in substantial compliance with the Working
Drawings, or when Tenant first takes occupancy of the Premises, whichever first
occurs. If the Work is not deemed to be substantially completed on or before the
scheduled date of the commencement of the term of the Lease as specified in
Section 1.05 of the Lease, (a) Landlord agrees to use reasonable efforts to
complete the Work as soon as practicable thereafter, (b) the Lease shall remain
in full force and effect, (c) Landlord shall not be deemed to be in breach or
default of the Lease or this Work Letter as a result of any delay in occupancy
(whether for damages, abatement of Rent or otherwise), and (d) except in the
event of Tenant Delays, and notwithstanding anything contained in the Lease to
the contrary, the Commencement Date of the Lease Term as specified in Section
1.05 of the Lease shall be extended to the date on which the Work is deemed to
be substantially completed and the Expiration Date of the Lease Term as
specified in Section 1.06 of the Lease shall be extended by an equal number of
days. At the request of either Landlord or Tenant in the event of such
extensions in the commencement and expiration dates of the term of the Lease,
Tenant and Landlord shall execute and deliver an amendment to the Lease
reflecting such extensions. Landlord agrees to use reasonable diligence to
complete all punch list work listed in the aforesaid architect's certificate
promptly after substantial completion.
6. Tenant Delays. There shall be no extension of the scheduled
commencement or expiration date of the term of the Lease (as otherwise
permissibly extended under Paragraph 5 above) if the Work has not been
substantially completed on said scheduled commencement date by reason of any
delay attributable to Tenant ("Tenant Delays"), including without limitation:
(i) the failure of Tenant to furnish all or any plans, drawings,
specifications, finish details or the other information required under Paragraph
1 above on or before the date stated in Paragraph 1;
(ii) the failure of Tenant to grant approval of the Working Drawings
within the time required under Paragraph 2 above;
(iii) the failure of Tenant to comply with the requirements of Paragraph 4
above;
3
<PAGE>
(iv) Tenant's requirements for special work or materials, finishes, or
installations other than the Building Standards or Tenant's requirements for
special construction staging or phasing;
(v) the performance of any Additional Work (as defined in Paragraph 7
below) requested by Tenant or the performance of any work in the Premises by any
person, firm or corporation employed by or on behalf of Tenant, or any failure
to complete or delay in completion of such work; or
(vi) any other act or omission of Tenant that causes a delay.
7. Additional Work. Upon Tenant's request and submission by Tenant (at
Tenant's sole cost and expense) of the necessary information and/or plans and
specifications for work other than the Work described in the Working Drawings
("Additional Work") and the approval by Landlord of such Additional Work, which
approval Landlord agrees shall not be unreasonably withheld, Landlord shall
perform such Additional Work, at Tenant's sole cost and expense, subject,
however to the following provisions of this Paragraph 7. Prior to commencing any
Additional Work requested by Tenant, Landlord shall submit to Tenant a written
statement of the cost of such Additional Work, which cost shall include a fee
payable to Landlord in the amount of 15% of the total cost of such Additional
Work as compensation to Landlord for monitoring the Additional Work and for
administration, overhead and field supervision associated with the Additional
Work and an additional charge payable to Landlord in the amount of 5% of the
total Cost of the Work as compensation for the Landlord's general conditions
(such fee and additional charge being hereinafter referred to collectively as
"Landlord's Additional Compensation"), and, concurrently with such statement of
cost, Landlord shall also submit to Tenant a proposed Tenant extra order (the
"TEO") for the Additional Work in the standard form then in use by Landlord.
Tenant shall execute and deliver to Landlord such TEO and shall pay to Landlord
the entire cost of the Additional Work, including Landlord's Additional
Compensation (as reflected in Landlord's statement of such cost), within five
(5) days after Landlord's submission of such statement and TEO to Tenant. If
Tenant fails to execute or deliver such TEO or pay the entire cost of such
Additional Work within such 5-day period, then Landlord shall not be obligated
to do any of the Additional Work and may proceed to do only the Work, as
specified in the Working Drawings.
