-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CG2pb2fWyQOFPD6Z9dHsrny3EO01AvmlZq5cTZvFIUXM2y/Yt/oBFSmNyI4ay22S JacwL2Xw7aDcnhLaCJ/oeQ== 0001169232-02-000518.txt : 20020807 0001169232-02-000518.hdr.sgml : 20020807 20020807162654 ACCESSION NUMBER: 0001169232-02-000518 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20020807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFINITE GROUP INC CENTRAL INDEX KEY: 0000884650 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 521490422 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-75294 FILM NUMBER: 02721895 BUSINESS ADDRESS: STREET 1: 2364 POST RD STREET 2: 923 INCLINE WAY 8 CITY: WARWICK STATE: RI ZIP: 02886 BUSINESS PHONE: 4017385777 MAIL ADDRESS: STREET 1: 2364 POST ROAD STREET 2: 923 INCLINE WAY 8 CITY: WARWICK STATE: RI ZIP: 02886 FORMER COMPANY: FORMER CONFORMED NAME: INFINITE MACHINE CORP DATE OF NAME CHANGE: 19971015 S-3/A 1 d51283_s-3a.txt FORM S-3/A As filed with the Securities and Exchange Commission on August 7, 2002 Registration No. 333-75294 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- INFINITE GROUP, INC. (Exact name of Registrant as specified in its charter) Delaware 3674 52-1490422 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
-------------- 2364 Post Road Warwick, RI 02886 (401) 738-5777 (Address, including zip code, and telephone number, including area code, of Registrant's executive offices) -------------- Clifford G. Brockmyre II, CEO 2364 Post Road Warwick, RI 02886 (401) 738-5777 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------- Copies to: Kenneth S. Rose, Esq. Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue New York, New York 10022 (212) 838-5030 -------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are to be offered pursuant to dividend or reinvestment plans, please check the following box. |_| If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act") other than securities offered only in connection with dividend or reinvestment plans, check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please 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, please check the following box. |_| -----------------------
CALCULATION OF REGISTRATION FEE ================================================================================================================================== Proposed Proposed Maximum Title of Each Class of Securities Amount to be Maximum Aggregate Offering Amount of to be Registered Registered Offering Price Price(1) Registration Fee - ------------------------------------ ---------------- ----------------- -------------------------- ------------------- Common stock, par value $.0001 per share (2) 592,518 $2.81 $1,664,976 $416.24 - ------------------------------------ ---------------- ----------------- -------------------------- ------------------- Shares of common stock, par value $.0001 per share underlying Common Stock Purchase Warrants (2) 73,400 $4.00(3)(4) $293,600 $73.40 - ------------------------------------ ---------------- ----------------- -------------------------- ------------------- Common stock, par value $.0001 per share (5) 75,000 $1.35(6) $101,250 $9.32 - ------------------------------------ ---------------- ----------------- -------------------------- ------------------- Shares of common stock, par value $.0001 per share underlying Common Stock Purchase Warrants (5) 575,000 $3.02(3)(4) $1,736,500 $159.76 - ------------------------------------ ---------------- ----------------- -------------------------- ------------------- Shares of common stock, par value $.0001 per share underlying Convertible Notes (5) 937,500 $2.00(4)(7) $1,875,000 $172.50 - ------------------------------------ ---------------- ----------------- -------------------------- ------------------- Total Registration Fee $831.22(8) - ------------------------------------ ---------------- ----------------- -------------------------- -------------------
- ------------------- (1) Estimated solely for purposes of determining the registration fee pursuant to Rule 457 under the Securities Act. (2) These shares were included in the initial filing of this registration statement. The registration fee with respect to these securities is calculated based upon the price of the Common Stock on December 13, 2002 ($2.81), as applicable. (3) Pursuant to Rule 457(g) of the Securities Act of 1933, the proposed maximum offering price is based upon the higher of the price at which the warrants may be exercised and the price of shares of common stock as determined in accordance with Rule 457(c). (4) Pursuant to Rule 416 under the Securities Act, there are also being registered hereby such additional indeterminate number of shares as may become issuable pursuant to the antidilution provisions of the warrants and notes. (5) These shares have been added to the Registration Statement by amendment. (6) Pursuant to Rule 457(c), the maximum offering price for the common stock is based upon the average of the high and low sales prices of the Common Stock on the Nasdaq on August 5, 2002 of $1.35. (7) Pursuant to Rule 457(g) of the Securities Act of 1933, the proposed maximum offering price is based upon the higher of the price at which the notes may be converted and the price of shares of common stock as determined in accordance with Rule 457(c). (8) $489.64 was previously paid. $341.58 is paid herewith. ================================================================================ 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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement of which this prospectus is a part filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. PROSPECTUS SUBJECT TO COMPLETION DATED August 7, 2002 2,253,418 Shares Common Stock INFINITE GROUP, INC. The selling stockholders identified in this prospectus are offering to sell up to 2,253,418 shares of our common stock. Of this amount, 648,400 shares are covered by warrants held by selling stockholders that have not yet been exercised and up to 937,500 shares are issuable upon conversion of an outstanding note. Except for the proceeds from the exercise of the warrants, we will not receive any of the proceeds from the sale of these shares. The shares are being registered for resale by the selling stockholders. Our common stock is quoted on the Nasdaq SmallCap Market under the symbol "IMCI." The last reported sale price of our common stock on the Nasdaq SmallCap Market on August 6, 2002 was $1.299 per share. Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 3. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is _________________, 2002 TABLE OF CONTENTS Page ---- Risk Factors...................................................................4 Where You Can Find More Information...........................................10 Reports to Security Holders...................................................11 Incorporation of Certain Documents by Reference...............................11 Special Note Regarding Forward-Looking Statements.............................12 The Company...................................................................13 Recent Developments...........................................................17 Use of Proceeds...............................................................19 Selling Stockholders..........................................................20 Plan of Distribution..........................................................21 Legal Matters.................................................................22 Experts.......................................................................22 ---------------------------- You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with any other information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front cover. SUMMARY OF BUSINESS We have two business segments, our Laser Group and our Photonics Group. Our Laser Group provides comprehensive laser-based materials and processing services (cutting, welding, drilling and assembly) to aerospace, power generation and medical device customers. Our Laser Group provides comprehensive laser-based materials and processing services (cutting, welding, drilling and assembly) to aerospace, power generation and medical device customers. Our Photonics Group develops and markets diode lasers for source and pump lasers and semiconductor optical amplifiers. Diode lasers amplifiers are very small semiconductor products used as the laser "light" source in a variety of defense, telecommunications, material processing and medical device applications. A more detailed explanation our business can be found beginning on page 13. 3 We maintain web sites at www.infinite-group.com, www.laserfare. com and www.infinitephotonics.com. None of the information contained in any of our web sites constitute part of this prospectus. We own various intellectual property rights to our name and the names of our subsidiaries, as well as the Infinite Group logo. This prospectus also contains trademarks and tradenames belonging to other persons. RISK FACTORS A purchase of our common stock is speculative and involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included or incorporated by reference in this prospectus before making an investment decision. If any of the following risks actually occur, our business, financial condition or operating results could be harmed. In such case, the trading price of our common stock could decline and you could lose all or part of your investment. We have experienced losses in the current and prior years and we anticipate that we may continue to generate operating losses during 2002. Our operations to date have not been profitable. As of March 31, 2002 we had an accumulated deficit of approximately $23.9 million. We expect to continue operating at a loss during the second quarter of 2002. The majority of the operating losses during 2001 were primarily attributable to discontinued injection molding operations at our former Osley & Whitney, Inc. subsidiary and start up costs at our Infinite Photonics, Inc. subsidiary (which are accounted for in accordance with SOP 98-5). Other factors that could adversely affect our operating results in the future include: o the cost of manufacturing scale-up and production at our Photonics Group; o introduction of new products and product enhancements by us or our competitors; o changes in applied photonics technologies; and o changes in general economic conditions. We cannot assure you that our revenues will increase sufficiently to offset our operating costs or that, even if they do, that our operations will ever be profitable. We are highly leveraged, which increases our operating deficit and makes it difficult for us to grow. At March 31, 2002 we had current liabilities, including trade payables, of $4.5 million, and long-term liabilities of $3.4 million and a working capital deficit of approximately $823,000, (approximately $30,000 after eliminating the assets and liabilities of our discontinued operations). We continue to experience working capital shortages that impair our business operations and growth strategy. If we continue to incur operating losses and experience working capital limitations, our business, operations and financial condition will be materially adversely affected. We have been dependent on our chief executive officer to fund working capital needs and provide equipment. Our chief executive officer lent us $974,000 and $150,000 during 2000 and 2001, respectively. He converted $974,000 and $100,000 during 2000 and 2001, respectively, into shares of our common stock. In addition Mr. Brockmyre has purchased and leased to us equipment necessary for our operations. There is no assurance that he will be willing or able to fund future working capital needs. 4 We may require additional financing in the future, which may not be available on acceptable terms. We may require additional funds to expand our production capability, continue to develop new applications for our diode technology and for working capital and general corporate purposes. At this time, we cannot assure you that cash flow from product sales will reach the level required to sustain our operations and growth plans in the near term. Further, we cannot assure you that adequate additional financing will be available or, if available, will be offered on acceptable terms. In addition, any additional equity financing may be dilutive to stockholders, and debt financings, if available, may involve restrictive covenants that further limit our ability to make decisions that we believe will be in our best interests. In the event we cannot obtain additional financing on terms acceptable to us when required, our operations will be materially adversely affected and we may have to cease or substantially reduce operations. Some of our products and services are at an early stage of development and may not achieve market acceptance. Our primary focus is to develop new commercial applications for our diode laser and laser-driven technologies. Many of the benefits of our diode laser and laser technologies are not widely known. Therefore, we anticipate that we will need to educate our target markets to generate demand for our products and services and, as a result of market feedback, we may be required to further refine these services. In order to persuade potential customers to purchase our services, we will need to overcome industry resistance to, and suspicion of, new technologies. In addition, developing new applications for these technologies and other new technologies may require significant further research, development, testing and marketing prior to commercialization. We cannot assure you that commercial applications of these technologies can be successfully developed, marketed or produced. Some of our current products and services have not been commercially successful. Our laser materials processing services have not generated a significant amount of revenue, even though they have been available for some time. In addition, since the number of jet engine, aerospace and medical device manufacturers is relatively small, most of our revenue from these businesses is generated from a limited number of customers. We cannot assure you that these customers will continue to purchase these products and services or that we will be able to expand the market for these products and services. Therefore, any material delay, retooling, cancellation or reduction in orders from the customers who purchase these products and services could have a material adverse affect on our business, operations and financial condition. We have limited marketing and sales capabilities and must make sales in fragmented markets. Our future success depends, to a great extent, on our ability to successfully market our products and services. We currently have limited sales and marketing capabilities and experience at our Photonics Group (generally limited to technical trade conferences, technical publications, and direct customer inquiry) and we will need to hire qualified sales and marketing personnel, develop additional sales and marketing programs and establish sales distribution channels in order to achieve and sustain commercial sales of our products. In addition, our ability to successfully market our products and services is further complicated by the fact that our principal markets, laser photonics, telecommunications, aerospace and medical components, are highly fragmented. Consequently, we will need to identify and successfully target particular market segments in which we believe we will have the most success. These efforts will 5 require a substantial amount of effort and resources. We cannot assure you that any marketing and sales efforts undertaken by us will be successful or will result in any significant product sales. We depend on the aerospace, laser photonic, telecommunications and medical device industries, which continually produce technologically advanced products. A majority of our sales in our Laser Group are to companies in the aerospace, laser photonic, telecommunications and medical device industries, which are subject to rapid technological change and product obsolescence. If our customers are unable to create products that keep pace with the changing technological environment and market demand, their products could become obsolete and the demand for our services could decline significantly. If we are unable to offer cost-effective, quick-response manufacturing services to customers, demand for our services will also decline. This would have a material adverse affect on our business, operations and financial condition. We depend on government research and development contracts to support our Photonics Group. Substantially all of our Photonics Group revenue has been derived from governmental research programs. Any reduction in spending on these programs would have a material adverse affect on our business, operations and financial condition. Our industry is intensely competitive, which may adversely affect our operations and financial results. All our markets are intensely competitive and numerous companies offer conventional and laser driven products and services that compete with our products and services. We anticipate that competition for our products and services will continue to increase. Most of our competitors have substantially greater capital resources, research and development staffs, manufacturing capabilities, sales and marketing resources, facilities and experience. These companies, or others, could undertake extensive research and development in laser technology and related fields that could result in technological changes. Many of these companies also are primary customers for various components, and therefore have significant control over certain markets that we have targeted. In addition, we may not be able to offer prices as low as some of our competitors because those competitors may have lower cost structures. Our inability to provide comparable or better products and services at a lower cost than our competitors could adversely effect demand for our products and services. We cannot assure you that our competitors will not succeed in developing technologies in these fields which will enable them to offer laser services more advanced and less costly than those we offer or which could render our technologies obsolete. Our products and services are subject to industry standards, which increases their cost and could delay or bar their commercial acceptance. Since some of our products and services in development are used in the telecommunications industry, they must comply with the Bellcore Testing standards for traditional equipment. These standards govern the design, manufacture and marketing of these items. If we fail to comply with these standards, we will not be able to sell our products. We may encounter significant delays or incur additional costs in our efforts to comply with these industry standards. We depend on our relationship with third parties to develop and commercialize new products. Our strategy for research and development and for the commercialization of our products contemplates a continuing relationship with various publicly and privately funded consortia and our existing relationships will continue with strategic partners, original equipment manufacturers (OEMs), potential licensees and 6 others. We depend on these associations and relationships not only to underwrite our research and development efforts, but also for product testing and to create markets for our products and services. The majority of our product research has been funded by customers or potential customers. We cannot assure you that our existing relationships will continue or the extent to which the parties to such arrangements will continue to allocate time of resources to these strategic alliances. Similarly, we cannot assure you that we will be able to enter into new arrangements in the future. In addition, we cannot assure you that any agreement will progress to a production phase or, if production commences, that we will receive significant revenues as a result of these relationships. The majority of our relationships for product development or contract research is for one to two years in duration, and is generally cancelable based on attaining or not attaining the customers' milestones. We have only limited manufacturing capabilities and our inability to continuously manufacture products on a cost-effective basis would harm our business. We have limited production facilities and limited experience in manufacturing our product offerings. To the extent any of our existing or future products must be produced in commercially reasonable quantities, we will have to either develop that expertise quickly or outsource that function. Developing manufacturing capability is an expensive and time-consuming endeavor and we do not have the resources that are required for a full-scale manufacturing capability. Therefore, in all likelihood we will have to engage a third party to manufacture our products for us. In that event, we will depend on the manufacturer to produce high-quality products based on our specifications, on time and within budget. If we are unable to manufacture products in sufficient quantities and in a timely manner to meet customer demand ourselves or by others, our business, financial condition and results of operations will be materially adversely affected. We depend on our intellectual property rights to provide us with a competitive advantage. Our ability to compete successfully depends, in part, on our ability to protect our products and technologies under United States and foreign patent laws, to preserve trade secrets and other proprietary information and technologies, and to operate without infringing the proprietary rights of others. We cannot assure you that patent applications relating to our products or potential products will result in patents being issued, that any issued patents will afford adequate protection or not be challenged, invalidated, infringed or circumvented, or that any rights granted will give us a competitive advantage. Furthermore, we cannot assure you that others have not independently developed, or will not independently develop, similar products and/or technologies, duplicate any of our product or technologies, or, if patents are issued to, or licensed by, us, design around those patents. We cannot assure you that patents owned or licensed and issued in one jurisdiction will also be issued in any other jurisdiction. In addition, we cannot assure you that we can adequately protect our proprietary technology and processes that we maintain as trade secrets. If we are unable to develop and adequately protect our proprietary technology and other assets, our business, financial condition and results of operations will be materially adversely affected. We depend on the continued services of our key personnel. Our future success depends, in part, on the continuing efforts of our senior executive officers, Clifford G. Brockmyre II, Thomas Mueller, Bruce J. Garreau, and Jeff Bullington who conceived our strategic plan and who are responsible for executing that plan. The loss of any of these key employees may adversely affect our business. At this time we do not have any term "key man" insurance on any of these executives other than a $1.7 million policy on Clifford G. Brockmyre II. If we lose the services of any of these senior executives, our business, operations and financial condition could be materially adversely affected. 