8. Tenant Access. Landlord, in Landlord's reasonable discretion and upon
request by Tenant, may grant to Tenant a license to have access to the Premises
prior to the date designated in the Lease for the commencement of the term of
the Lease to allow Tenant to do other work required by Tenant to make the
Premises ready for Tenant's use and occupancy (the "Tenant's Pre-Occupancy
Work"). It shall be a condition to the grant by Landlord and continued
effectiveness of such license that:
4
<PAGE>
(a) Tenant shall give to Landlord a written request to have such access to
the Premises not less than five (5) days prior to the date on which such access
will commence, which written request shall contain or shall be accompanied by
each of the following items, all in form and substance reasonably acceptable to
Landlord: (i) a detailed description of and schedule for Tenant's Pre-Occupancy
Work; (ii) the names and addresses of all contractors, subcontractors and
material suppliers and all other representatives of Tenant who or which will be
entering the Premises on behalf of Tenant to perform Tenant's Pre-Occupancy Work
or will be supplying materials for such work, and the approximate number of
individuals, itemized by trade, who will be present in the Premises; (iii)
copies of all contracts, subcontracts and material purchase orders pertaining to
Tenant's Pre-Occupancy Work; (iv) copies of all plans and specifications
pertaining to Tenant's Pre-Occupancy Work; (v) copies of all licenses and
permits required in connection with the performance of Tenants's Pre-Occupancy
Work; (vi) certificates of insurance (in amounts satisfactory to Landlord and
with the parties identified in, or required by, the Lease named as additional
insureds) and instruments of indemnification against all claims, costs,
expenses, damages and liabilities which may arise in connection with Tenant's
Pre-Occupancy Work; and (vii) assurances of the ability of Tenant to pay for all
of Tenant's Pre-Occupancy Work and/or a letter of credit or other security
deemed appropriate by Landlord securing Tenant's lien-free completion of
Tenant's Pre-Occupancy Work.
(b) Such pre-term access by Tenant and its representatives shall be
subject to scheduling by Landlord.
(c) Tenant's employees, agents, contractors, workmen, mechanics, suppliers
and invitees shall work in harmony and not interfere with Landlord or Landlord's
agents in performing the Work and any Additional Work in the Premises,
Landlord's work in other premises and in common areas of the Building, or the
general operation of the Building. If at any time any such person representing
Tenant shall cause or threaten to cause such disharmony or interference,
including labor disharmony, and Tenant fails to immediately institute and
maintain such corrective actions as directed by Landlord, then Landlord may
withdraw such license upon twenty-four (24) hours' prior written notice to
Tenant.
(d) Any such entry into and occupancy of the Premises by Tenant or any
person or entity working for or on behalf of Tenant shall be deemed to be
subject to all of the terms, covenants, conditions and provisions of the Lease,
specifically including provisions of Section IX thereof (regarding Tenant's
improvements and alterations to the Premises), and excluding only the covenant
to pay Rent. Landlord shall not be liable for any injury, loss or damage which
may occur to any of Tenant's Pre-Occupancy Work made in or about the Premises or
to property placed therein prior to the commencement of the term of the Lease,
the same being at Tenant's
5
<PAGE>
sole risk and liability. Tenant shall be liable to Landlord for any damage to
the Premises or to any portion of the Work or Additional Work caused by Tenant
or any of Tenant's employees, agents, contractors, workmen or suppliers. In the
event that the performance of Tenant's Pre-Occupancy Work causes extra costs to
Landlord or requires the use of elevators during hours other than 9:00 a.m. to
5:00 p.m. on Monday through Friday (excluding holidays) or of other Building
services, Tenant shall reimburse Landlord for such extra cost and/or shall pay
Landlord for such elevator service or other Building services at Landlord's
standard rates then in effect.
9. Lease Provisions. The terms and provisions of the Lease, insofar as
they are applicable to this Work Letter, are hereby incorporated herein by
reference. All amounts payable by Tenant to Landlord hereunder shall be deemed
to be additional Rent under the Lease and, upon any default in the payment of
the same, Landlord shall have all of the rights and remedies provided for in the
lease.
10. Miscellaneous.
(a) This Work Letter shall be governed by the laws of the state in which
the Premises are located.
(b) This Work Letter may not be amended except by a written instrument
signed by the party or parties to be bound thereby.
(c) Any person signing this Work Letter on behalf of Tenant warrants and
represents he/she has authority to sign and deliver this Work Letter and bind
Tenant.
(d) Notices under this Work Letter shall be given in the same manner as
under the Lease.
(e) The headings set forth here in are for convenience only.
(f) This Work Letter sets forth the entire agreement of Tenant and
Landlord regarding the Work.
(g) In the event that the final working drawings and specifications are
included as part of the Initial Plan attached hereto, or in the event Landlord
performs the Work without the
6
<PAGE>
necessity of preparing working drawings and specifications, then whenever the
term "Working Drawings" is used in this Agreement, such term shall be deemed to
refer to the Initial Plan and all supplemental plans and specifications approved
by Landlord.
11. Exculpation of Landlord and Heitman. Notwithstanding anything to the
contrary contained in this Work Letter, it is expressly understood and agreed by
and between the parties hereto that:
(a) The recourse of Tenant or it's successors or assigns against Landlord
with respect to the alleged breach by or on the part of Landlord of any
representation, warranty, covenant, undertaking or agreement contained in this
Work Letter (collectively, "Landlord's Work Letter Undertakings") shall extend
only to Landlord's interest in the real estate of which the Premises demised
under the Lease are a part (hereinafter, "Landlord's Real Estate") and not to
any other assets of Landlord or its constituent partners; and
(b) Except to the extent of Landlord's interest in Landlord's Real Estate,
no personal liability or personal responsibility of any sort with respect to any
of Landlord's Work Letter Undertakings or any alleged breach thereof is assumed
by, or shall at any time be asserted or enforceable against, Landlord, its
constituent partners, Heitman/JMB Advisory Corporation, Heitman Properties of
New York Ltd. Or Heitman D.C. Properties Ltd., or against any of their
respective directors, officers, employees, agents, constituent partners,
beneficiaries, trustees or representatives.
IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the
_____ day of June, 1997.
TENANT: LANDLORD:
INFINITE TECHNOLOGY GROUP JMB 40 BROAD STREET ASSOCIATES
By: By: JMB REALTY CORPORATION,
------------------------------ General Partner
Title: By:
--------------------------- --------------------------
7
<PAGE>
[Diagram]
Note - No furniture or equipment is included.
<PAGE>
Remove existing drywall partition - 25 l.f. Remove/save HM door & frame - 2 ea.
Drywall:
1. Install new drywall partition - 73 l.f.
2. Install new HM door & frame to match existing - 3 ea.
3. Relocate existing HM door & frame - 2 ea.
4. Close opening at removed door & frame - 1 ea.
5. Scar patches after demolition - 3 ea.
Woodwork:
1. Install new paint grade wood window frames - 2 ea.
Acoustic:
1. Not legible.
2. Not legible.
3. Patch after misc. electric work.
Electric:
1. Install new light switches - 4 ea.
2. Install new duplex outlets - 6 ea.
3. Relocate existing light switch - 1 ea.
4. Recircuit lights to new switches - 10 ea.
Sprinkler:
1. Relocate existing sprinkler heads - 2 ea.
Flooring:
1. Install vinyl base to match existing at new partitions.
Painting:
1. Prepare and paint throughout entire space.
Glazing:
1. Install new clear safety glass at Conference Room - 3 ea.
<PAGE>
EXHIBIT B
CLEANING SCHEDULE
40 BROAD STREET
GENERAL CLEANING
Daily
Empty and clean all waste receptacles. Remove waste to a designated central
location for disposal. Dust interiors and exteriors of waste and disposal cans
or baskets.
Empty and clean all ash trays and receptacles.
Hand dust and clean all office furniture, fixtures and window sills. If
textolite or similar desk tops are used, they are to be wiped with a damp cloth.
Unwaxed flooring used as corridors adjacent to the core shall be cleaned and
mopped.
On completion of work all slop sinks are to be thoroughly cleaned and cleaning
equipment stored neatly in designated locations.
Move and dust under all desk equipment, ash trays, telephones, and other similar
equipment, replacing and dusting said equipment.
Floors
Group A ceramic tile, marble, terrazzo.
Group B linolite, asphalt, koroseal, plastic vinyl, rubber or other
composition floor and base.
Group C carpet.
Nightly
All floors in Group B to be dry mopped.
All floors in Group C to be swept with a carpet sweeper.
Vacuum carpets in passenger elevators. Clean and vacuum all elevator saddles and
tracks on all floors.