7 We may have difficulties in managing our growth. Our future growth depends, in part, on our ability to implement and expand our financial control systems and to expand, train and manage our employee base and provide support to an expanded customer base. If we cannot manage growth effectively, it could have material adverse effect on our results of operations, business and financial condition. Acquisitions and expansion involve substantial infrastructure and working capital costs. We cannot assure you that we will be able to integrate our acquisitions and expansions efficiently. Similarly, we cannot assure you that we will continue to expand or that any expansion will enhance our profitability. If we do not achieve sufficient revenue growth to offset increased expenses associated with our expansion, our results will be adversely affected. We must attract, hire and retain qualified personnel. As we continue to develop new products and as our business grows, significant demands will be placed on our managerial, technical, financial and other resources. One of the keys to our future success will be our ability to attract, hire and retain highly qualified scientific, engineering, marketing, sales and administrative personnel. Competition for qualified personnel in these areas is intense and we will be competing for their services with companies that have substantially greater resources than we do. We cannot assure you that we will be able to identify, attract and retain employees with skills and experience necessary and relevant to the future operations of our business. Our inability to retain or attract qualified personnel in these areas could have a material adverse effect on our business and results of operations. We face potential product liability claims. The sale of our telecommunications, aerospace and medical products and services will involve the inherent risk of product liability claims by others. We maintain product liability insurance coverage. However, we cannot assure that the amount and scope of our existing coverage is adequate to protect us in the event that a product liability claim is successfully asserted. Moreover, we cannot assure you that we will continue to maintain the coverage we currently have. Product liability insurance is expensive, subject to various coverage exclusions and may not always be obtainable on terms acceptable to us. Our stock price is volatile and could be further affected by events not within our control. The trading price of our common stock has been volatile and will continue to be subject to: o volatility in the trading markets generally; o significant fluctuations in our quarterly operating results; o announcements regarding our business or the business of our competitors; o changes in prices of our or our competitors' products and services; o changes in product mix; and o changes in revenue and revenue growth rates for us as a whole or for geographic areas, and other events or factors. Statements or changes in opinions, ratings or earnings estimates made by brokerage firms or industry analysts relating to the markets in which we operate or expect to operate could also have an adverse effect on the market price of our common stock. In addition, the stock market as a whole has from time to time experienced extreme price and volume fluctuations which have particularly affected the market price for the securities of many small cap companies and which often have been unrelated to the operating performance of these companies. 8 The price of our common stock may be adversely affected by the possible issuance of shares as a result of the exercise of outstanding warrants and options. As of June 30, 2002, we had granted options covering 1,157,251 shares of our common stock under our stock option plans. In addition, we had issued warrants covering 1,358,375 shares of common stock and have notes outstanding convertible into up to 937,500 shares of common stock. The shares of common stock issuable in satisfaction of these obligations represents approximately 52% of our outstanding shares at June 30, 2002. As a result of the actual or potential sale of these shares into the market, our common stock price may decrease. Concentration of ownership As of June 30, 2002, our chief executive officer, Clifford G. Brockmyre II, is our largest stockholder, owning approximately 21% of the issued and outstanding shares of our common stock. Mr. Brockmyre, as a result, effectively controls all our affairs, including the election of directors and any proposals regarding a sale of the Company or its assets or a merger. Some provisions in our charter documents and bylaws may have anti-takeover effects. Our certificate of incorporation and bylaws contain provisions that may make it more difficult for a third party to acquire us, with the result that it may deter potential suitors. For example, our board of directors is authorized, without action of the stockholders, to issue authorized but unissued common stock and preferred stock. The existence of undesignated preferred stock and authorized but unissued common stock enables us to discourage or to make it more difficult to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. Absence of dividends to shareholders. We have never declared a dividend on our common stock. We do not anticipate paying dividends on the common stock in the foreseeable future. We anticipate that earnings, if any, will be reinvested in the expansion of our business and debt reduction. We have agreed to limitations on the potential liability of our directors. Our certificate of incorporation provides that, in general, directors will not be personally liable for monetary damages to the company or our stockholders for a breach of fiduciary duty. Although this limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission, the presence of these provisions in the certificate of incorporation could prevent us from recovering monetary damages. We must maintain compliance with certain criteria in order to maintain listing of our shares on the Nasdaq market. Our common stock is traded on the Nasdaq SmallCap Market. In order to maintain this listing, we are required to meet certain requirements relating to our stock price and net tangible assets of $2.0 million (stockholders' equity, less unamortized goodwill). If we fail to meet these requirements, our stock could be delisted. If our stock is delisted, it will trade on the OTC Bulletin Board or in the "pink sheets" maintained by the National Quotation Bureau Incorporated. As a consequence of such delisting, an investor could find it more difficult to dispose of or to obtain accurate quotations as to the market value of our securities. Among other consequences, delisting from Nasdaq may cause a decline in our stock price 9 and difficulty in obtaining future financing. In order to regain compliance with these requirements, and to stem future losses we discontinued the Plastics Group. Additionally, we raised additional capital through private placements, and through the conversion of accrued salaries to officers to shares of common stock, and conversion of notes payable to our president to shares of common stock. The liquidity of our stock could be severely reduced if it becomes classified as "penny stock". The Securities and Exchange Commission has adopted regulations which generally define a "penny stock" to be any non-Nasdaq equity security that has a market price (as therein defined) of less than $5.00 per share or with an exercise price of less than $5.00 per share. If our securities were subject to the existing rules on penny stocks, the market liquidity for our securities could be severely adversely affected. For any transaction involving a penny stock, unless exempt, the rules require substantial additional disclosure obligations and sales practice obligations on broker-dealers where the sale is to persons other than established customers and accredited investors (generally, those persons with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of the common stock and have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell the common stock and accordingly the market for our common stock. WHERE YOU CAN FIND MORE INFORMATION We are required to comply with the informational and reporting requirements of the Securities Exchange Act of 1934, as amended. As required by that statute, we have filed various reports, proxy statements and other information with the Securities and Exchange Commission. You may inspect these reports, proxy statements and other information at the public reference facilities of the Securities and Exchange Commission at its principal offices at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You can get copies of these reports, proxy statements and other information from these offices by paying the required fees. Please call the Securities and Exchange Commission at (800) SEC-0330 for further information regarding the operation of its public reference room. These reports, proxy statements and other information can also be accessed over the Internet at the web site maintained by the Securities and Exchange Commission at http://www.sec.gov. We have filed a registration statement on Form S-3 with the Securities and Exchange Commission under the Securities Act regarding the shares of our common stock covered by this prospectus. This prospectus, which forms a part of that registration statement, does not contain all of the information included in that registration statement and its accompanying exhibits. Statements contained in this prospectus regarding the contents of any document are not necessarily complete and are qualified in their entirety by that reference. You should refer to the actual document as filed with the Securities and Exchange Commission. 10 Reports to Security Holders We furnish our stockholders with annual reports containing audited financial statements. In addition, we are required to file reports on Forms 8-K, 10-QSB and 10-KSB with the Securities and Exchange Commission. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by us with the Securities and Exchange Commission are incorporated in this prospectus by reference: (1) Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001. (2) Quarterly Report on Form 10-QSB for the quarter ended March 31, 2002. (3) Current Reports on form 8-K dated February 14, 2002, March 15, 2002 and March 29, 2002. (4) The description of our Common Stock as contained in our Registration Statement on Form 8-A. Each document filed after the date of this prospectus under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act but before this offering terminates is incorporated in this prospectus by reference and is to be treated as part of this prospectus as of the date it is filed. Any statement contained in a document incorporated or deemed to be incorporated in this prospectus by reference is modified or superseded to the extent that a statement contained in this prospectus or in any other subsequently filed document that is incorporated in this prospectus by reference modifies or supersedes that statement. We will provide, without charge, each person to whom a copy of this prospectus is delivered, a copy of any document incorporated by reference in this prospectus (other than exhibits, unless those exhibits are specifically incorporated by reference in those documents) if it is requested. Requests should be directed to Infinite Group, Inc., 2364 Post Road, Warwick, Rhode Island 02886, Attention: Clifford G. Brockmyre II, President and Chief Executive Officer. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF SHARES OF OUR COMMON STOCK COVERED BY THIS PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE OF THIS PROSPECTUS OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY CIRCUMSTANCES IN WHICH THE OFFER OR SOLICITATION IS UNLAWFUL. 11 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus and the documents incorporated by reference in this prospectus contain forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will" and "would" 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 position or state other "forward-looking" information. We believe that it is important to communicate our future expectations to our stockholders. However, there may be events in the future that we are not able to accurately predict or control. The factors listed above in the section captioned "Risk Factors," 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 we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this prospectus could have a material adverse effect on our business, results of operations, financial position and the price of our common stock. 12 THE COMPANY BUSINESS We operate through two business segments, our Laser Group and our Photonics Group. Revenues from our Laser Group for the quarter ended March 31, 2002 were $1,529,046 (69.3% of total quarterly continuing revenues) compared to $1,961,200 for the quarter ended March 31, 2001. Revenues related to the Photonics Group in the quarter ended March 31, 2002 were $678,077 (30.7% of total quarterly continuing revenues) compared to $108,013. Each business segment is essential to our overall growth. The Laser Group has been in business for over twenty years, while the Photonics Group started just over one year ago. Research and development performed in the Laser Group led to the original patent on the diode technology that became the core business of the Photonics Group. We expect the Laser Group to grow at the rate of the general economy, and for the Photonics Group to grow from approximately $1.2 million in annual revenues in 2001 to in excess of approximately $5.7 million of revenues from the DARPA contract in 2002. We anticipate developing diode lasers for defense, telecommunications, materials processing, laser printers, and medical applications and anticipate that the Photonics Group will continue to grow much more rapidly than the Laser Group. In general, we expect most commercial and governmental customers to pay for contract research and development in order to design diodes specific to their application in terms of wattage output needed and other characteristics. During 2001 and the first quarter of 2002, we also had a Plastics Group, which consisted of two subsidiaries, Express Pattern, Inc. (EP) and Osley & Whitney, Inc. (O&W). Our Plastics Group provided rapid prototyping services and proprietary mold building services. In November 2001 and December 2001, our board of directors determined to dispose of O&W and EP. Our plan consisted of shutting down the operations of O&W and selling the assets of EP. The sale of EP was consummated on March 14, 2002. The O&W equipment was sold in March 2202. The O&W land and building were sold at auction on July 16, 2002 for $650,000. A closing of this sale is scheduled for August 8, 2002. This closing will complete the liquidation of the O&W assets, resulting in a net obligation to the secured lender, including accrued interest and closing expenses, of approximately $200,000. The obligation of O&W to the secured lender was guaranteed by Infinite. Accordingly, we will assume that remaining outstanding balance. The secured lender has tentatively agreed with us to convert the balance into a term loan amortizing monthly based upon a seven year amortization schedule, with a balloon payment due eighteen months from issuance. It is anticipated that this note will be executed and delivered following the closing of the sale of the land and building. The Laser Group Our Laser Group provides comprehensive laser-based materials and processing services (cutting, welding, drilling and assembly) to aerospace, power generation and medical device customers. As to the Laser Group, the majority of revenues are derived from one-time purchase orders, usually from repeat customers such as General Electric, United Technologies, Barnes Aerospace, Dey Laboratories, etc. Work begins when materials arrive from the customer (our inventories are minimal and the customer is responsible for the quality of the materials), and we cut, weld, drill and assemble the parts according to engineering drawings and specifications provided by the customer or determined by our engineers with customer approval. Upon completion of the parts, they are inspected by quality control personnel, compared to the engineering specifications, packaged and delivered to the customer. The customer is billed for the number of parts delivered. The Laser Group uses 26 laser workstations to process parts ranging in size from very large (jet engine or gas turbine parts) to very small medical products, such as stents (stents are medical implants used to open 13 veins for better blood flow). Substantially all of our laser workstations employ multi-axis lasers, commonly used for industrial component fabrication. One of our laser workstations uses a new system developed with and licensed from Sandia National Laboratories (Sandia). This workstation uses a process called Laser Engineered Net Shaping (LENS(R)), which was developed cooperatively at Sandia by Sandia and a consortium that included our Laser Group, Ford, Motorola, Lockheed Martin and others. The LENS(R) workstation is used to make parts or resurface parts directly in metal by introducing powdered metals through a feeder system, melting the airborne powdered metals as they pass through a small tube with a laser beam, and depositing the metal on to a surface. This process is computer controlled and the systems deposit metals based on information provided from three-dimensional engineering files, such as AutoCad(R). LENS(R) workstations are useful for the overhaul and repair of expensive aerospace parts that would otherwise be discarded, and for depositing rare metals, such as titanium, in complex structures used in medical devices. Lockheed Martin, Barnes Aerospace, United States Government military overhaul depots and Triton Systems are our primary customers to date for these services. To meet aerospace customer needs, our Laser Fare subsidiary is certified for overhaul and repair of jet engine and aerospace parts by the FAA. We maintain the overhaul and repair license in order to perform laser material processing services on jet engine parts (cutting, welding, drilling) and to use the LENS process to repair or deposit titanium or other metals to aerospace components. To become FAA certified for overhaul and repair of jet engine and aerospace parts, Laser Fare contacted the FAA and submitted a quality manual and the required procedures for the parts involved. After the FAA staff reviewed the documentation, FAA inspectors visited the facility and performed an inspection. Thereafter, they require an inspection if procedures are changed. Our last change was in 2000, for which we passed inspection. We are subject to audit by the FAA at any time, either on a scheduled or periodic basis, or at our request if we change procedures. Loss of the license could impair our ability to conduct overhaul and repair of jet engine and aerospace parts. Additionally, we are registered with the FDA as a Contract Manufacturer of medical devices to produce products such as asthma testing devices for Dey Laboratories (in which some of the components are cut using laser workstations). Although we are subject to quality control audits by the FDA at any time, either on a scheduled basis or if the FDA believes it has a quality issue, we have never been audited by their inspectors. However, our medical customers are responsible for the inspection, sale and distribution of their products and devices and we do not believe we have liability to end-users. The process for registration as a contract manufacturer involves completion of an application Form FDA 2891A, which Laser Fare completed in 1995, and renewal forms every two years thereafter. Loss of the registration could impair our ability to perform contract manufacturing of medical devices or components. Our Laser Group also provides laser-related contract research and development. We are both a prime contractor and subcontractor on several projects sponsored by the Defense Advanced Research Projects Agency (DARPA). We are a subcontractor on all four of DARPA's Mesoscopic Integrated Conformal Electronics (or MICE) programs. Mesoscopic refers to "handheld", and MICE programs are aimed at providing a series of sophisticated handheld devices for military, industrial and consumer use based on very small electronic components, many of which may be manufactured using lasers. Other research and development projects include research for the United States Naval Underwater Warfare Center, the Electric Boat division of General Dynamics, and the United States Air Force Research Laboratory (AFRL). The Laser Group employs 68 full-time technical and engineering personnel in Smithfield and Narragansett, RI in 16,800 square feet of facilities that we own and 8,326 square feet of facilities that we lease. 14 The Photonics Group Our Photonics Group develops and markets diode lasers for source and pump lasers and semiconductor optical amplifiers. Diode lasers and amplifiers are small semiconductor products (as small as one millimeter). The structure of a diode laser is much the same as a basic laser, with two specially designed slabs of semiconductor material on top of each other, with another material in between them forming the "active layer." An electrical current is sent through the device in order to excite electrons, which can then fall back to the non-excited ground state and give out photons ("particles" of light). Depending on the power generated (as measured in watts) and other characteristics, the laser energy generated can be used as the light source for a wide variety of products ranging from being the light source for fiber optic cable to the energy source to cut metals in materials processing equipment. Just as light bulbs can be designed with different shapes, characteristics and wattage for different applications, we can design diodes to provide different characteristics and wattages to meet specific customer needs. An amplifier couples two or more of these diode lasers in such a fashion that the output of the second or third diode in terms of wattage is much greater than one diode laser alone. Photonics is the science of generating and harnessing light to do useful work. Lasers and fiber optics are the best-known expressions of photonics technology. We believe photonics technology will be as important to the 21st century as electronics was to the 20th century. The basic unit of light is the photon, while in electronics it is the electron. Because photons are massless and travel faster than electrons, photonic devices can be smaller and significantly faster than electronic devices. For example, replacing electronics (copper wire) with photonics (fiber optic cable) boosts the capacity of telecommunications transmission lines by a factor of 10,000. Photonic components are the "enabling technology" in many familiar consumer products including CD-ROM players, digital cameras, displays on laptop computers and calculators, fiber optic cable for telephones, cable television and networked computer systems. In industry, photonic "eyes" enable robots to "see." Photonics is also found in semiconductor manufacturing as well as analytical and process-monitoring applications. In medicine, photonics is at the core of diagnostic instrumentation, laser microsurgery, and filmless real-time imaging. In April 2001, we organized Infinite Photonics, Inc. to develop and market laser diodes based on our proprietary, patented and patent pending grating coupled surface emitting lasers (GCSEL) diode technology platform developed by our Laser Group's research and development unit over the last four years. In addition to our staff researchers, we also engaged researchers at the Photonics Research Center at the University of Connecticut, the Ioffe Institute in St. Petersburg, Russia and the Center for Research and Education in Optics and Lasers at the University of Central Florida in Orlando to develop applications of our GCSEL's. To date we have obtained one patent (expiring in 2018), have ten patents pending and an additional ten patents are under development for GCSEL and related technologies. We own the intellectual property, which in addition to patents and patent applications, includes the trade secrets and processing techniques used to manufacture these diodes. Our diode lasers are produced from two to four inch semiconductor wafer material, usually indium phosphide (InP), gallium arsenide (GaAs), or gallium nitride (GaN). The semiconductor wafer material chosen determines the wavelength of the laser beam, such as 980 nanometers for GaAs, 1550 nanometers for InP, and 1480 nanometers for GaN. A nanometer is one billionth of a meter. The semiconductor diode wafers we currently use in the manufacture of GCSEL's are processed at Industrial 15 Microphotonics Company (a TRW subsidiary). We are currently qualifying a second wafer-manufacturing source, as required by most larger telecommunications equipment manufacturers. A three-inch semiconductor wafer has the potential to produce substantially more than 2,000 individual diode lasers as small as a millimeter by one and one-half millimeters. Each diode can emit laser energy (lase) with continuous power of greater than one watt. Each individual diode has two sections, active and passive. The passive area of each diode on the wafer is etched with one of a variety of grating patterns. It is through this grating on the surface of the diode that the laser beam emits, hence the name, Grating Coupled Surface Emitting Laser. At the opposite end of the diode from the grating, a contact is placed on the diode to provide electrical power, and a thermo-electric cooler or heat sink may be used to cool the diode during operation. When electrical power is applied to the contact, lasing begins in the semiconductor material, and laser energy is emitted through the grating. The device is packaged to protect the diode, along with a very small focusing lens, and that lens is used to focus the laser beam into the end of the fiber optic cable. Our competitors produce diode lasers that can either emit from the edge of the wafer material, such as processes known as Fabry-Perot or Distributed Feedback diode lasers, or through the surface, such as through a surface emitting technology different from ours, known as Vertically Coupled Surface Emitting Lasers. Each technology has different characteristics in terms of cost, power output and laser beam quality. We believe that our GCSEL diodes produce the best overall combination of cost, power and beam quality of emitted light for high power (0.5 to 8 watts) applications used in defense, telecommunications, materials processing, laser printers and medical device equipment. Because the beam comes out of the grating in a cylindrical shape (low beam spreading), our diodes require lower cost focusing optics. Emitting the beam from the wide surface of the wafer (as opposed to the narrow edge of the wafer) allows our diodes to be tested on the wafer, which provides lower test, burn-in and packaging costs. Finally, the very narrow line width of the beam allows for tunability over a greater number of available channels. The qualities of our diode lasers in comparison to competitive diodes include: o Power of up to eight watts compared to currently commercially available power of under one watt; o Beam spreading of less than one degree as compared to 12 to 30 degrees for edge emitted laser energy (which reduces the cost and complexity of the optics needed to focus to the fiber); and o Relatively narrow line width of emitted laser energy (which allows for more than 50 communication channels on a single fiber optic cable). We have many of the same disadvantages of most emerging technology start-ups, which includes among others: market acceptance of a new technology; customer commitment to engineer or re-engineer their products to incorporate our technology; the need to expand rapidly and attract talented personnel; and the need to raise capital to fund that expansion. On January 23, 2002, Infinite Photonics, Inc. signed and commenced a $12.0 million research and development contract with DARPA, which is scheduled to conclude by the end of 2003. Payments under this contract will be received as services are rendered and billed for. As of June 30, 2002, approximately $1.9 million has been billed under this contract in the current year. Of the remaining contract balance we believe that an additional $3.8 million will be billed during 2002 with the balance billed during 2003. If we fail to meet technical milestones and defense contract audit requirements, DARPA may terminate the contract which could result in less than $12 million of revenue to us under this contract. The purpose of the contract is to provide DARPA with pump and source laser diodes and grating coupled semiconductor optical amplifiers with powers much higher than the current industry standard of about 0.3 watts (more than one watt with a goal as high as ten watts), high repetition rates (up to 20,000 laser pulses per 16 second), and high beam quality (minimum beam spreading of the laser). We will own the intellectual property developed under the contract. In March 2002, we signed a one-year lease with the Central Florida Research Park in Orlando, Florida for a 6,750 square foot laboratory and manufacturing facility. This facility replaces laboratory and office space we were leasing on a short-term basis from the University of Central Florida. Depending on market acceptance of our products once we achieve full production, we may require more space in the foreseeable future. Our Photonics Group employs 12 full-time personnel. We expect to grow our Photonics Group staff to approximately 30 to 40 full-time employees by the end of 2002. We currently have subcontractors producing raw material (semiconductor wafers), electrical drivers, power supplies and devices to control the heat produced by our diodes (thermal management). The proprietary grating patterns etched into the semiconductor wafers for different applications are accomplished at our current facilities in Orlando, FL and in St. Petersburg, Russia at the Ioffe Institute. We expect to acquire a minimum of approximately $1.2 million in capital equipment over the next year through equipment operating leases that will be negotiated under terms available at the time of acquisition. Additionally, we currently have semiconductor steppers and other relatively high cost equipment available to us on a per hour basis from the University of Central Florida, as well as from other commercial facilities. We estimate that this equipment will support up to $10.0 million in annual revenue capacity. Our Florida facility is certified for exemption by the Governor's Office from sales and use taxes under Florida's Semiconductor, Defense and Space Technology Facilities Program. Dey Laboratories, Inc. accounted for 12% and 7% of our revenues during the year ended December 31, 2000 and 2001, respectively. DARPA accounted for 12 % of our revenues for 2001 and we expect DARPA to account for over 40% of our consolidated revenues for the year ending December 31, 2002. We intend to continue to use a combination of direct sales to customers, contract research and development for new and existing customer applications and early stage prototype assistance to foster our Photonics Group's growth. We were incorporated under the laws of the state of Delaware on October 14, 1986. On January 7, 1998, we changed our name from Infinite Machines Corp. to Infinite Group, Inc. Our principal executive offices are located at 2364 Post Road, Warwick, RI 02886 and our facsimile number is (401) 738-6180. Our subsidiaries are located in Rhode Island and Florida. We maintain sites on the World Wide Web at www.infinite-group.com, www.laserfare.com, and www.infinitephotonics.com. Information contained on any of our websites do not constitute a part of this Report on Form 10-KSB. RECENT DEVELOPMENTS Osley & Whitney Liquidation During 2002, we continued to liquidate the assets of our Osley & Whitney (O&W) subsidiary following the discontinuance of its operation in November 2001. The O&W equipment was sold at auction in March 2002 for approximately $415,000. The O&W land and building were sold at auction in July 2002 for $650,000. A closing of this sale is scheduled for August 8, 2002. This closing will complete the liquidation of the O&W assets, resulting in a net obligation to the secured 17 lender, including accrued interest and closing expenses, of approximately $200,000. The obligation of O&W to the secured lender was guaranteed by us. Accordingly, we will assume that remaining outstanding balance. The secured lender has tentatively agreed with us to convert the balance into a term loan amortizing monthly based upon a seven year amortization schedule, with a balloon payment due eighteen months from issuance. It is anticipated that this note will be executed and delivered following the closing of the sale of the land and building. Termination of Equity Line of Credit On July 23,2002 we terminated the equity line of credit agreement which we entered into with Cockfield Holdings Limited (Cockfield) on November 30, 2000. As a result, we were released, and we released Cockfield, from any further obligation thereunder. As consideration for establishing the equity line of credit, we granted Cockfield warrants to purchase up to 200,000 shares of our common stock. As consideration for the services rendered by Jesup & Lamont as placement agent in connection with the equity line of credit, we granted Jesup & Lamont warrants to purchase up to 100,000 shares of our common stock. These warrants, covering 300,000 shares of our common stock, are exercisable at any time prior to November 20, 2003, for $3.135 per share and survived the termination of the agreement. The resale of the shares underlying these warrants are covered by this prospectus. Laurus Financings On June 21, 2002, we issued an additional $500,000 convertible note to Laurus Master Fund, Ltd. The note is convertible at an initial conversion price of $2.00 (subject to downward adjustment upon a default by the company under the note and related agreements. The note bears interest at 15% per annum (subject to downward adjustment based upon a conversion formula), payable monthly and may be repaid by us at any time without penalty. $100,000 of the net proceeds of this financing were used to fund operations at our Photonics subsidiary and the balance was applied for general corporate purposes. In connection with this financing, we issued Laurus a five-year warrant to purchase 25,000 shares of our common stock at $2.40 per share. In connection with the closing of this financing round, we agreed to certain amendments to the $1 million note issued to Laurus in February 2002 and the related agreements. As a result, the note was modified to provide for its convertibility into shares of our common stock at the option of the holder at a conversion price of $2.00 per share. Further, the exercise price of the warrant to purchase 50,000 shares of our common stock was reduced to $2.40 per share. In consideration of these amendments, Laurus agreed to defer certain registration obligations that we had with respect to the shares issuable upon conversion of the note and warrant issued in February 2002. We have agreed with Laurus to register for resale both the shares issuable upon exercise of the February and June warrants and the shares issuable upon conversion of the February and June notes (with respect to the notes, based upon a calculation of 125% of the shares issuable at the initial conversion price). The shares issuable upon conversion of the June and February notes and the exercise of the June and February warrants are included in this prospectus. Investor Relations Agreement On June 18, 2002, we entered into an agreement with Investor Relations Services, Inc. to provide us with investor and public relations services over a two-year period. Under the agreement, Investor Relations Services is required to expend up to $500,000 in furtherance of our investor and public relations programs. In exchange for these services, we issued Investor Relations Services 500,000 unregistered 18 shares of our common stock in a private placement transaction. These shares were valued at $750,000 ($1.50 per share) and this expense will be amortized as a general and administrative expense over the 24 month period of the agreement. Sale of Express Pattern Assets On March 14, 2002, we sold the net assets of our Express Pattern subsidiary for $725,000, consisting of $575,000 in cash (of which $300,000 was paid to the O&W secured lender) and a five-year 8% subordinated $150,000 note, due upon maturity with quarterly interest payments. The purchasers included a former employee of Express Pattern and Thomas J. Mueller, our chief operating officer, who is a passive investor in the purchasing entity. The sale was negotiated at "arm's length" by disinterested management with the former employee and his financier. Board of Directors Resignation J. Terence Feeley, retired as a director and officer of the Company on July 1, 2002. He will continue to be affiliated with us as a consultant pursuant to a consulting agreement. USE OF PROCEEDS All of the shares of our common stock offered by this prospectus are being registered for the account of the selling stockholders. We will not receive any of the proceeds from the sale of these shares. However, we will receive the proceeds from the exercise of the warrants covering the 648,400 shares of common stock covered by this prospectus to the extent those warrants are exercised. These proceeds would be approximately $1,958,600 if all the warrants are exercised. We expect to use any proceeds from the exercise of the warrants for general corporate purposes. 19 SELLING STOCKHOLDERS The following table sets forth the name and the number of shares of our common stock beneficially owned by each selling stockholder as of June 30, 2002 and as adjusted to reflect the sale of the shares offered by this prospectus, by each selling stockholder. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of common stock owned by them including those shares not yet issued. In addition, unless otherwise indicated, none of the selling stockholders has had a material relationship with us or any of our affiliates within the past three years. All information with respect to beneficial ownership has been furnished to us by the respective selling stockholder.
Shares Beneficially Owned Prior to Offering(1) Shares Beneficially ----------------------------- Owned After the Offering Shares ------------------------ Name of Beneficial Owner Number Percent Offered Number Percent - --------------------------------------- -------- ------- --------- -------- -------- Roger P. Moore (2) 13,750 * 13,750 -- -- Gulati Family, LP (Ramesh Gulati) (2) 13,750 * 13,750 -- -- Douglas J. Rademacher (2) 13,750 * 13,750 -- -- David R. Johnson Living Trust (2) (David R. Johnson) 27,250 * 13,750 13,500 * Delivery From Heaven Foundation (Michael Casey) (3) 54,500 * 27,500 27,000 * David P. Pilotte 75,000 1.2% 75,000 -- -- Christopher DiNapoli (3) 41,000 * 27,500 13,500 * John J. Perkins (4) 82,500 1.3% 82,500 -- -- Dana A. Marshall (5) 55,000 * 55,000 -- -- Daniel Cohen 100,000 1.6% 100,000 -- -- Larry Dosser 16,268 * 16,268 -- -- Allan Ligi 117,500 1.8% 117,500 -- -- Idea Capital, Inc. (Sean McEllin) (6) 15,400 * 15,400 -- -- Rhino Capital (Michael Johnson) (7) 34,000 * 34,000 -- -- Christopher Murney (8) 16,500 * 16,500 -- -- John F. Corridan III 3,750 * 3,750 -- -- William M. Johnson 35,000 * 35,000 Richard G. Heidt 50,000 * 50,000 IHC, Inc. (Brian Bussanich) 30,000 * 30,000 -- -- Laurus Master Fund, LTD (9) (David Grin - Partner) 1,012,500 13.9% 1,012,500 -- -- Rosecrest Venture Management (10) (Chris DiNapoli & Dave Johnson) 200,000 3.1% 200,000 -- -- Cockfield Holdings, LLC (11) (David Sims, Lamberto Banchetti) 200,000 3.1% 200,000 -- -- Jesup & Lamont Securities Corporation(12) (David Rozinov- Managing Director) 100,000 1.6% 100,000 -- --
20 - ---------- * Less than 1%. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock underlying options and warrants held by that person that are currently exercisable or exercisable within 60 days of June 30, 2002 are deemed outstanding. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. (2) Includes 1,250 shares subject to currently exercisable warrants (exercisable at $4.00 per share through June 15, 2004). (3) Includes 2,500 shares subject to currently exercisable warrants (exercisable at $4.00 per share through June 15, 2004). (4) Includes 7,500 shares subject to currently exercisable warrants (exercisable at $3.00 per share through June 15, 2004). (5) Includes 5,000 shares subject to currently exercisable warrants (exercisable at $4.00 per share through June 15, 2004). (6) Includes 15,400 shares subject to currently exercisable warrants (exercisable at $4.00 per share through June 15, 2004). (7) Includes 34,000 shares subject to currently exercisable warrants (exercisable at $3.00 per share through November 6, 2004. (8) Includes 1,500 shares subject to currently exercisable warrants (exercisable at $3.00 per share through November 30, 2004. (9) Includes 50,000 shares subject to currently exercisable warrants (exercisable at $2.40 per share through February 5, 2007), 25,000 shares subject to currently exerciseable warrants (exerciseable at $2.40 per share through June 21, 2007), and up to 937,500 shares issuable upon conversion of outstanding notes. The address of the holder is c/o Onshore Corporate Services Ltd., PO Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands. (10) Includes 200,000 shares subject to currently exercisable warrants (exercisable at $3.00 per share through April 15, 2005) in full payment of outstanding consulting fees which were included in accounts payable. (11) Includes 200,000 shares subject to currently exercisable warrants (exercisable at 3.135 per share) though November 29, 2003. (12) Includes 100,000 shares subject to currently exercisable warrants (exercisable at 3.135 per share) though November 29, 2003. PLAN OF DISTRIBUTION The selling stockholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock covered by this prospectus on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares: o ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; o block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker-dealer as principal and resale by the broker-dealer for its account; o an exchange distribution in accordance with the rules of the applicable exchange; o privately negotiated transactions; 21 o short sales; o broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; o a combination of any such methods of sale; and o any other method permitted pursuant to applicable law. The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. The selling stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades. The selling stockholders may pledge their shares to their brokers under the margin provisions of customer agreements. If a selling stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. We will pay all of the expenses relating to the registration of the shares covered by this prospectus except for selling and brokerage commissions. These expenses are estimated at $35,000.00. LEGAL MATTERS The validity of the common stock offered hereby will be passed upon by Morse, Zelnick, Rose & Lander, LLP. Members of Morse, Zelnick, Rose & Lander, LLP own options to purchase 65,000 shares of our common stock. EXPERTS The financial statements of Infinite Group, Inc. as of December 31, 2001 and 2000, and for the years then ended, are incorporated by reference in this prospectus and in the registration statement in reliance upon the report of Freed Maxick & Battaglia CPAs, P.C., independent certified public accountants, incorporated by reference herein, upon the authority of said firm as experts in accounting and auditing. 