Remove gum and foreign matter from all floors as necessary.
Weekly
All floors to be swept. All floors in Group A to be swept, wet mopped with a
detergent and rinsed.
All floors in Group C to be vacuumed.
All unwaxed floors and base to wet mopped and rinsed. They are to be scrubbed
annually.
Dust and wipe clean all furniture, fixtures, shelving, desk equipment,
telephones, cabinets, window sills, door casings and clean all glass tables and
desk tops with impregnated cloths as needed.
A-1.3
<PAGE>
Dust and clean all chair rails, panelling, trim, door and other architectural
louvers, lattices and ornamental work, grilles, pictures, vinyl or fabric of
chairs and settees, ventilating louvers, charts, baseboards, spot clean doors,
walls and woodwork, as well as exterior or directory board glass and display
cases. Wash as needed. Vacuum and wash ceilings, if washable, as necessary to
remove all dust around and on grilles.
Dust all moldings within reach, ledges, radiators, chair rails, baseboard and
trim, damp dusting where necessary.
Wash window sills and remove all ink stains and smudges, as necessary.
Keep locker and slope sink rooms in clean and orderly condition.
Mop up and wash floors for spills, smears and foot tracks throughout, including
tenant's space, as needed and wash floor in general, four (4) times a week.
Nightly cleaning operations will be scheduled to commence after 5:30 p.m.
insofar as practical and possible.
Monthly
Dust all door louvers and ventilation louvers within reach.
Vacuum upholstered furniture.
Disinfect and damp wipe all partitions, enamel surfaces, tile walls, dispensers,
doors and receptacles.
Remove stains as necessary and clean underside of rims of urinals and bowls.
Wash down ceilings (including washable acoustical tile) and walls in washrooms
and stalls from ceiling to floor as often as necessary, but at least once every
thirty (30) days. Scrub floors as needed, but not less than once a week.
Machine scrub floors as necessary, with approved germicidal detergent solution.
Wash all ceilings including washable acoustical tile.
Vacuum ceiling.
BUILDING LAVATORIES AND REST ROOMS ON MULTI-TENANT FLOORS
Sweep, and/or wash and dry all flooring with approved germicidal detergent
solution using a mop to remove all spills, smears, scuff marks and foot tracks
throughout public bathrooms only.
Wash and polish all mirrors, powder shelves, bright work, enamel surfaces,
including flushometers, piping, toilet seat hinges, and all metal.
Contractor shall use only non-abrasive materials to avoid damage and
deterioration to chrome fixtures.
Scour, wash and disinfect all basins, bowls, and urinals with approved
germicidal detergent solution, including tile walls near urinals.
Wash both sides of all toilet seats with approved germicidal detergent solution.
Empty and clean paper towel and sanitary disposal receptacles. Remove wastepaper
and refuse, including soiled sanitary napkins, to a designated area in the
premises and dispose of the same at Contractor's expense. All wastepaper
receptacles to be thoroughly cleaned and washed.
Fill and maintain mechanical operation of all toilet tissue holders, soap
dispensers, towel dispensers and sanitary napkin vending dispensers. Materials
as approved by Landlord, to be furnished by Contractor. The filling of such
receptacles
A-1.4
<PAGE>
to be in such quantity as to last the entire business day wherever possible and
refilled daily in public bathrooms only as set forth in other parts of this
specification.
Mop, rinse and dry ceramic tile floors.
It is the intention to keep lavatories thoroughly clean and not to use a
disinfectant to mask odors. If disinfectants are necessary, an odorless
disinfectant shall be used.
PERIODIC CLEANING (As required, but at least not less than monthly)
Building Lavatories and Rest Rooms
If applicable, strip and wax all resilient tile floors in toilet powder rooms
and shampoo, if carpeted, as needed but not less than once every month, using
proper disinfectant.
Wash all lighting fixtures as necessary. Do all high dusting approximately once
a month. Wash all painting wall surfacing as needed, but not less than once
every month.
Clean and disinfect all equipment drains. No acids permitted unless instructed
by Landlord.
Clean urinals and bowls with scale-solvent as needed, but not less than once a
week.