22 PROSPECTUS INFINITE GROUP, INC. 2,253,418 Shares Common Stock Dated: ______________________, 2002 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution The fees and expenses we incurred in connection with the offering are payable by us and, other than registration fees, are estimated as follows: SEC registration fee........................................... $ 831 Accounting fees and expenses................................... 15,000 Legal fees and expenses........................................ 45,000 Printing costs................................................. 1,000 Miscellaneous expenses......................................... 669 -------- Total.................................................... $ 62,500 ======== Item 15. Indemnification of Officers and Directors Our Certificate of Incorporation provides that the indemnification provisions of Sections 102(b)(7) and 145 of the Delaware General Corporation Law shall be utilized to the fullest extent possible. Further, the Certificate of Incorporation contains provisions to eliminate the liability of our directors to Infinite or its stockholders to the fullest extent permitted by Section 102(b)(7) of the Delaware General Corporation Law, as amended from time to time. Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent of the corporation. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper personal benefit. Our Certificate of Incorporation provides for such limitation of liability. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, is permitted for our directors, officers or controlling persons, pursuant to the above mentioned statutes or otherwise, we understand that the Securities and Exchange Commission is of the opinion that such indemnification may contravene federal public policy, as expressed in said Act, and therefore, may be unenforceable. Accordingly, in the event that a claim for such indemnification is asserted by any of our directors, officers or controlling persons, and the Commission is still of the same opinion, we (except II-1 insofar as such claim seeks reimbursement from us of expenses paid or incurred by a director, officer of controlling person in successful defense of any action, suit or proceeding) will, unless the matter has theretofore been adjudicated by precedent deemed by our counsel to be controlling, submit to a court of appropriate jurisdiction the question whether or not indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees as to which indemnification is sought, nor are we aware of any threatened litigation or proceeding that may result in claims for indemnification. Item 16. Exhibits The following exhibits are filed with this Registration Statement: Exhibit No. Description - -------------- -------------------------------------------------------------- 5.1 Opinion and consent of Morse, Zelnick, Rose & Lander, LLP* 10-A Agreement between the Registrant and DARPA dated January 2002* 10-B Securities Purchase Agreement, Convertible Note and Warrant Agreement between the Registrant and Laurus Master Fund, LTD. dated June 21, 2002* 10-C Amendment No. 1 to Securities Purchase Agreement between the Registrant and Laurus Master Fund, LTD. dated February 4, 2002 and Allonge to Promissory Note and Warrant* 10-D Termination Agreement between the Registrant and Cockfield Holdings Limited dated July 23, 10-D 2002* 10-E Warrant Agreement between the Registrant and Rosecrest Venture Capital dated April 15, 2002* 10-F Amended and Restated Securities Purchase Agreement between the Registrant and The Estate of Ralph P. Lazzara dated as of November 14, 2001* 10-G Asset Purchase Agreement among the Registrant, Express Pattern, Inc., a Delaware corporation, Express Pattern, Inc., an Illinois corporation, Thomas Mueller and David Flynn, dated March 13, 2002* 10-H Waiver letter from First International Capital to the Registrant dated March 13, 2002* 23.1 Consent of Freed Maxick & Battaglia CPAs, PC* 23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)* 24 Power of Attorney** - ------------------------ * Filed herewith. ** Previously filed. Item 17. Undertakings The undersigned registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: II-2 (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, that are incorporated by reference in this Registration Statement. (2) that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of this offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in this Registration Statement 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. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 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 the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Warwick, State of Rhode Island and Providence Plantations on this 6th day of August, 2002. INFINITE GROUP INC. By: /s/ Clifford G. Brockmyre II ------------------------------- Clifford G. Brockmyre II, President, Chief Executive Officer and Chairman of the Board POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Clifford G. Brockmyre II as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or post-effective amendments to this Registration Statement, and to file the same, with all exhibits thereto, which amendments may make such changes in this Registration Statement as such agent deems appropriate, and to file any new registration statement (and any post-effective amendment thereto) which registers additional securities of the same class and for the same offering as this Registration Statement in accordance with Rule 462(b) under the Securities Act (each, a "462(b) Registration Statement"), and the Registrant and each such person hereby appoints each such Agent as attorney-in-fact to execute in the name and on behalf of the Registrant and each such person, individually and in each capacity stated below, any such amendments to this registration statement and any such 462(b) Registration Statements, and other documents in connection therewith, with the Commission. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated on August 6, 2002. Signature Title - ----------------------------------- ---------------------------------------- /s/ Clifford G. Brockmyre II* President, Chief Executive Officer and - ----------------------------------- Chairman of the Board (Principal Clifford G. Brockmyre II Executive Officer) /s/ Bruce J. Garreau* Chief Financial Officer - ----------------------------------- (Principal Financial and Accounting Bruce J. Garreau Officer) /s/ Brian Q. Corridan* Director - ----------------------------------- Brian Q. Corridan /s/ Michael S. Smith* Director - ----------------------------------- Michael S. Smith *By: /s/ Clifford G. Brockmyre II ----------------------------- Clifford G. Brockmyre II Attorney-in-fact II-4 EX-5.1 4 d51283_ex5-1.txt OPINION OF MORSE EXHIBIT 5.1 OPINION OF MORSE, ZELNICK, ROSE & LANDER, LLP Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue New York, New York 10022 August 6, 2002 Infinite Group, Inc. 2364 Post Road Warwick, Rhode Island 02886 Dear Sirs: We have acted as counsel to Infinite Group, Inc., a Delaware corporation (the "Company") in connection with the preparation of a registration statement on Form S-3 (the "Registration Statement") filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"), to register the offering by certain selling stockholders (as identified in the Registration Statement) of 2,253,418 shares of the Company's common stock, par value $.001 per share (the "Common Stock"). In this regard, we have reviewed the Certificate of Incorporation of the Company, as amended, resolutions adopted by the Company's Board of Directors, the Registration Statement, the other exhibits to the Registration Statement and such other records, documents, statutes and decisions as we have deemed relevant in rendering this opinion. Based upon the foregoing, we are of the opinion that each share of Common Stock being offered has been, or, upon receipt of payment therefore as provided in the relevant warrant or convertible note, will be, duly and validly authorized and is legally issued, fully paid and non-assessable. We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our Firm in the related prospectus under the heading "Legal Matters". In giving such opinion, we do not thereby admit that we are acting within the category of persons whose consent is required under Section 7 of the Act or the rules or regulations of the Securities and Exchange Commission thereunder. Very truly yours, /s/ Morse, Zelnick, Rose & Lander, LLP -------------------------------------- MORSE, ZELNICK, ROSE & LANDER, LLP EX-10.(A) 5 d51283_ex10-a.txt ================================================================================ AWARD/CONTRACT 1. THIS CONTRACT IS A RATED ORDER Rating PAGE OF UNDER DPAS (16 CFR 350) > DO:C-9 1 32 - -------------------------------------------------------------------------------- 2. CONTRACT (Proc inst Ident) NO MDA972- 02-C-0013 - -------------------------------------------------------------------------------- 3. EFFECTIVE DATE SEE BLOCK 20C - -------------------------------------------------------------------------------- 4. REQUISITION/PURCHASE REQUEST/PROJECT NO DARPA Order No. M489/00/01/02 - -------------------------------------------------------------------------------- 5. ISSUED BY CODE | HR0011 ---------------------------- Defense Advanced Research Projects Agency (DARPA) Contracts Management Office (CMO) 3701 N. Fairfax Drive Arlington, VA 22203-1714 Attn: DONALD C. SHARKUS (703) 696-2383 - ---------------------------------------------------- 6. ADMINISTERED BY (if other than item 5) CODE | S1002A ---------------------------- DCM ORLANDO 3155 MAGUIRE BLVD. ORLANDO, FL 32803-3726 - -------------------------------------------------------------------------------- 7. NAME AND ADDRESS OF CONTRACT (No, street, city, county, state and ZIP Code) INFINITE PHOTONICS, INCORPORATED 12565 RESEARCH PARKWAY SUITE 300, UNIT 171 ORLANDO, FL 32826 DUNS No. 076327829 TIN 22-3788356 - -------------------------------------------------------------------------------- 8. DELIVERY |_| FOB ORIGIN |X| OTHER (See Below) - -------------------------------------------------------------------------------- 9. DISCOUNT FOR PROMPT PAYMENT - -------------------------------------------------------------------------------- 10. SUBMIT INVOICES ITEM (4 copies unless otherwise specified) > See G-4 TO THE ADDRESS SHOWN IN - -------------------------------------------------------------------------------- 11. SHIP TO/MARK FOR CODE | HR0011 ---------------------------- DEFENSE ADVANCED RESEARCH PROJECTS AGANCY ATTN. DR STUART A WOLF 3701 NORTH FAIRFAX DRIVE ARLINGTON VA 22203-1714 - -------------------------------------------------------------------------------- 12. PAYMENT WILL BE MADE BY CODE | HQ0338 ---------------------------- DFAS-COLUMBUS CENTER DFAS-CO/SOUTH ENTITLEMENT OPERATIONS P.O. BOX 182264 COLUMBUS OH 43218-2264 - -------------------------------------------------------------------------------- 13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION |X| 10 U S C 2304(c) ( ) |_| 41 U S C 253(C) ( ) - -------------------------------------------------------------------------------- 14. ACCOUNTING AND APPROPRIATION DATA SEE SECTION G-6 - -------------------------------------------------------------------------------- 15.A. ITEM | 15B. SUPPLIES | 15C. QUANTITY | 15D. UNIT | 15E. UNIT | 15.F AMOUNT NO /SERVICES PRICE - -------------------------------------------------------------------------------- SEE PAGE 2 - -------------------------------------------------------------------------------- 15G. TOTAL AMOUNT OF CONTRACT > $ 12,042,760.00 - -------------------------------------------------------------------------------- 16. TABLE OF CONTENTS - -------------------------------------------------------------------------------- (x) | SEC| DESCRIPTION | PAGE(S) - -------------------------------------------------------------------------------- PART I - THE SCHEDULE - -------------------------------------------------------------------------------- X | A SOLICITAION/ CONTRACT FORM | 1 - -------------------------------------------------------------------------------- X | B SUPPLIES OR SERVICES AND PRICES/COSTS | 2 - -------------------------------------------------------------------------------- X | C DESCRIPTION/SPEC/WORK STATEMENT | 2-6 - -------------------------------------------------------------------------------- X | D PACKAGING AND MARKING | 6 - -------------------------------------------------------------------------------- X | E INSPECTION AND ACCEPTANCE | 6 - -------------------------------------------------------------------------------- X | F DELIVERIES OR PERFORMANCE | 6-8 - -------------------------------------------------------------------------------- X | G CONTRACT ADMINISTRATION DATA | 8-10 - -------------------------------------------------------------------------------- X | H SPECIAL CONTRACT REQUIREMENTS | 10-14 - -------------------------------------------------------------------------------- PART II - CONTRACT CLAUSES - -------------------------------------------------------------------------------- X | I CONTRACT CLAUSES | 15-32 - -------------------------------------------------------------------------------- PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH. - -------------------------------------------------------------------------------- X | J LIST OF ATTACHMENTS | 32 - -------------------------------------------------------------------------------- PART IV - REPRESENTATIONS AND INSTRUCTIONS - -------------------------------------------------------------------------------- X | K REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS | 32 OF OFFERORS | - -------------------------------------------------------------------------------- X | L INSTRS, CONDS, AND NOTICES TO OFFERORS | - -------------------------------------------------------------------------------- X | M EVALUATION FACTORS FOR AWARD | - -------------------------------------------------------------------------------- CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE - -------------------------------------------------------------------------------- 17. |X| CONTRACTORS NEGOTIATED AGREEMENT (Contractor is required to sign this document and return 2 copies to issuing office) Contractor agrees to furnish and deliver all items or perform all the services set forth or otherwise identified above and on any continuation sheets for the consideration stated herein. The rights and obligation of the parties to this contract shall be subject to and governed by the following documents (a) this award/contract (b) the solicitation, if any, and (c) such provisions, representations, certifications and specifications, as are attached or incorporated by reference herein (Attachment are listed herein.) - -------------------------------------------------------------------------------- 18. |_| AWARD (Contractor is not required to sign this Document) Your offer on Solicitation Number ________________________ including the additions or changes made by you which additions or changes are set forth in full above, is hereby accepted as, to the item 5 listed above and on any continuation sheets. This award consummates the contract which consists of the following documents; (a) the Government's solicitation and your offer, and (b) this award/contract. No further contractual document necessary - -------------------------------------------------------------------------------- 19A. NAME AND TITLE OF SIGNER (Type or print) Bruce A. Garreau, Chief Financial Officer - -------------------------------------------------------------------------------- 19B. NAME OF CONTRACTOR 19C. DATE SIGNED BY /s/ Bruce A. Garreau 1/17/02 ------------------------------------------------------------- (Signature of person authorized to sign - -------------------------------------------------------------------------------- 20A. NAME OF CONTRACTOR OFFICER DONALD C. SHARKUS - -------------------------------------------------------------------------------- 20B. UNITED STATES OF AMERICA 20C. DATE SIGNED BY /s/ Donald C. Sharkus 1/23/02 ------------------------------------------------------------- (Signature of Contracting Officer) ================================================================================ NSN 7540-01152-8069 STANDARD FORM 26 (REV. 4-85) Previous edition in unusable Prescribed by GSA-FAR (48 CFR) 53 214(s) CONTRACT MDA972-02-C-0013 SECTION B SUPPLIES OR SERVICES AND PRICES/COSTS B-1 Services and Costs
TOTAL ITEM TOTAL EST. FIXED COST PLUS NUMBER SUPPLIES OR SERVICES COST FEE FIXED FEE 0001 The Contractor shall develop and demonstrate the feasibility of a diode based ultra-short pulse laser concept in accordance with Section C-1 $11,286,560 $756,200 $12,042,760 0002 Reports and Data in accordance *NSP *NSP *NSP with Section C-2 TOTAL CONTRACT CONSIDERATION $11,286,560 $756,200 $12,042,760
(CLINS 0001, 0002 only) *NSP = Not Separately Priced B-2 Allotment of Funds (a) For the purposes of paragraph (b) of the "Limitation of Funds" clause of this contract: (1) the amount available for payment and allotted to this incrementally funded contract is $500,000; (2) the items provided by such amount are Items 0001 and 0002; and (3) the period of performance for which it is estimated that such amount will provide is through April 30, 2002. SECTION C DESCRIPTION/SPECIFICATIONS/WORK STATEMENT C-1 Scope of Work - Basic Contact (a) The Contractor shall furnish the necessary personnel, materials, facilities and other services as may be required to perform Contract Line Item Numbers (CLINs) 0001 and 0002 in accordance with the Statement of Work, Attachment 1 hereto, and as specified in the Contractor's Proposal entitled "Semiconductor Ultra-Short Pulse Laser Technology", dated 2 CONTRACT MDA972-02-C-0013 October 21, 2001, revised cost proposal dated November 1, 2001 and November 26,2001 copies of which are in the possession of both parties. (b) In the event of an inconsistency between the provisions of this contract and the Contractor's proposal, the inconsistency shall be resolved by giving precedence in the following order: (1) the contract; (2) other attachments to the contract, and (3) the technical proposal. C-2 Reports and Other Deliverables (a) The Contractor shall submit the following reports and other deliverables in accordance with the delivery schedule set forth in Section F. 1. 0002AA - R&D STATUS REPORT This brief narrative, not to exceed three (3) pages in length and contain the following: o For first report only: the date work actually started. o Description of progress during the reporting period, supported by reasons for any change in approach reported previously. o Planned activities and milestones for the next reporting period. o Description of any major items of experimental or special equipment purchased or constructed during the reporting period. o Notification of any changes in key personnel associated with the contract during the reporting period. o Summary of substantive information derived from noteworthy trips, meetings, and special conferences held in connection with the contract during the reporting period. o Summary of all problems or areas of concern. o Related accomplishments since last report. 3 CONTRACT MDA972-02-C-0013 2. 0002AB - FINANCIAL REPORT This fiscal report shall include a reporting of summary level financial data as follows: FINANCIAL REPORT PROGRAM FINANCIAL STATUS - -------------------------------------------------------------------------------- WORK BREAKDOWN CUMULATIVE TO DATE AT COMPLETION - -------------------------------------------------------------------------------- STRUCTURE OR REMARKS PLANNED ACTUAL % BAC* LRE** TASK ELEMENT EXPEND EXPEND COMPL ________________________________________________________________________________ Subtotal________________________________________________________________________ Management Reserve or______________________________________________________________________________ Unallocated Resources___________________________________________________________ TOTAL___________________________________________________________________________ * Budget At Completion (BAC) changes only with the amount if any scope changes (not affected by underrun/overrun) ** Latest Revised Estimate (LRE) Based on currently authorized work: (1) Is current funding sufficient for the current FY? Yes/No (Explain in narrative if "No") (2) What is the next Fiscal Year's funding requirement $_______K at current anticipated levels? (3) Have you included in the report narrative any Yes/No explanation of the above data and are they cross referenced? 4 CONTRACT MDA972-02-C-0013 3. 0002AC - FINAL TECHNICAL REPORT. (a) This report, prepared in accordance with DATA Item DI-MISC-80711, shall document the results of the complete effort. The title page shall include a disclaimer worded substantially as follows: "Any opinions, findings and conclusions or recommendations expressed in this material are those of the author(s) and should not be interpreted as representing the official policies, either expressly or implied, of the Defense Advanced Research Projects Agency or the U.S. Government." The Final Technical Report summary shall include: Task Objectives Technical Problems General Methodology (i.e., literature review, laboratory experiments, surveys, etc.) Technical Results Important Findings and Conclusions Significant Hardware/Software Development Special Comments Implications for Further Research Standard Form 298, Report Documentation Page (b) Reports delivered by the Contractor in the performance of the contract shall be considered "Technical Data" as defined in the Section I contract clauses entitled "Rights in Technical Data - Noncommercial Items" and "Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation." (c) Bulky reports shall be mailed by other than first-class mail unless the urgency of submission requires use of first-class mail. In this situation, one copy shall be mailed first-class and the remaining copies forwarded by less than first-class. (d) All papers and articles published as a result of DARPA sponsored research shall include a statement reflecting that sponsorship. In addition, a bibliography of the titles and authors of all such papers are to be included in the Final Technical Report. 5 CONTRACT MDA972-02-C-0013 (e) The cover or title page of each of the above reports or publications prepared, will have the following citation: This material is based upon work supported by the Defense Advanced Research Projects Agency Defense Sciences Office DARPA Order No. M489 (Effort/Program Title) Issued by DARPA/CMO under Contract #MDA972-02-C-0013 (f) All technical reports must (1) be prepared in accordance with American National Standards Institute (ANSI) Standard Z39.18, (2) include a Standard Form 298, and (3) be marked with an appropriate Distribution Statement. SECTION D PACKAGING AND MARKING D-1 Packaging and Marking Material must be packaged in accordance with best domestic commercial practices to assure safe delivery to the Defense Advanced Research Projects Agency (DARPA), or any other delivery point specified in the contract. The contractor shall mark all shipments under this contract in accordance with the edition of ASTM-D-3951-88 "Standard Practice for Commercial Packaging" in effect on the date of this contract. SECTION E INSPECTION AND ACCEPTANCE E-1 Inspection and Acceptance at Destination Inspection and acceptance of the supplies or services to be furnished hereunder shall be made at destination by the receiving activity. SECTION F DELIVERIES OR PERFORMANCE F-1 Term of Contract (a) The term of the contract commences on the effective date and continues through twenty-four (24) months thereafter. 6 CONTRACT MDA972-02-C-0013 F-2 Reports and Other Deliverables Delivery of all reports and other deliverables shall be made to the addressee specified in Article F-3 in accordance with the following: Item No. Description Due Date (on or before) Months After Commencement (MAC) 0002AA R&D Status Report Quarterly, commencing 3 MAC 0002AB Financial Report Quarterly, commencing 3 MAC 0002AC Final Technical Report Upon expiration of contract (see article F-1) F-3 Report Distribution: (1) DARPA/DSO Attn: Dr. Stuart A. Wolf 3701 North Fairfax Drive Arlington, VA 22203-1714 Email: swolf@darpa.mil (One copy of each report) (2) DARPA/DSO Attn: Ms. Riva Meade 3701 North Fairfax Drive Arlington, VA 22203-1714 Email: DSO ADPM@darpa.mil (One copy of 0002AA) (3) DARPA/ASBD Library 3701 North Fairfax Drive Arlington, VA 22203-1714 Email: library@darpa.mil (One copy of the Final Technical Report) (4) Defense Technical Information Center (i) Email: TR@dtic.mil 7 CONTRACT MDA972-02-C-0013 (One electronic copy of the Final Technical Report, if unclassified and approved for public release) OR (ii) ATTN.: DTIC-BCS 8725 John J. Kingman Road Suite 0944 Fort Belvoir, VA 22060-0944 (Two hard copies of the Final Technical Report if not unclassified and approved for public release) F-4 Notice Regarding Late Delivery In the event the Contractor anticipates difficulty in complying with the contract delivery schedule, the Contractor shall immediately notify the Contracting Officer in writing, giving pertinent details, including the date by which it expects to make delivery; PROVIDED, however, that this date shall be informational only in character and the receipt thereof shall not be construed as a waiver by the Government of any contract delivery schedule, or any rights or remedies provided by law or under this contract. SECTION G CONTRACT ADMINISTRATION DATA G-1 Procuring Office Representative The Procuring Office Representative for this procurement is: Mr. Donald C. Sharkus, DARPA/CMO, 3701 North Fairfax Drive, Arlington, VA 22203-1714, telephone (703) 696-2383. G-2 Delegation Of Authority For Contract Administration Defense Contract Management Orlando, as specified in Block 6 of the Face Page (SF26) of this contract is hereby designated as the Contracting Officer's authorized representative for administering this contract in accordance with current directives; however, technical cognizance is retained by DARPA because of the technical nature of the work. G-3 Delegation Of Authority For Property Administration Supporting Property Administration shall be provided by the cognizant Property Administrator in the Defense Contract Management Command. 8 CONTRACT MDA972-02-C-0013 G-4 Vouchers Vouchers identified by contract number, with supporting statements, shall be submitted for review and provisional approval to the cognizant audit agency listed below: Defense Contract Audit Agency Orlando Resident Office 3191 Maguire Blvd. Orlando, FL 32803 G-5 Payment of Cost and Fee As consideration for the proper performance of work required under this contract, the Contractor shall be paid as follows: (a) Costs, as provided for under the Section I contract clause entitled "Allowable Cost and Payment" not to exceed the amount set forth as "Total Estimated Cost" in Section B, and subject further to those Section I clauses entitled "Limitation of Cost" or "Limitation of Funds". (b) A fixed fee in the amount set forth as "Fixed Fee" in Section B, in accordance with the Section I contract clause entitled "Fixed Fee". The Contractor may bill on each invoice the amount of the fixed fee bearing the same percentage to the total fixed fee as the amount of cost billed bears to the total estimated cost. (c) The payment office shall liquidate funds on a first in/first out basis. G-6 Accounting And Appropriation Data ACRN: AA 9710400 1320 M489 P1G10 2525 DPAC 1 5506 S12123 $500,000 G-7 Payment Instructions for Multiple Accounting Classification Citations Payments under contract line items funded by multiple accounting classification citations shall be made from the earliest available fiscal year funding sources. The earliest assigned ACRN must be fully disbursed before making disbursements from a succeeding ACRN. 9 CONTRACT MDA972-02-C-0013 G-8 Electronic Funds Transfer Payment Methods Payments under this contract will be made by electronic funds transfer in accordance with the following contractor-provided information: Financial Institution: Bank Rhode Island Financial Institution Address: 445 Putnam Pike Smithfield, RI 02828 Account Number: ABA / Routing Number: 011501682 Contractor's Contact Person (Name/Phone): Bruce Garreau (401) 738-5777, ext 12 SECTION H SPECIAL CONTRACT REQUIREMENTS H-1 Type of Contract This is cost-plus-fixed-fee contract. H-2 Contracting Officer Notwithstanding any other provision of this contract, the Contracting Officer is the only individual authorized to redirect the effort or in any way amend or modify any of the terms of this contract. H-3 Contracting Officer's Representative (COR) (a) Performance of work under this contract shall be subject to the technical direction of Dr. Stuart A. Wolf, DARPA/DSO, telephone (703) 696-4440, fax (703) 696-3339, email: swolf@darpa.mil. Such technical direction includes those instructions to the Contractor necessary to accomplish the Statement of Work. (b) Technical direction shall not include any direction which: (1) Constitutes additional work outside the scope of work; (2) Constitutes a change as defined in the Section I contract clause entitled "Changes"; (3) In any manner causes an increase or decrease in the total estimated cost or the time required for contract performance; or 10 CONTRACT MDA972-02-C-0013 (4) Changes any of the stated terms, conditions, or specifications of the contract. H-4 Dissemination of Information (a) There shall be no dissemination or publication, except within and between the Contractor and any subcontractors, of information developed under this contract or contained in the reports to be furnished pursuant to this contract without prior written approval of the COR. All technical reports will be given proper review by appropriate authority to determine which Distribution Statement is to be applied prior to the initial distribution of these reports by the Contractor. Papers resulting from unclassified contracted fundamental research are exempt from prepublication controls and this review requirement, pursuant to DoD Instruction 5230.27, Page 2, Section 3.1 and 4.3, dated October 6, 1987. (b) When submitting material for clearance for open publication, the Contractor must furnish DARPA/AD (Technical Information Officer), 3701 North Fairfax Drive, Arlington, VA 22203-1714, telephone (703) 696-2432, with five copies and allow four weeks for processing. Viewgraph presentations must be accompanied by a written text. Whenever a paper is to be presented at a meeting, the Contractor must indicate the exact dates of the meeting or the Contractor's date deadline for submitting the material. H-5 Invention Disclosure and Reports The Contractor shall submit all invention disclosures and reports required by the Patent rights clause of this contract to the Administrating Contracting Officer (ACO). H-6 Key Personnel (a) The Contractor shall notify the Contracting Officer prior to making any change in key personnel. Key personnel are defined as follows: (1) Personnel identified in the proposal as key individuals to be assigned for participation in the performance of the contract; (2) Personnel whose resumes were submitted with the proposal; or (3) Individuals who are designated as key personnel by agreement of the Government and the Contractor during negotiations. (b) The Contractor must demonstrate that the qualifications of the prospective personnel are equal to or better than the qualifications of the personnel being replaced. Notwithstanding any of the foregoing provisions, key personnel shall be furnished unless the Contractor has demonstrated to the satisfaction of the COR that the qualifications of the proposed substitute personnel are equal to or better than the qualifications of the personnel being replaced. 11 CONTRACT MDA972-02-C-0013 H-7 Restrictions on Printing Unless otherwise authorized in writing by the Contracting Officer, reports, data, or other written material produced using funds provided by this contract and submitted hereunder shall be reproduced only by duplicating processes and shall not exceed 5,000 single page reports or a total of 25,000 pages of a multiple-page report. These restrictions do not preclude the writing, editing, preparation of manuscript or reproducible copy of related illustrative materials if required as a part of this contract, or incidental printing such as forms or materials necessary to be used by the Contractor to respond to the terms of the contract. H-8 Consultants (a) The Contractor is authorized to use the following consultants to the extent indicated: No consultants are authorized for this contract. (b) Approval must be obtained from the Administrative Contracting Officer to increase the use of consultants from the level estimated in subparagraph (a). H-9 Consent to Subcontract (a) The Government hereby consents to the following subcontractors and estimated costs as identified in the Contractor's proposal as necessary for performance of this contract: List of Subcontractors Total Estimated Cost ---------------------- -------------------- Sciperio $1,173,603 University of Central Florida (CREOL) $2,071,555 Industrial Microphotonics Company $ 990,000 Mesoscribe Technologies $ 272,557 Rini Technologies $ 665,997 Novatron $1,401,914 (b) Incorporation of the subcontractor listing into the contract constitutes the written consent of the Contracting Officer required by paragraph (c) of the clause at FAR 52.244-02, Subcontracts (Cost-Reimbursement and Letter Contracts), incorporated into the contract in Section I. (c) Any changes to the above list must be authorized by the Administrative Contracting Officer. 12 CONTRACT MDA972-02-C-0013 H-10 Proprietary Technical Data and Computer Software Any deliverable technical data or computer software developed or generated at private expense and considered to be proprietary by the Contractor or subcontractors shall be delivered in accordance with DFARS 252.227-7013 and DFARS 252.227-7014. H-11 Insurance Schedule The Contractor shall maintain the types of insurance listed in FAR 28.307-2(a), (b) and (c), with the minimum amounts of liability indicated therein. The types of insurance and coverage listed in paragraph (d) and (e) shall also be maintained when applicable. H-12 Travel (a) Reimbursement for travel-related expenses shall be in accordance with the Contractor's approved travel policy. The Federal Travel Regulations, Joint Travel Regulations (JTR), and Standardized Regulations as stated in FAR 31.205-46 will be used as a guide in determining reasonableness of per diem costs. Costs for travel shall be allowable subject to the provisions of FAR 31.205-46. (b) In connection with direct charge to the contract of travel-related expenses, the Contractor shall hold travel to the minimum required to meet the objectives of the contract, and substantial deviations from the amount of travel agreed to during contract negotiation shall not be made without the authorization of the Contracting Officer. When applicable, the Contractor shall notify the COR of proposed travel of an employee beyond that agreed to during negotiations. (c) Approval of the Contracting Officer shall be obtained in advance for attendance by personnel at training courses, seminars, and other meetings not directly related to contract performance if the costs for the courses, seminars, and other meetings are charged to the contract. (d) All foreign travel shall be authorized and approved in advance, in writing, by the Contracting Officer. Request for such travel must be submitted to the Contracting Officer at least forty-five (45) days in advance of traveler's anticipated departure date, and shall include traveler's itinerary of United States Flag Air Carriers. H-13 Metric System (a) The Defense Advanced Research Projects Agency (DARPA) will consider the use of the metric system in all of its activities consistent with operational, economical, technical, and safety requirements. 13 CONTRACT MDA972-02-C-0013 (b) The metric system will be considered for use in all new designs. When it is deemed not to be in the best interest of the DoD to provide metric design, justification shall be provided. (c) Physical and operational interfaces between metric items and U.S. customary items will be designed to assure that interchangeability and interoperability will not be affected. (d) Existing designs dimensioned in U.S. customary units will be converted to metric units only if determined to be necessary or advantageous. Unnecessary retrofit of existing systems with new metric components will be avoided where both the new metric and existing units are interchangeable and interoperable. Normally, the system of measurement in which an item is originally designed will be retained for the life of the item. (e) During the metric transition phase hybrid metric and U.S. customary designs will be necessary and acceptable. Material components, parts, subassemblies, and semifabricated materials, which are of commercial design will be specified in metric units only when economically available and technically adequate or when it is otherwise specifically determined to be in the best interest of the Department of Defense. Bulk materials will be specified and accepted in metric units when it is expedient or economic to do so. (f) Technical reports, studies, and position papers (except those pertaining to items dimensioned in U. S. customary units) will include metric units of measurement in addition to or in lieu of U. S. customary units. With respect to existing contracts, this requirement applies only if such documentation can be obtained without an increase in contract costs. (g) Use of the dual dimensions (i.e., both metric and U. S. customary dimensions) on drawings will be avoided unless it is determined in specific instances that such usage will be beneficial. However, the use of tables on the document to translate dimensions from one system of measurement to the other is acceptable. H-14 Precontract Costs The extent of allowability of costs incurred by the Contractor prior to the effective date of the contract shall be governed by the advance agreement retained in the contract file and is hereby incorporated by reference. 14 CONTRACT MDA972-02-C-0013 SECTION I CONTRACT CLAUSES (a) FAR 52.252-02 CLAUSES INCORPORATED BY REFERENCE (FEB 1998) This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at this/these address(es): www.arnet.gov I. FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES: FAR 52.202-01 Definitions (MAY 2001) FAR 52.203-03 Gratuities (APR 1984) FAR 52.203-05 Covenant Against Contingent Fees (APR 1984) FAR 52.203-06 Restrictions on Subcontractor Sales to the Government (JUL 1995) FAR 52.203-07 Anti-Kickback Procedures (JUL 1995) FAR 52.203-08 Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity (JAN 1997) FAR 52.203-10 Price or Fee Adjustment for Illegal or Improper Activity (JAN 1997) FAR 52.203-12 Limitation on Payments to Influence Certain Federal Transactions (JUNE 1997) FAR 52.204-04 Printing or Copied Double-Sided on Recycled Paper (AUG 2000) FAR 52.209-06 Protecting the Government's Interest When Subcontracting with Contractors Debarred, Suspended, or Proposed for Debarment (JUL 1995) FAR 52.211-15 Defense Priority and Allocation Requirement (SEP 1990) FAR 52.215-02 Audit and Records--Negotiation (JUNE 1999) FAR 52.215-08 Order of Precedence--Uniform Contract Format (OCT 1997) FAR 52.215-10 Price Reduction for Defective Cost or Pricing Data (OCT 1997) FAR 52.215-11 Price Reduction for Defective Cost or Pricing Data - Modifications (OCT 1997) FAR 52.215-12 Subcontractor Cost or Pricing Data (OCT 1997) FAR 52.215-13 Subcontractor Cost or Pricing Data - Modifications (OCT 1997) FAR 52.215-15 Pension Adjustments and Asset Reversions (DEC 1998) FAR 52.215-21 Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data - Modifications (OCT 1997) 15 CONTRACT MDA972-02-C-0013 FAR 52.216-07 Allowable Cost and Payment (MAR 2000) FAR 52.222-01 Notice to the Government of Labor Disputes (FEB 1997) FAR 52.222-02 Payment for Overtime Premiums (JUL 1990) (Note: The word "zero" is inserted in the blank spaces indicated by an asterisk) FAR 52.222-03 Convict Labor (AUG 1996) FAR 52.222-04 Contract Work Hours and Safety Standards Act - Overtime Compensation (SEP 2000) FAR 52.222-26 Equal Opportunity (FEB 1999) FAR 52.222-35 Affirmative Action for Disabled Veterans and Veterans of the Vietnam Era (APR 1998) FAR 52.222-36 Affirmative Action for Workers with Disabilities (JUN 1998) FAR 52.222-37 Employment Reports on Disabled Veterans and Veterans of the Vietnam Era (JAN 1999) FAR 52.223-06 Drug-Free Workplace (MAY 2001) FAR 52.225-13 Restrictions on Certain Foreign Purchases (JULY 2000) FAR 52.227-01 Authorization and Consent (JUL 1995) and Alternate I (APR 1984) FAR 52.227-02 Notice and Assistance Regarding Patent and Copyright Infringement (AUG 1996) FAR 52.228-07 Insurance--Liability to Third Persons (MAR 1996) FAR 52.232-09 Limitation on Withholding of Payments (APR 1984) FAR 52.232-17 Interest (JUN 1996) FAR 52.232-23 Assignment of Claims (JAN 1986) FAR 52.232-25 Prompt Payment (MAY 2001) FAR 52.232-33 Payment by Electronic Funds Transfer - Central Contractor Registration (MAY 1999) FAR 52.233-01 Disputes (DEC 1998) FAR 52.233-02 Service of Protest (AUG 1996): DARPA/CMO, 3701 North Fairfax Drive, Arlington, VA 22203-1714 FAR 52.233-03 Protest After Award (AUG 1996) and Alternate I (JUN 1985) FAR 52.242-01 Notice of Intent to Disallow Costs (APR 1984) FAR 52.242-03 Penalties for Unallowable Costs (MAY 2001) FAR 52.242-04 Certification of Final Indirect Costs (JAN 1997) FAR 52.242-13 Bankruptcy (JUL 1995) FAR 52.242-15 Stop-Work Order (AUG 1989) and Alternate I (APR 1984) FAR 52.243-02 Changes -- Cost-Reimbursement (AUG 1987) and Alternate V (APR 1984) FAR 52.244-02 Subcontracts (AUG 1998) and Alternate I (AUG 1998) FAR 52.244-05 Competition in Subcontracting (DEC 1996) FAR 52.245-05 Government Property (Cost-Reimbursement, Time-and- Material or Labor-Hour Contracts) (JAN 1986) (DEV) 16 CONTRACT MDA972-02-C-0013 FAR 52.245-09 Use and Charges (APR 1984) (DEVIATION) FAR 52.245-19 Government Property Furnished "As Is" (APR 1984) FAR 52.246-09 Inspection of Research and Development (Short Form) (APR 1984) FAR 52.246-23 Limitation of Liability (FEB 1997) FAR 52.247-01 Commercial Bill of Lading Notations (APR 1984) FAR 52.247-34 F.O.B. Destination (NOV 1991) FAR 52.247-63 Preference for U.S.-Flag Air Carriers (JAN 1997) FAR 52.247-64 Preference for Privately Owned U.S.