High Dusting - Office Areas
Do all high dusting every three months, unless otherwise specified, including
the following:
Vacuum and dust all vertical services such as walls, partitions, doors, bucks
and ventilating louvers, grills, high moldings, and other surfaces not reached
in nightly cleaning. Dust all window frames.
Dust all lighting fixtures.
Wash all furniture glass as needed. Vacuum and dust ceiling tiles around
ventilators.
A-1.5
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The rights of tenants in the entrances, corridors, elevators and
escalators of the Building are limited to ingress to and egress from the
tenants' premises for the tenants and their employees, licensees, and invitees,
and no tenant shall use, or permit the use of, the entrances, corridors,
escalators or elevators for any other purpose. No tenant shall invite to the
tenant's premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, escalators, elevators and other facilities of the Building
by other tenants. Fire exits and stairways are for emergency use only, and they
shall not be used for any other purposes by the tenants, their employees,
licensees or invitees. No tenant shall encumber or obstruct, or permit the
encumbrance or obstruction of any of the sidewalks, plazas, entrances,
corridors, escalators, elevators, fire exits or stairways of the Building. The
Landlord reserves the right to control and operate the public portions of the
Building and the public facilities, as well as facilities furnished for the
common use of the tenants, in such manner as it deems best for the benefit of
the tenants generally.
2. The cost of repairing any damage to the public portions of the Building
or the public facilities or to any facilities used in common with other tenants,
caused by a tenant or the employees, licensees, agents, contractors or invitees
or the tenant, shall be paid by such tenant.
3. The Landlord may refuse admission to the Building outside of Business
Hours on Business Days (as such terms are defined in the lease to which this
Exhibit is attached) to any person not known to the watchman in charge or not
having a pass issued by the Landlord or not properly identified, and may require
all persons admitted to or leaving the Building outside of Business Hours on
Business Days to register. Tenant's employees, agents and visitors shall be
permitted to enter and leave the building whenever appropriate arrangements have
been previously made between the Landlord and the tenant with respect thereto.
Each tenant shall be responsible for all persons for whom he requests such
permission and shall be liable to the Landlord for all acts of such persons. Any
person whose presence in the Building at any time shall, in the judgment of the
Landlord, be prejudicial to the safety, character, reputation and interests of
the Building or its tenants may be denied access to the Building or may be
ejected therefrom. In case of invasion, riot, public, excitement or other
commotion the Landlord may prevent all access to the Building during the
continuance of the same, by closing the doors or otherwise, for the safety of
the tenants and protection of property in the Building. Landlord reserves the
right to inspect all objects and matter to be brought into the Building and to
exclude from the Building all objects and matter which violate any of these
Rules and Regulations or the lease of which this Exhibit is a part. Landlord
reserves the right to restrict or prohibit access to the Building elevators and
the tenant premises in the Building to persons with food deliveries, messengers
and couriers (which are not employees of tenant), package delivery services and
express mail delivery services (except for reputable, national overnight express
mail services, i.e. U.S. Postal Service, Federal Express, DHL). If Landlord
prohibits delivery to the tenant's premises, Landlord agrees to inform the
tenant of such deliveries, and, at the tenant's option, Landlord will either
have a Building employee make such delivery to the tenant's premises or Landlord
will hold such deliveries in a designated area in the lobby of the Building
until picked up by the tenant. The Landlord may require any person leaving the
Building with any package or other object to exhibit a pass, listing such
package or other object, from the tenant from whose premises the package or
object is being removed, but the establishment and enforcement, or failure to
enforce, of such requirements shall not impose any responsibility on the
Landlord for the protection of any tenant against the removal of property from
the premises of the tenant. The Landlord shall, in no way, be liable to any
tenant for damages or loss arising from the admission, exclusion or ejection of
any person to or from the tenant's premises or the Building under the provisions
of this rule. Tenant shall comply with and shall require its principal,
officers, employees, agents, visitors and invitees to comply with all security
rules and regulations as may be put into effect by Landlord from time to time.
4. No tenant shall obtain or accept for use in its premises ice, drinking
water, food, beverages, towels, barbering, boot blacking, floor polishing,
lighting maintenance, cleaning or other similar services from any persons not
authorized by the Landlord in writing to furnish such services. No Tenant shall
install or permit to be installed any vending machines. Such services shall be
furnished only at such house, in such places within the tenant's premises and
under such regulations as may be fixed by the Landlord from time to time.
C-1
<PAGE>
5. No awnings, window or other air-conditioning units or other projections
over or around the windows shall be installed by any tenant and only such window
coverings as are supplied or permitted by the Landlord shall be used in a
tenant's premises.
6. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or by jobbers or others, in the delivery or
receipt of merchandise or mail, any hand trucks, except those equipped with
rubber tires and side guards.
7. All entrance doors in each tenant's premises shall be left locked when
the tenant's premises are not in use. Entrance doors shall not be left open at
anytime. All windows in each tenant's premises shall be kept closed at all times
and all blinds or drapes therein above the ground floor shall be lowered or
closed when and as reasonably required because of the position of the sun,
during the operation of the Building air conditioning system to cool or
ventilate the tenants' premises.
8. No noise, including, but not limited to, music or the playing of any
musical instruments, radio or television, which, in the judgment of the
Landlord, might disturb other tenants in the Building, shall be made or
permitted by any tenant and no cooking shall be done in the tenant's premises
except as expressly approved by the Landlord. Nothing shall be done or permitted
in any tenant's premises, and nothing shall be brought into or kept in any
tenant's premises, which would impair or interfere with any of the Building's
services or the proper and economic heating, ventilating, air conditioning,
cleaning or other servicing of the Building or the premises, or the use or
enjoyment by any other tenant of any other premises, nor shall there be
installed by any tenant any ventilating, air conditioning, electrical or other
equipment of any kind which, in the judgment of the Landlord, might cause any
such impairment or interference. No dangerous, inflammable, combustible or
explosive object, material or fluid shall be brought into the Building by any
tenant or with the permission of any tenant.
9. No tenant shall cause or permit any cooking, food or other odors to
emanate from its premises into other portions of the Building.
10. No acids, vapors or other materials shall be discharged or permitted
to be discharged into the waste lines, vents or flues of the Building. The water
and wash closets and other plumbing fixtures in or serving any tenant's premises
shall not be used for any purpose other than the purposes for which they were
designed or constructed and no sweepings, rubbish, rags, acids or other foreign
substances shall be deposited therein. All damages resulting from any misuse of
the fixtures shall be borne by the tenant who, or whose servants, employees,
agents, visitors or licensees, shall have caused the same.
11. No lettering, signs, advertisement, notice or other objects shall be
exhibited, inscribed, painted or affixed by any tenant on any part of the
outside or inside of the premises or the Building without the prior written
consent of Landlord. In the event of the violation of the foregoing by any
tenant, Landlord may remove the same without liability, and may charge the
expense incurred by such removal to the tenant violating this rule. Interior
signs, elevator cab designations and lettering on doors and the Building
directory shall be inscribed, painted or affixed for each tenant by Landlord at
the expense of such tenant, and shall be of a size, color and style acceptable
to Landlord. Any permitted changes or additions to the Building directory shall
be made by Landlord upon a tenant's request and such tenant shall pay Landlord's
administrative charge therefor. Landlord shall have the right to prohibit any
advertising or identifying sign by any tenant which impairs the reputation of
the Building or its desirability as a building for others, and upon written
notice from Landlord, the tenant shall refrain from or discontinue such
advertising or identifying signs. Each tenant shall be entitled to one listing
on the Building Directory stating the name of the tenant.
12. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows in any tenant's premises and no lock on any door therein
shall be changed or altered in any respect. Duplicate keys for a tenant's
premises and toilet rooms shall be procured only from the Landlord, who may make
a reasonable charge therefor. Upon the termination of a tenant's lease, all keys
of the tenant's premises and toilet rooms shall be delivered to the Landlord and
in the event of the loss of any keys furnished by Landlord, such tenant shall
pay to Landlord the cost thereof.
13. No tenant shall mark, paint, drill into, or in any way deface any part
of the Building or the premises demised to such tenant. No boring, cutting or
stringing of wires shall be permitted, except with the prior written consent
C-2
<PAGE>
of Landlord, and as Landlord may direct. No tenant shall install any resilient
tile or similar floor covering in the premises demised to such tenant except in
a manner approved by Landlord.
14. No tenant or occupant shall engage or pay any employees in the
Building, except those actually working for such tenant or occupant in the
Building or advertise for laborers giving an address at the Building.