-Flag Commercial Vessels (JUNE 2000) FAR 52.249-06 Termination (Cost-Reimbursement) (SEP 1996) FAR 52.249-14 Excusable Delays (APR 1984) FAR 52.251-01 Government Supply Sources (APR 1984) FAR 52.253-01 Computer Generated Forms (JAN 1991) II. DEPARTMENT OF DEFENSE FAR SUPPLEMENT (DFARS) (48 CFR CHAPTER 2) CLAUSES: DFARS 252.201-7000 Contracting Officer's Representative (DEC 1991) DFARS 252.203-7001 Prohibition on Persons Convicted of Fraud or Other Defense-Contract-Related Felonies (MAR 1999) DFARS 252.204-7003 Control of Government Personnel Work Product (APR 1992) DFARS 252.209-7000 Acquisition from Subcontractors Subject to On-Site Inspection under the Intermediate-Range Nuclear Forces (INF) Treaty (NOV 1995) DFARS 252.215-7000 Pricing Adjustments (DEC 1991) DFARS 252.223-7004 Drug-Free Work Force (SEP 1988) DFARS 252.225-7012 Preference for Certain Domestic Commodities (AUG 2000) DFARS 252.227-7013 Rights in Technical Data - Noncommercial Items (NOV 1995) DFARS 252.227-7014 Rights in Noncommercial Computer Software and Noncommercial Computer Software Documentation (JUN 1995) DFARS 252.227-7016 Rights in Bid or Proposal Information (JUN 1995) DFARS 252.227-7017 Identification and Assertion of Use, Release, or Disclosure Restrictions (JUN 1995) DFARS 252.227-7019 Validation of Asserted Restrictions--Computer Software (JUN 1995) DFARS 252.227-7027 Deferred Ordering of Technical Data or Computer Software (APR 1988) DFARS 252.227-7030 Technical Data - Withholding of Payment (MAR 2000) DFARS 252.227-7036 Declaration of Technical Data Conformity (JAN 1997) DFARS 252.227-7037 Validation of Restrictive Markings on Technical Data (SEP 1999) 17 CONTRACT MDA972-02-C-0013 DFARS 252.231-7000 Supplemental Cost Principles (DEC 1991) DFARS 252.235-7010 Acknowledgment of Support and Disclaimer (MAY 1995) DFARS 252.235-7011 Final Scientific or Technical Report (SEP 1999) DFARS 252.242-7000 Postaward Conference (DEC 1991) DFARS 252.242-7004 Material Management and Accounting System (DEC 2000) DFARS 252.243-7002 Requests for Equitable Adjustments (MAR 1998) DFARS 252.244-7000 Subcontracts for Commercial Items and Commercial Components (DoD Contracts) (MAR 2000) DFARS 252.245-7001 Reports of Government Property (MAY 1994) DFARS 252.251-7000 Ordering from Government Supply Sources (MAY 1995) (b) ADDITIONAL FAR AND DFARS CLAUSES This contract incorporates one or more of the following checked clauses by reference, with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. |_| FAR 52.204-02 Security Requirements (AUG 1996) (Applicable if contract will generate or require access to classified information and DD Form 254, Contract Security Classification Specification, is issued to the Contractor) |X| FAR 52.215-14 Integrity of Unit Prices (OCT 1997) and Alternate I (OCT 1997) (Applicable when contracting without adequate price competition) |X| FAR 52.215-16 Facilities Capital Cost of Money (OCT 1997) |_| FAR 52.215-17 Waiver of Facilities Capital Cost of Money (OCT 1997) (Applicable if FAR clause 52.215-16 does not apply) |X| FAR 52.215-18 Reversion or Adjustment of Plans for Postretirement Benefits (PRB) Other Than Pensions (OCT 1997)) (Applicable if certified cost or pricing data is required or if any preaward or postaward cost determinations will be subject to Subpart 31.2) |X| FAR 52.216-08 Fixed Fee (MAR 1997) (Cost Plus Fixed Fee contracts, excluding facilities contracts) |_| FAR 52.216-10 Incentive Fee (MAR 1997) (Cost Plus Incentive Fee contracts) |_| FAR 52.216-11 Cost Contract--No Fee (APR 1984) (Provides no fee and is not a cost sharing contract) |_| Alternate I (Apr 1984) (Contract is with an educational institution or nonprofit organization) 18 CONTRACT MDA972-02-C-0013 |_| FAR 52.216-12 Cost-Sharing Contract--No Fee (APR 1984) |_| Alternate I (APR 1984) (Contract is with an educational institution or nonprofit organization) |_| FAR 52.219-09 Small Business Subcontracting Plan (OCT 2000) (Applicable to contract that (i) offers subcontracting possibilities, (ii) is expected to exceed $500,000, and (iii) is required to include FAR 52.219-8 unless set-aside or 8(a) program. Does not apply to small business concerns) |_| FAR 52.219-16 Liquidated Damages - Subcontracting Plan (JAN 1999) (Applicable if contract is subject to FAR 52.219-09) |X| FAR 52.222-24 Preaward On-Site Equal Opportunity Compliance Evaluation (FEB 1999) (Applicable if contract includes FAR 52.222-26 and is expected to be $10 million or more) |X| FAR 52.223-14 Toxic Chemical Release Reporting (OCT 2000) (Applicable to contracts expected to exceed $100,000 including all options) |_| FAR 52.226-01 Utilization of Indian Organizations and Indian-Owned Economic Enterprises (JUN 2000) (Applicable to contract that does not use FAR Part 12 procedures and is for supplies or services expected to exceed the simplified acquisition threshold (see DFARS 226.104(a)) |_| FAR 52.227-10 Filing of Patent Applications - Classified Subject Matter (APR 1984) (Applicable if contract is subject to FAR clauses 52.204-02 and either FAR 52.227-11 or FAR 52.227-12) |X| FAR 52.227-11 Patent Rights - Retention by the Contractor (Short Form) (JUN 1997) (Applicable if contractor is a small business or nonprofit organization) This clause is modified to contain the following subparagraph: (f)(5) - The Contractor shall furnish the Contracting Officer the following: (i) interim reports every 12 months (or such longer period as may be specified by the Contracting Officer) from the date of the contract, listing subject inventions during that period and certifying that all subject inventions have been disclosed or that there are no such inventions. 19 CONTRACT MDA972-02-C-0013 (ii) a final report, within 3 months after completion of the contracted work listing subject inventions or certifying that there were no such inventions and listing all subcontracts at any tier containing a patent rights clause or certifying that there were no such subcontracts. (iii) upon request, the filing date, serial number, title, and a copy of the patent application, and patent number and issue date for any subject invention in any country in which the contractor has applied for patents. (iv) an irrevocable power to inspect and make copies of the patent application file covering any subject invention. |_| FAR 52.227-12 Patent Rights - Retention by the Contractor (Long Form) (JAN 1997) (Applicable if contractor is a large business) |_| FAR 52.229-10 State of New Mexico Gross Receipts and Compensating Tax (OCT 1998) |_| FAR 52.230-02 Cost Accounting Standards (APR 1998) (Applicable unless contract is exempted (see 48 CFR 9903.201-1 (FAR Appendix)), or contract is subject to modified coverage (see 48 CFR 9903.201-2 (FAR Appendix)) |_| FAR 52.230-03 Disclosure and Consistency of Cost Accounting Practices (APR 1998) (Applicable to contract over $500,000 but less than $25 million, and offeror certifies eligibility for, and elects to use, modified CAS coverage (see 48 CFR 9903.201-2 (FAR Appendix)) |_| FAR 52.230-06 Administration of Cost Accounting Standards (NOV 1999) (Applicable to contract which includes FAR 52.230-2, FAR 52.230-3, or FAR 52.230-5) |_| FAR 52.232-20 Limitation of Cost (APR 1984) (Applicable only when contract action is fully funded) |X| FAR 52.232-22 Limitation of Funds (APR 1984) (Applicable only when contract action is incrementally funded) |X| FAR 52.242-03 Penalties for Unallowable Costs (MAY 2001) |_| FAR 52.246-08 Inspection of Research and Development--Cost- Reimbursement (MAY 2001) ) and Alternate I (APR 1984) (Applicable when primary objective is the delivery of end items other than designs, drawings, or reports and contract awarded on a no-fee basis) Applicable when primary objective is the delivery of end items other than designs, drawings, or reports) (If checked, FAR 52.246-09 is not applicable) 20 CONTRACT MDA972-02-C-0013 |_| FAR 52.246-09 Inspection of Research and Development--Cost- Reimbursement (Short Form) (APR 1984) |_| FAR 52.246-11 Higher-Level Contract Quality Requirement (FEB 1999) (Applicable to contract when the inclusion of a higher-level contract quality requirement is appropriate (see 46.202-4) |X| DFARS 252.203-7002 Display of DoD Hotline Poster (DEC 1991) (Applicable to contract exceeding $5,000,000 except when performance will take place in a foreign country) |X| DFARS 252.204-7000 Disclosure of Information (DEC 1991) (Applicable to unclassified contract) |_| DFARS 252.204-7005 Oral Attestation of Security Responsibilities (AUG 1999) (Applicable if FAR52.204-2 is checked) |X| DFARS 252.205-7000 Provision of Information to Cooperative Agreement Holders (DEC 1991) (Applicable to contract expected to exceed $500,000) |X| DFARS 252.209-7004 Subcontracting with Firms that are Owned or Controlled by the - Government of a Terrorist Country (MAR 1998) (Applicable to contract with a value of $100,000 or more) |X| DFARS 252.215-7002 Cost Estimating System Requirements (OCT 1998) (Applicable to contract awarded on basis of certified cost or pricing data) |_| DFARS 252.219-7003 Small, Small Disadvantaged and Women-Owned Small Business Subcontracting Plan (DoD Contracts) (APR 1996) (Applicable if FAR 52.219-9 is checked) |_| DFARS 252.223-7006 Prohibition on Storage and Disposal of Toxic and Hazardous Materials (APR 1993) (Applicable to contract which requires, may require, or permit contractor performance on a DoD installation) |X| DFARS 252.225-7001 Buy American Act and Balance of Payments Program (MAR 1998) (Applicable to contract for supplies or services that requires the furnishing of supplies. (Do not check if using DFARS 252.225-7007 from OPTIONAL clauses or if nonqualifying country end products are ineligible for award as listed in DFARS 225.1101(2)(ii))) |X| DFARS 252.225-7002 Qualifying Country Sources as Subcontractors (DEC 1991) (Applicable if DFARS 252.225-7001 is checked (or DFARS 252.225-7007 is included from OPTIONAL clauses) 21 CONTRACT MDA972-02-C-0013 |X| DFARS 252.225-7009 Duty-Free-Entry - Qualifying Country Supplies (End Products and Components) (AUG 2000) |X| DFARS 252.225-7010 Duty-Free-Entry - Additional Provisions (AUG 2000) |X| DFARS 252.225-7016 Restriction on Acquisition of Ball and Roller Bearings (DEC 2000) (Applicable to contract unless (a) the restrictions in 225.7019-1 do not apply or a waiver has been granted; or (b)where the Contracting Officer knows the items being acquired do not contain ball or bearings) |X| DFARS 252.225-7025 Restriction on Acquisition of Forgings (JUN 1997) (Applicable to contract unless (a) excepted in 225.7102-2; or (b) where the Contracting Officer knows that the supplies being acquired do not contain forgings) |X| DFARS 252.225-7026 Reporting of Contract Performance Outside the United States (JUN 2000) (Applicable to contract with an estimated or actual value exceeding $500,000, including one modified to exceed $500,000) |_| DFARS 252.225-7041 Correspondence in English (JUN 1997) (Applicable when contract performance will be wholly or in part in a foreign country) |_| DFARS 252.225-7042 Authorization to Perform (JUN 1997) (Applicable when contract performance will be wholly or in part in a foreign country) |X| DFARS 252.225-7043 Antiterrorism/Force Protection for Defense Contractors Outside the United States (JUN 1998) (Applicable to contract that requires performance or travel outside the United States except for contracts with foreign governments, representatives of a foreign government or foreign corporations wholly owned by foreign governments) |_| DFARS 252.227-7015 Technical Data--Commercial Items (NOV 1995) (Applicable when Contractor will be required to deliver technical data pertaining to commercial items, components, or processes) |X| DFARS 252.227-7034 Patents - Subcontracts (APR 1984) (Applicable if FAR 52.227-11 is checked) |X| DFARS 252.227-7039 Patents - Reporting of Subject Inventions (APR 1990) (Applicable if FAR 52.227-11 is checked) 22 CONTRACT MDA972-02-C-0013 |_| DFARS 252.235-7002 Animal Welfare (DEC 1991) |X| DFARS 252.246-7000 Material Inspection and Receiving Report (DEC 1991) (Applicable when there will be separate and distinct deliverables unless not required under DFARS 246.370(b)) (c) The following attached clauses are also applicable to this contract. Expedited implementation of these clauses has been authorized by the Defense Acquisition Regulatory Council. The clauses and their prescriptions for use will be published in forthcoming Federal/Defense Acquisition Circulars: (d) The following attached clauses, set out in full text, are also applicable to this contract: 1. FAR 52.215-19 Notification of Ownership Changes (OCT 1997) (Applicable if certified cost or pricing data is required and if any preaward or postaward cost determinations will be subject to Subpart 31.2) (a) The Contractor shall make the following notifications in writing: (1) When the Contractor becomes aware that a change in its ownership has occurred, or is certain to occur, that could result in changes in the valuation of its capitalized assets in the accounting records, the Contractor shall notify the Administrative Contracting Officer (ACO) within 30 days. (2) The Contractor shall also notify the ACO within 30 days whenever changes to asset valuations or any other cost changes have occurred or are certain to occur as a result of a change in ownership. (b) The Contractor shall-- (1) Maintain current, accurate, and complete inventory records of assets and their costs; (2) Provide the ACO or designated representative ready access to the records upon request; (3) Ensure that all individual and grouped assets, their capitalized values, accumulated depreciation or amortization, and remaining useful lives are identified accurately before and after each of the Contractor's ownership changes; (4) Retain and continue to maintain depreciation and amortization schedules based on the asset records maintained before each Contractor ownership change. (c) The Contractor shall include the substance of this clause in all subcontracts under this contract that meet the applicability requirement of FAR 15.408(k). 23 CONTRACT MDA972-02-C-0013 2. FAR 52.215-20 Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data. (OCT 1997) As prescribed in 15.408(l), insert the following provision: Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data (Oct 1997) (a) Exceptions from cost or pricing data. (1) In lieu of submitting cost or pricing data, offerors may submit a written request for exception by submitting the information described in the following subparagraphs. The Contracting Officer may require additional supporting information, but only to the extent necessary to determine whether an exception should be granted, and whether the price is fair and reasonable. (i) Identification of the law or regulation establishing the price offered. If the price is controlled under law by periodic rulings, reviews, or similar actions of a governmental body, attach a copy of the controlling document, unless it was previously submitted to the contracting office. (ii) Commercial item exception. For a commercial item exception, the offeror shall submit, at a minimum, information on prices at which the same item or similar items have previously been sold in the commercial market that is adequate for evaluating the reasonableness of the price for this acquisition. Such information may include -- (A) For catalog items, a copy of or identification of the catalog and its date, or the appropriate pages for the offered items, or a statement that the catalog is on file in the buying office to which the proposal is being submitted. Provide a copy or describe current discount policies and price lists (published or unpublished), e.g., wholesale, original equipment manufacturer, or reseller. Also explain the basis of each offered price and its relationship to the established catalog price, including how the proposed price relates to the price of recent sales in quantities similar to the proposed quantities; (B) For market-priced items, the source and date or period of the market quotation or other basis for market price, the base amount, and applicable discounts. In addition, describe the nature of the market; (C) For items included on an active Federal Supply Service Multiple Award Schedule contract, proof that an exception has been granted for the schedule item. (2) The offeror grants the Contracting Officer or an authorized representative the right to examine, at any time before award, books, records, documents, or other directly pertinent records to verify any request for an exception under this provision, and the reasonableness of price. For 24 CONTRACT MDA972-02-C-0013 items priced using catalog or market prices, or law or regulation, access does not extend to cost or profit information or other data relevant solely to the offeror's determination of the prices to be offered in the catalog or marketplace. (b) Requirements for cost or pricing data. If the offeror is not granted an exception from the requirement to submit cost or pricing data, the following applies: (1) The offeror shall prepare and submit cost or pricing data and supporting attachments in accordance with Table 15-2 of FAR 15.408. (2) As soon as practicable after agreement on price, but before contract award (except for unpriced actions such as letter contracts), the offeror shall submit a Certificate of Current Cost or Pricing Data, as prescribed by FAR 15.406-2. (End of Provision) Alternate I (Oct 1997). As prescribed in 15.408(l), substitute the following paragraph (b)(1) for paragraph (b)(1) of the basic provision: (b) (1) The offeror shall submit cost or pricing data and supporting attachments in the following format: Alternate II (Oct 1997). As prescribed in 15.408(l), add the following paragraph (c) to the basic provision: (c) When the proposal is submitted, also submit one copy each to: (1) the Administrative Contracting Officer, and (2) the Contract Auditor. Alternate III (Oct 1997). As prescribed in 15.408(l), add the following paragraph (c) to the basic provision (if Alternate II is also used, redesignate the following paragraph as paragraph (d)). (c) Submit the cost portion of the proposal via the following electronic media: [Insert media format, e.g., electronic spreadsheet format, electronic mail, etc.] Alternate IV (Oct 1997). As prescribed in 15.408(l), replace the text of the basic provision with the following: (a) Submission of cost or pricing data is not required. 25 CONTRACT MDA972-02-C-0013 (b) Provide information described below: [Insert description of the information and the format that are required, including access to records necessary to permit an adequate evaluation of the proposed price in accordance with 15.403-3.] 3. FAR 52.244-6 Subcontracts for Commercial Items (MAY 2001) (a) Definitions. As used in this clause-- "Commercial item," has the meaning contained in the clause at 52.202-1, Definitions. "Subcontract," includes a transfer of commercial items between divisions, subsidiaries, or affiliates of the Contractor or subcontractor at any tier. (b) To the maximum extent practicable, the Contractor shall incorporate, and require its subcontractors at all tiers to incorporate, commercial items or nondevelopmental items as components of items to be supplied under this contract. (c)(1) The following clauses shall be flowed down to subcontracts for commercial items: (i) 52.219-8, Utilization of Small Business Concerns (OCT 2000) (15 U.S.C. 637(d)(2) and (3)), in all subcontracts that offer further subcontracting opportunities. If the subcontract (except subcontracts to small business concerns) exceeds $500,000 ($1,000,000 for construction of any public facility), the subcontractor must include 52.219-8 in lower tier subcontracts that offer subcontracting opportunities. (ii) 52.222-26, Equal Opportunity (FEB 1999)(E.O. 11246); (iii) 52.222-35, Affirmative Action for Disabled Veterans and Veterans of the Vietnam Era (APR 1998)(38 U.S.C. 4212(a)); (iv) 52.222-36, Affirmative Action for Workers with Disabilities (JUN 1998) (29 U.S.C. 793); (v) 52.247-64, Preference for Privately Owned U.S.-Flagged Commercial Vessels (JUN 2000) (46 U.S.C. Appx 1241) (flow down not required for subcontracts awarded beginning May 1, 1996). (2) While not required, the contractor may flow down to subcontracts for commercial items a minimal number of additional clauses necessary to satisfy its contractual obligations. (d) The Contractor shall include the terms of this clause, including this paragraph (d), in subcontracts awarded under this contract. 26 CONTRACT MDA972-02-C-0013 4. FAR 52.247-67 Submission of Commercial Transportation Bills to the General Services Administration for Audit (JUN 1997) (Applicable when contract or first-tier subcontract will authorize reimbursement of transportation as a direct charge to the contract or subcontract) (a)(1) In accordance with paragraph (a)(2) of this clause, the Contractor shall submit to the General Services Administration (GSA) for audit, legible copies of all paid freight bills/invoices, commercial bills of lading (CBL's), passenger coupons, and other supporting documents for transportation services on which the United States will assume freight charges that were paid-- (i) By the Contractor under a cost-reimbursement contract; and (ii) By a first-tier subcontractor under a cost-reimbursement subcontract thereunder. (2) Cost-reimbursement Contractors shall only submit for audit those CBL's with freight shipment charges exceeding $50.00. Bills under $50.00 shall be retained on-site by the Contractor and made available for GSA on-site audits. This exception only applies to freight shipment bills and is not intended to apply to bills and invoices for any other transportation services. (b) The Contract shall forward copies of paid freight bills/invoices, CBL's, passenger coupons, and supporting documents as soon as possible following the end of the month, in one package to the: General Services Administration Attn: FWA 1800 F Street, NW Washington, D.C. 20405 The Contractor shall include the paid freight bills/invoices, CBL's, passenger coupons, and supporting documents for first-tier subcontractors under a cost-reimbursement contract. If the inclusion of the paid freight bills/invoices, CBL's, passenger coupons, and supporting documents for any subcontractor in the shipment is not practicable, the documents may be forwarded to GSA in a separate package. (c) Any original transportation bills or other documents requested by GSA shall be forwarded promptly by the Contractor to GSA. The Contractor shall ensure that the name of the contracting agency is stamped or written on the face of the bill before sending it to GSA. 27 CONTRACT MDA972-02-C-0013 (d) A statement prepared in duplicate by the Contractor shall accompany each shipment of transportation documents. GSA will acknowledge receipt of the shipment by signing and returning the copy of the statement. The statement shall show-- (1) The name and address of the Contractor; (2) The contract number including any alphanumeric prefix identifying the contracting office; (3) The name and address of the contracting office; (4) The total number of bills submitted with the statement; and (5) A listing of the respective amounts paid or, in lieu of such listing, an adding machine tape of the amounts paid showing the Contractor's voucher or check numbers. 5. DFARS 252.247-7023 Transportation of Supplies by Sea (MAR 2000) (a) Definitions. As used in this clause- (1) "Components" means articles, materials, and supplies incorporated directly into end products at any level of manufacture, fabrication, or assembly by the Contractor or any subcontractor. (2) "Department of Defense" (DoD) means the Army, Navy, Air Force, Marine Corps, and defense agencies. (3) "Foreign flag vessel" means any vessel that is not a U.S.-flag vessel. (4) "Ocean transportation" means any transportation aboard a ship, vessel, boat, barge, or ferry through international waters. (5) "Subcontractor" means a supplier, materialman, distributor, or vendor at any level below the prime contractor whose contractual obligation to perform results from, or is conditioned upon, award of the prime contract and who is performing any part of the work or other requirement of the prime contract. (6) "Supplies" means all property, except land and interests in land, that is clearly identifiable for eventual use by or owned by the DoD at the time of transportation by sea. (i) An item is clearly identifiable for eventual use by the DoD if, for example, the contract documentation contains a reference to a DoD contract number or a military destination. (ii) "Supplies" includes (but is not limited to) public works; buildings and facilities; ships; floating equipment and vessels of every character, type, and description, with parts, 28 CONTRACT MDA972-02-C-0013 subassemblies, accessories, and equipment; machine tools; material; equipment; stores of all kinds; end items; construction materials; and components of the foregoing. (7) "U.S.