15. No premises shall be used, or permitted to be used, at any time, as a
store for the sale or display of goods or merchandise of any kind, or as a
restaurant, shop, booth, bootblack or other stand, or for the conduct of any
business or occupation which involves direct patronage of the general public in
the premises demised to such tenant, or for manufacturing or for other similar
purposes.
16. The requirements of tenants will be attended to only upon application
at the office of the Building. Employees of Landlord shall not perform any work
or do anything outside of the irregular duties, unless under special
instructions from the office of the Landlord.
17. Each tenant shall, at its expense, provide artificial light in the
premises demised to such tenant for Landlord's agents, contractors and employees
while performing janitorial or other cleaning services and making repairs or
alterations in said premises.
18. No employees of any tenant shall loiter in or around the hallways,
stairways, elevators, front, roof or any other part of the Building used in
common by the occupants thereof.
19. If the premises become infested with insects or vermin, such tenant,
at its sole cost and expense, shall cause its premises to be exterminated, from
time to time, to the satisfaction of Landlord, and shall employ such
exterminators therefor as shall be approved by Landlord.
20. Any and all water and/or food garbage, including coffee grinds, are to
be deposited in a plastic liner bag in a water basket or other receptacle.
21. No premises of any tenant shall be used for lodging or sleeping or for
any immoral or illegal purpose.
22. No animals or birds, bicycles, mopeds or vehicles of any kind shall be
kept in or about the Building permitted therein.
23. No furniture, office equipment, packages or merchandise will be
received in the Building or carried up or down in the elevator, except between
such hours as shall be designated by Landlord. Landlord shall prescribe the
charge for freight, elevator use and the method and manner in which any
merchandise, heavy furniture, equipment or safes shall be brought in or taken
out of the Building, and also the hours at which such moving shall be done.
Landlord in all cases retains the right to prescribe the weight and proper
position of such heavy furniture and safes. All damages done to the Building by
taking in or out such merchandise, heavy furniture or safes or any damages done
to the Building while any of said property shall be therein, shall be made good
and paid for by tenant on demand.
24. Landlord reserves the right to rescind, alter or waive any rule or
regulation at any time prescribed for the Building, which, in its judgment, it
deems is necessary, desirable or proper for its best interest and for the best
interests of the tenants generally, and no alteration or waiver of any rule or
regulation in favor of one tenant shall operate as an alteration or waiver in
favor of any other tenant. Landlord shall not be responsible to any tenant for
the non-observance or violation by any other tenants of any of the rules and
regulations at any time prescribed for the Building.
25. In the event that there shall be any inconsistency between the terms
of the Lease and the Rules and Regulations, the terms of the Lease shall govern.
C-3
<PAGE>
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
SoftSolution Network ID: STM-27730.2 Type: FRM
<PAGE>
INFINITE TECHNOLOGY GROUP LTD.
77 Jericho Turnpike
Mineola, New York 11501
December 8, 1999
Mr. Paul Wolotsky
1729 21st Street, N.W.
Washington, D.C. 20009
Re: Amendment to Employment Agreement
Dear Mr. Wolotsky:
This letter shall amend the Employment Agreement, dated September 1, 1999,
between you and Infinite Technology Group Ltd. (the "Agreement"), to delete
Section 5.5 of the Agreement in its entirety.
All of the other terms and conditions of the Agreement shall remain in
full force and effect.
Very truly yours,
Infinite Technology Group Ltd.
By: /s/ James McGowan
------------------------------------
James McGowan, President
Agreed and Accepted:
/s/ Paul Wolotsky
- ---------------------------
Paul Wolotsky
<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. 3 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
January 7, 2000
<PAGE>
EXHIBIT 99.1
FRANK TASCO
December 20, 1999
Mark Dresner
Infinite Technology Group Ltd.
77 Jericho Turnpike
Mineola, NY 11501
Re: Infinite Technology Group Ltd.
Registration Statement on Form S-1
Dear Mark:
I hereby consent to the use of my name as a person who will become a
member of the board of directors of Infinite Technology Group Ltd. (the
"Company") in the Company's Registration Statement on Form S-1.
Sincerely,
/s/ Frank Tasco
Frank Tasco