-flag vessel" means a vessel of the United States or belonging to the United States, including any vessel registered or having national status under the laws of the United States. (b)(1) The Contractor shall use U.S.-flag vessels when transporting any supplies by sea under this contract. (2) A subcontractor transporting supplies by sea under this contract shall use U.S.-flag vessels if- (i) This contract is a construction contract; or (ii) The supplies being transported are- (A) Noncommercial items; or (B) Commercial items that- (1) The Contractor is reselling or distributing to the Government without adding value (generally, the Contractor does not add value to items that it subcontracts for f.o.b. destination shipment); (2) Are shipped in direct support of U.S. military contingency operations, exercises, or forces deployed in humanitarian or peacekeeping operations; or (3) Are commissary or exchange cargoes transported outside of the Defense Transportation System in accordance with 10 U.S.C. 2643. (c) The Contractor and its subcontractors may request that the Contracting Officer authorize shipment in foreign-flag vessels, or designate available U.S.-flag vessels, if the Contractor or a subcontractor believes that- (1) U.S.-flag vessels are not available for timely shipment; (2) The freight charges are inordinately excessive or unreasonable; or (3) Freight charges are higher than charges to private persons for transportation of like goods. (d) The Contractor must submit any request for use of other than U.S.-flag vessels in writing to the Contracting Officer at least 45 days prior to the sailing date necessary to meet its delivery schedules. The Contracting Officer will process requests submitted after such date(s) as expeditiously as possible, but the Contracting Officer's failure to grant approvals to meet the shipper's 29 CONTRACT MDA972-02-C-0013 sailing date will not of itself constitute a compensable delay under this or any other clause of this contract. Requests shall contain at a minimum- (1) Type, weight, and cube of cargo; (2) Required shipping date; (3) Special handling and discharge requirements; (4) Loading and discharge points; (5) Name of shipper and consignee; (6) Prime contract number; and (7) A documented description of efforts made to secure U.S.-flag vessels, including points of contact (with names and telephone numbers) with at least two U.S.-flag carriers contacted. Copies of telephone notes, telegraphic and facsimile message or letters will be sufficient for this purpose. (e) The Contractor shall, within 30 days after each shipment covered by this clause, provide the Contracting Officer and the Division of National Cargo, Office of Market Development, Maritime Administration, U.S. Department of Transportation, Washington, DC 20590, one copy of the rated on board vessel operating carrier's ocean bill of lading, which shall contain the following information- (1) Prime contract number; (2) Name of vessel; (3) Vessel flag of registry; (4) Date of loading; (5) Port of loading; (6) Port of final discharge; (7) Description of commodity; (8) Gross weight in pounds and cubic feet if available; (9) Total ocean freight in U.S. dollars; and (10) Name of steamship company. 30 CONTRACT MDA972-02-C-0013 (f) The Contractor agrees to provide with its final invoice under this contract a representation that to the best of its knowledge and belief- (1) No ocean transportation was used in the performance of this contract; (2) Ocean transportation was used and only U.S.-flag vessels were used for all ocean shipments under the contract; (3) Ocean transportation was used, and the Contractor had the written consent of the Contracting Officer for all non-U.S.-flag ocean transportation; or (4) Ocean transportation was used and some or all of the shipments were made on non-U.S.-flag vessels without the written consent of the Contracting Officer. The Contractor shall describe these shipments in the following format: --------------------------------------------------------------- ITEM DESCRIPTION CONTRACT LINE ITEMS QUANTITY --------------------------------------------------------------- --------------------------------------------------------------- TOTAL --------------------------------------------------------------- (g) If the final invoice does not include the required representation, the Government will reject and return it to the Contractor as an improper invoice for the purposes of the Prompt Payment clause of this contract. In the event there has been unauthorized use of non-U.S.-flag vessels in the performance of this contract, the Contracting Officer is entitled to equitably adjust the contract, based on the unauthorized use. (h) The Contractor shall include this clause, including this paragraph (h), in all subcontracts under this contract that- (1) Exceed the simplified acquisition threshold in Part 2 of the Federal Acquisition Regulation; and (2) Are for a type of supplies described in paragraph (b)(2) of this clause. (End of clause) 6. 252.247-7024 Notification of Transportation of Supplies by Sea (MAR 2000) (a) The Contractor has indicated by the response to the solicitation provision, Representation of Extent of Transportation by Sea, that it did not anticipate transporting by sea any supplies. If, however, after the award of this contract, the Contractor learns that supplies, as defined in the Transportation of Supplies by Sea clause of this contract, will be transported by sea, the Contractor- 31 CONTRACT MDA972-02-C-0013 (1) Shall notify the Contracting Officer of that fact; and (2) Hereby agrees to comply with all the terms and conditions of the Transportation of Supplies by Sea clause of this contract. (b) The Contractor shall include this clause, including this paragraph (b), revised as necessary to reflect the relationship of the contracting parties- (1) In all subcontracts under this contract, if this contract is a construction contract; or (2) If this contract is not a construction contract, in all subcontracts under this contract that are for- (i) Noncommercial items; or (ii) Commercial items that- (A) The Contractor is reselling or distributing to the Government without adding value (generally, the Contractor does not add value to items that it subcontracts for f.o.b. destination shipment); (B) Are shipped in direct support of U.S. military contingency operations, exercises, or forces deployed in humanitarian or peacekeeping operations; or (C) Are commissary or exchange cargoes transported outside of the Defense Transportation System in accordance with 10 U.S.C. 2643. SECTION J LIST OF ATTACHMENTS Attachment 1 Statement of Work, Dated October 21, 2001 SECTION K REPRESENTATIONS, CERTIFICATIONS, AND OTHER STATEMENTS BY OFFERS OR QUOTAS THE SECTION K REPRESENTATIONS, CERTIFICATIONS, AND OTHER STATEMENTS, AS COMPLIED BY THE CONTRACTOR AND RETAINED IN THE CONTRACT FILE, ARE HEREBY INCORPORATED BY REFERENCE. 32 EX-10.(B) 6 d51283_ex10-b.txt SECURITIES PURCHASE AGREEMENT EXHIBIT 10-B INFINITE GROUP, INC. SECURITIES PURCHASE AGREEMENT June 21, 2002 TABLE OF CONTENTS Page ---- 1. AGREEMENT TO SELL AND PURCHASE........................................1 2. FEES AND WARRANTS.....................................................2 3. CLOSING, DELIVERY AND PAYMENT.........................................2 3.1 Closing...............................................................2 3.2 Delivery..............................................................2 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................3 4.1 Organization, Good Standing and Qualification.........................3 4.2 Subsidiaries..........................................................3 4.3 Capitalization; Voting Rights.........................................3 4.4 Authorization; Binding Obligations....................................4 4.5 Liabilities...........................................................4 4.6 Agreements; Action....................................................4 4.7 Obligations to Related Parties........................................5 4.8 Changes...............................................................5 4.9 Title to Properties and Assets; Liens, Etc............................6 4.10 Intellectual Property.................................................7 4.11 Compliance with Other Instruments.....................................7 4.12 Litigation............................................................7 4.13 Tax Returns and Payments..............................................8 4.14 Employees.............................................................8 4.15 Registration Rights and Voting Rights.................................8 4.16 Compliance with Laws; Permits.........................................9 4.17 Environmental and Safety Laws.........................................9 4.18 Valid Offering........................................................9 4.19 Full Disclosure.......................................................9 4.20 Insurance............................................................10 4.21 SEC Reports..........................................................10 4.22 No Market Manipulation...............................................10 4.23 Listing..............................................................10 4.24 No Integrated Offering...............................................10 -i- 4.25 Stop Transfer........................................................11 4.26 Dilution.............................................................11 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.....................11 5.1 Requisite Power and Authority........................................11 5.2 Investment Representations...........................................11 5.3 Purchaser Bears Economic Risk........................................11 5.4 Acquisition for Own Account..........................................11 5.5 Purchaser Can Protect Its Interest...................................11 5.6 Accredited Investor..................................................12 5.7 Legends..............................................................12 6. COVENANTS OF THE COMPANY.............................................13 6.1 Stop-Orders..........................................................13 6.2 Listing..............................................................13 6.3 Market Regulations...................................................13 6.4 Reporting Requirements..............................................13 6.5 Intentionally Omitted................................................14 6.6 Access to Facilities.................................................14 6.7 Taxes................................................................14 6.8 Insurance............................................................14 6.9 Intellectual Property................................................14 6.10 Properties...........................................................15 6.11 Confidentiality......................................................15 6.12 Required Approvals...................................................15 6.13 Reissuance of Securities.............................................16 6.14 Opinion..............................................................16 7. COVENANTS OF THE COMPANY AND PURCHASERS REGARDING INDEMNIFICATION....16 7.1 Company Indemnification..............................................16 7.2 Purchaser's Indemnification..........................................16 7.3 Procedures...........................................................16 8. CONVERSION OF CONVERTIBLE NOTES......................................17 8.1 Mechanics of Conversion..............................................17 8.2 Mandatory Redemption.................................................18 -ii- 8.3 Maximum Conversion...................................................18 8.4 Injunction - Posting of Bond.........................................18 8.5 Buy-In...............................................................19 9. REGISTRATION RIGHTS..................................................19 9.1 Registration Rights Granted..........................................19 9.2 Registration Procedures..............................................20 9.3 Provision of Documents...............................................21 9.4 Non-Registration Events..............................................21 9.5 Expenses.............................................................22 9.6 Indemnification and Contribution.....................................22 10. OFFERING RESTRICTIONS................................................24 11 Security Interest....................................................24 12. MISCELLANEOUS........................................................25 12.1 Governing Law........................................................25 12.2 Survival.............................................................25 12.3 Successors and Assigns...............................................26 12.4 Entire Agreement.....................................................26 12.5 Severability.........................................................26 12.6 Amendment and Waiver.................................................26 12.7 Delays or Omissions..................................................26 12.8 Notices..............................................................26 12.9 Attorneys' Fees......................................................27 12.10 Titles and Subtitles.................................................27 12.11 Counterparts.........................................................27 12.12 Broker's Fees........................................................27 12.13 Indemnification......................................................27 12.14 Construction.........................................................27 -iii- INFINITE GROUP, INC. SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and entered into as of June 21, 2002, by and among Infinite Group, Inc., a Delaware corporation (the "Company"), and the Purchaser listed on Exhibit A hereto (the "Purchaser"). RECITALS WHEREAS, the Company has authorized the sale of 5% Convertible Notes in an aggregate principal amount of $500,000 (the "Notes"), convertible into shares of the Company's common stock, $0.001 par value per share (the "Common Stock"); WHEREAS, the Company wishes to issue warrants (the "Warrants") to the Purchaser to purchase shares of the Company's Common Stock in connection with Purchaser's purchase of the Notes; WHEREAS, the Company and the Purchaser intend to allow the Company to have complete discretion in its ability to repay the Notes; WHEREAS, Purchaser desires to purchase the Notes and Warrants on the terms and conditions set forth herein; and WHEREAS, the Company desires to issue and sell the Notes and Warrants to Purchaser on the terms and conditions set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises, representations, warranties and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set forth in this Agreement, on the Closing Date (as defined in Section 3), the Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to purchase from the Company Notes in the amount set forth next to the Purchaser's name on Exhibit A under the column heading "Closing Date Notes," convertible in accordance with the terms thereof into shares of the Company's Common Stock, which amount shall be equal to $500,000. The Notes purchased on the Closing Date shall be known as the "Offering." The form of Notes is annexed hereto as Exhibit B. The Notes will have a Maturity Date (as defined in the Notes) two years from the date of issuance. Collectively, the Notes and Warrants (as defined in Section 2) and Common Stock issuable upon conversion of the Notes and exercise of the Warrants are referred to as the "Securities." 2. FEES AND WARRANTS. (a) The Company will issue and deliver to the persons listed on Exhibit A under the column heading "Warrant Holders", or to such other persons as the Purchaser shall otherwise designate (such named persons, as they may be so otherwise designated, being referred to as the "Warrant Recipients"), Warrants to purchase shares of Common Stock in the amounts designated on Exhibit A hereto in connection with the Offering (the "Warrants") pursuant to Section 1 hereof. The Warrants must be delivered on the Closing Date. The aggregate number of shares of Common Stock purchasable upon exercise of the Warrants granted on the Closing Date is set forth on Exhibit A hereto. A form of Warrant is annexed hereto as Exhibit C. The per share "Purchase Price" of Common Stock as defined in the Warrants shall be equal to $2.40. All the representations, covenants, warranties, undertakings, and indemnification, and other rights made or granted to or for the benefit of Purchaser are hereby also made and granted to the holders of the Warrants in respect of the Warrants and shares of the Company's Common Stock issuable upon exercise of the Warrants (the "Warrant Shares"). (b) The Company shall reimburse Purchaser for its reasonable legal fees of $12,000 for services rendered to Purchaser in preparation of this Agreement and the Related Agreements. Amounts required to be paid hereunder will be paid at the Closing. (c) The Company will pay a cash fee in the amount of five percent (5%) of the aggregate gross purchase price to be paid to the Company from the sale of Notes in the Offering (the "Fund Manager's Fee") to the persons listed on Exhibit A under the column heading "Fund Manager's Fee Recipient." The Fund Manager's Fee must be paid on the Closing Date. The aforementioned Fund Manager's Fee and legal fees will be payable at the Closing out of funds held pursuant to a Funds Escrow Agreement to be entered into by the Company, Purchaser and an Escrow Agent. 3. CLOSING, DELIVERY AND PAYMENT. 3.1 Closing. Subject to the terms and conditions herein, the closing of the transactions contemplated hereby (the "Closing"), which closing is comprised of Purchaser's purchase of Notes in the aggregate principal amount of $500,000, shall take place on the date hereof, at the offices of Daniel M. Laifer, Esq., 152 West 57th Street, 4th Floor, New York, New York 10019, or at such other time or place as the Company and Purchaser may mutually agree (such date is hereinafter referred to as the "Closing Date"). 3.2 Delivery. At the Closing, subject to the terms and conditions hereof, the Company will deliver to the Purchaser an applicable Note representing the aggregate principal amount borrowed by the Company at the Closing from the Purchaser and a warrant certificate registered in the Purchaser's name representing the number of Warrant Shares as to which the Warrant is exercisable pursuant to this Agreement, against payment of the purchase price therefor by certified funds or wire transfer made payable to the order of the Company, cancellation of indebtedness or any combination of the foregoing. -2- 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Purchaser that except as set forth on Schedule 4 hereto, as of the date of this Agreement as set forth below. 4.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power and authority to own and operate its properties and assets, to execute and deliver this Agreement, the Warrants to be issued in connection with this Agreement, the Funds Escrow Agreement, the Security Agreement and all other agreements referred to herein (collectively, the "Related Agreements"), to issue and sell the Notes and the shares of Common Stock issuable upon conversion of the Notes (the "Conversion Shares"), to issue and sell the Warrants and the Warrant Shares, and to carry out the provisions of this Agreement and the Related Agreements and to carry on its business as presently conducted and as presently proposed to be conducted. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on the Company or its business. 4.2 Subsidiaries. Except as disclosed in the SEC Documents, the Company does not own or control any equity security or other interest of any other corporation, limited partnership or other business entity. The Company owns a controlling interest in such entity, and each of the representations and warranties set forth in this Section 4 are being hereby restated with respect to such entity (modified as appropriate to the nature of such entity.) 4.3 Capitalization; Voting Rights. (a) The authorized capital stock of the Company, immediately prior to the Closing, consists of 20,000,000 shares of Common Stock, par value $0.001 per share, 5,670,121 shares of which are issued and outstanding. The number of shares issued and outstanding does not include 500,000 shares to be issued to Investor Relations Services, Inc. (b) Other than (i) the shares reserved for issuance under the Company's stock option plans filed under Form S-8; (ii) shares which may be granted pursuant to this Agreement and the Related Agreements; and (iii) shares which may be granted pursuant to the Company's Registration Statements under Forms S-2 and S-3, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or stockholder agreements, or arrangements or agreements of any kind for the purchase or acquisition from the Company of any of its securities. Neither the offer, issuance or sale of any of the Notes or Warrants, or the issuance of any of the Conversion Shares or Warrant Shares, nor the consummation of any transaction contemplated hereby will result in a change in the price or number of any securities of the Company outstanding, under anti-dilution or other similar provisions contained in or affecting any such securities. (c) All issued and outstanding shares of the Company's Common Stock (i) have been duly authorized and validly issued and are fully paid and nonassessable and -3- (ii) were issued in compliance with all applicable state and federal laws concerning the issuance of securities. (d) The rights, preferences, privileges and restrictions of the shares of the Common Stock are as stated in the Certificate of Incorporation (the "Charter"). The Conversion Shares and Warrant Shares have been duly and validly reserved for issuance. When issued in compliance with the provisions of this Agreement and the Company's Charter, the Securities will be validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Securities may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed. (e) No stock plan, stock purchase, stock option or other agreement or understanding between the Company and any holder of any equity securities or rights to purchase equity securities provides for acceleration or other changes in the vesting provisions or other terms of such agreement or understanding as the result of any merger, consolidated sale of stock or assets, change in control or any other transaction(s) by the Company, including the transactions contemplated hereunder. 4.4 Authorization; Binding Obligations. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization of this Agreement and the Related Agreements, the performance of all obligations of the Company hereunder at the Closing and the authorization, sale, issuance and delivery of the Securities pursuant hereto and the Related Agreements has been taken or will be taken prior to the Closing. The Agreement and the Related Agreements, when executed and delivered, will be valid and binding obligations of the Company enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, and (b) general principles of equity that restrict the availability of equitable remedies. Except for an agreement dated November 20, 2000 with Cockfield Holdings, LLC ("Cockfield"), (i) the sale of the Notes and the subsequent conversion of the Notes into Conversion Shares are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with and (ii) the sale of the Warrants and the subsequent exercise of the Warrants for Warrant Shares are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with. The Notes and the Warrants, when executed and delivered in accordance with the terms of this Agreement, will be valid and binding obligations of the Company, enforceable in accordance with their respective terms. 4.5 Liabilities. Except as included in the SEC Documents, the Company has no material liabilities and, to the best of its knowledge, knows of no material contingent liabilities, except current liabilities incurred in the ordinary course of business since March 31, 2002. 4.6 Agreements; Action. (a) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or to -4- its knowledge by which it is bound which may involve (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $50,000 (other than obligations of, or payments to, the Company arising from purchase or sale agreements entered into in the ordinary course of business), or (ii) the transfer or license of any patent, copyright, trade secret or other proprietary right to or from the Company (other than licenses arising from the purchase of "off the shelf" or other standard products), or (iii) provisions restricting the development, manufacture or distribution of the Company's products or services, or (iv) indemnification by the Company with respect to infringements of proprietary rights. (b) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of $50,000 or, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $100,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. 4.7 Obligations to Related Parties. There are no obligations of the Company to officers, directors, stockholders or employees of the Company other than (a) for payment of salary for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the Company and (c) for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company). None of the officers, directors or stockholders of the Company, or any members of their immediate families, are indebted to the Company. None of the officers, directors or, to the best of the Company's knowledge, key employees or stockholders of the Company or any members of their immediate families, are indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, other than passive investments in publicly traded companies (representing less than 1% of such company) which may compete with the Company. No officer, director or stockholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company and no agreements, understandings or proposed transactions are contemplated between the Company and any such person. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation, other than subsidiaries of the Company. 4.8 Changes. Since March 31, 2002, there has not been: (a) Any change in the assets, liabilities, financial condition, prospects or operations of the Company, other than changes in the ordinary course of business, none of which individually or in the aggregate has had or is reasonably expected to have a material adverse effect on such assets, liabilities, financial condition, prospects or operations of the Company, other than the closure of the Company's Osley & Whitney subsidiary; (b) Except with respect to J. Terence Feeley, any resignation or termination of any officer, key employee or group of employees of the Company; -5- (c) Any material change, except in the ordinary course of business, in the contingent obligations of the Company by way of guaranty, endorsement, indemnity, warranty or otherwise, other than as disclosed in the SEC Documents; (d) Any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the properties, business or prospects or financial condition of the Company; (e) Any waiver by the Company of a valuable right or of a material debt owed to it; (f) Any direct or indirect loans made by the Company to any stockholder, employee, officer or director of the Company, other than advances made in the ordinary course of business; (g) Any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder; (h) Any declaration or payment of any dividend or other distribution of the assets of the Company; (i) Any labor organization activity related to the Company; (j) Any debt, obligation or liability incurred, assumed or guaranteed by the Company, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business; (k) Any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (l) Any change in any material agreement to which the Company is a party or by which it is bound which may materially and adversely affect the business, assets, liabilities, financial condition, operations or prospects of the Company; (m) Any other event or condition of any character that, either individually or cumulatively, has or may materially and adversely affect the business, assets, liabilities, financial condition, prospects or operations of the Company; or (n) Any arrangement or commitment by the Company to do any of the acts described in subsection (a) through (m) above. 4.9 Title to Properties and Assets; Liens, Etc. Except as set forth in the SEC Documents, the Company has good and marketable title to its properties and assets, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those resulting from taxes which have not yet become delinquent, (b) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company, and (c) those that have otherwise arisen in the ordinary course of business. All facilities, machinery, equipment, -6- fixtures, vehicles and other properties owned, leased or used by the Company are in good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used. The Company is in compliance with all material terms of each lease to which it is a party or is otherwise bound. 4.10 Intellectual Property. (a) The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and to the Company's knowledge as presently proposed to be conducted (the "Intellectual Property"), without any known infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing proprietary rights, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of "off the shelf" or standard products, other than as described in Section 4.4 through 4.9 above. (b) The Company has not received any communications alleging that the Company has violated any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity, nor is the Company aware of any basis therefor. (c) The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its employees made prior to their employment by the Company, except for inventions, trade secrets or proprietary information that have been rightfully assigned to the Company. 4.11 Compliance with Other Instruments. The Company is not in violation or default of any term of the Charter or Bylaws, or of any provision of any mortgage, indenture, contract, agreement, instrument or contract to which it is party or by which it is bound or of any judgment, decree, order or writ, except as may arise from its closure of its Osley & Whitney subsidiary. The execution, delivery and performance of and compliance with this Agreement and the Related Agreements, and the issuance and sale of Securities pursuant hereto, will not, with or without the passage of time or giving of notice, result in any such material violation, or be in conflict with or constitute a default under any such term or provision, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties. 4.12 Litigation. Except as set forth in the SEC Documents, there is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company that questions the validity of this Agreement or the Related Agreements or the right of the Company to enter into any of such agreements, or to consummate the transactions contemplated hereby or thereby, or which might result, either individually or in the aggregate, in -7- any material adverse change in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for any of the foregoing, other than as may arise from the closure of the Company's Osley & Whitney subsidiary. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 4.13 Tax Returns and Payments. The Company has timely filed all tax returns (federal, state and local) required to be filed by it. All taxes shown to be due and payable on such returns, any assessments imposed, and to the Company's knowledge all other taxes due and payable by the Company on or before the Closing, have been paid or will be paid prior to the time they become delinquent. The Company has not been advised (a) that any of its returns, federal, state or other, have been or are being audited as of the date hereof, or (b) of any deficiency in assessment or proposed judgment to its federal, state or other taxes. The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for. 4.14 Employees. The Company has no collective bargaining agreements with any of its employees. There is no labor union organizing activity pending or, to the Company's knowledge, threatened with respect to the Company. The Company is not a party to or bound by any currently effective employment contract, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement. To the Company's knowledge, no employee of the Company, nor any consultant with whom the Company has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company because of the nature of the business to be conducted by the Company; and to the Company's knowledge the continued employment by the Company of its present employees, and the performance of the Company's contracts with its independent contractors, will not result in any such violation. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company. The Company has not received any notice alleging that any such violation has occurred. No employee of the Company has been granted the right to continued employment by the Company or to any material compensation following termination of employment with the Company, except as disclosed in the SEC Documents. The Company is not aware that any officer, key employee or group of employees intends to terminate his, her or their employment with the Company, nor does the Company have a present intention to terminate the employment of any officer, key employee or group of employees. 4.15 Registration Rights and Voting Rights. Except as set forth in the SEC Documents, the Company is presently not under any obligation, and has not granted any rights, to register any of the Company's presently outstanding securities or any of its securities that may hereafter be issued. To the Company's knowledge, no stockholder of the Company has entered into any agreement with respect to the voting of equity securities of the Company. -8- 4.16 Compliance with Laws; Permits. To its knowledge, the Company is not in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties which violation would materially and adversely affect the business, assets, liabilities, financial condition, operations or prospects of the Company. No governmental orders, permissions, consents, approvals or authorizations are required to be obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this Agreement and the issuance of any of the Securities, except such as has been duly and validly obtained or filed, or with respect to any filings that must be made after the Closing, as will be filed in a timely manner. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects or financial condition of the Company. 4.17 Environmental and Safety Laws. The Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. No Hazardous Materials (as defined below) are used or have been used, stored, or disposed of by the Company or, to the Company's knowledge, by any other person or entity on any property owned, leased or used by the Company. For the purposes of the preceding sentence, "Hazardous Materials" shall mean (a) materials which are listed or otherwise defined as "hazardous" or "toxic" under any applicable local, state, federal and/or foreign laws and regulations that govern the existence and/or remedy of contamination on property, the protection of the environment from contamination, the control of hazardous wastes, or other activities involving hazardous substances, including building materials, or (b) any petroleum products or nuclear materials. 4.18 Valid Offering. Assuming the accuracy of the representations and warranties of the Purchaser contained in this Agreement, the offer, sale and issuance of the Securities will be exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. Neither the Company nor any agent on its behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of the Securities to any person or persons so as to bring the sale of such Securities by the Company within the registration provisions of the Securities Act or any state securities laws. 4.19 Full Disclosure. The Company has provided the Purchaser with all information requested by the Purchaser in connection with its decision to purchase the Notes and Warrants, including all information the Company believes is reasonably necessary to make such investment decision. Neither this Agreement, the exhibits and schedules hereto, the Related Agreements nor any other document delivered by the Company to Purchaser or its attorneys or agents in connection herewith or therewith or with the transactions contemplated hereby or thereby, contain any untrue statement of a material fact nor omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. To the Company's knowledge, there are no facts which (individually or in the aggregate) materially adversely affect the business, assets, liabilities, financial condition, prospects or operations of the Company that -9- have not been set forth in the Agreement, the exhibits and schedules hereto, the Related Agreements or in other documents delivered to Purchaser or its attorneys or agents in connection herewith. 4.20 Insurance. The Company has general commercial, product liability, fire and casualty insurance policies with coverage customary for companies similarly situated to the Company. 4.21 SEC Disclosure. The Company has filed all proxy statements, reports and other documents required to be filed by it under the Exchange Act. The Company has furnished the Purchaser with copies of (i) its Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001, as amended (ii) its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002, (iii) its Proxy Statement dated February 27, 2001, (iv) Registration Statement on Form S-8 dated May 4, 2000, (v) Registration Statement on Form S-2, dated December 13, 2000, (vi) Registration Statements on Form S-3, dated February 15, 2001 and December 17, 2001 and (vii) Current Reports on Form 8-K dated February 10, 2001, August 6, 2001, November 29, 2001, December 12, 2001, February 14, 2002, March 15, 2002 and March 29, 2002 (collectively, the "SEC Documents"). Each SEC Document was in substantial compliance with the requirements of its respective form and none of the SEC Documents, nor the financial statements (and the notes thereto) included in the SEC Documents, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.22 No Market Manipulation. The Company has not taken, and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock of the Company to facilitate the sale or resale of any of the Securities being offered hereby or affect the price at which any of the Securities being offered hereby may be issued. 4.23 Listing. The Company's Common Stock is listed for trading on the NASDAQ SmallCap Market and satisfies all requirements for the continuation of such listing. The Company has received notice that its Common Stock may be delisted from the NASDAQ SmallCap Market or that the Common Stock may not meet all requirements for the continuation of such listing. 4.24 No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offering of the Securities pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Securities pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions. Nor will the Company or any of its affiliates or subsidiaries take any action or steps that would cause the offering of the Securities to be integrated with other offerings. -10- 4.25 Stop Transfer. The Securities are restricted securities as of the date of this Agreement. The Company will not issue any stop transfer order or other order impeding the sale and delivery of any of the Securities at such time as the Securities are registered for public sale or an exemption from registration is available, except as required by federal securities laws. 4.26 Dilution. The Company's executive officers and directors have studied and fully understand the nature of the Securities being sold hereby and recognize that they have a potential dilutive effect. The Board of Directors of the Company has concluded, in its good faith business judgment, that such issuance is in the best interests of the Company. The Company specifically acknowledges that subject to the terms of the Related Agreements, its obligation to issue the shares of Common Stock upon conversion of the Notes and exercise of the Warrants is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company. 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Company with respect to itself or himself as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement): 5.1 Requisite Power and Authority. Purchaser has all necessary power and authority under all applicable provisions of law to execute and deliver this Agreement and the Related Agreements and to carry out their provisions. All action on Purchaser's part required for the lawful execution and delivery of this Agreement and the Related Agreements have been or will be effectively taken prior to the Closing. Upon their execution and delivery, this Agreement and the Related Agreements will be valid and binding obligations of Purchaser, enforceable in accordance with their terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, and (b) as limited by general principles of equity that restrict the availability of equitable remedies. 5.2 Investment Representations. Purchaser understands that the Securities are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Purchaser's representations contained in the Agreement. 5.3 Purchaser Bears Economic Risk. Purchaser has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser must bear the economic risk of this investment until the Securities are registered pursuant to the Securities Act, or an exemption from registration is available. 5.4 Acquisition for Own Account. Purchaser is acquiring the Notes for Purchaser's own account for investment only, and not with a view towards their distribution. 5.5 Purchaser Can Protect Its Interest. Purchaser represents that by reason of its, or of its management's, business or financial experience, Purchaser has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement, and -11- the Related Agreements. Further, Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement. 5.6 Accredited Investor. Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act. 5.7 Legends. (a) The Notes shall bear the following legend until the Notes and Conversion Shares are covered by an effective registration statement filed with the SEC: "THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR, IF APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO INFINITE GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED." (b) The Conversion Shares and the Warrant Shares shall bear a legend which shall be in substantially the following form until such shares are covered by an effective registration statement filed with the SEC: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO INFINITE GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED." (c) The Warrants shall bear the following legend: "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE -12- UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO INFINITE GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED." 5.8 No Shorting. The Purchaser will not and will not cause any person or entity to engage in "short sales" of the Company's Common Stock. 6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the Purchaser as follows: 6.1 Stop-Orders. The Company will advise the Purchaser, promptly after it receives notice of issuance by the Securities and Exchange Commission (the "SEC"), any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose. 6.2 Listing. The Company shall promptly secure the listing of the shares of Common Stock issuable upon conversion of the Notes and upon the exercise of the Warrants upon the Principal Market upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain such listing so long as any other shares of Common Stock shall be so listed. The Company will maintain the listing of its Common Stock on a Principal Market, and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers ("NASD") and such exchanges, as applicable. The Company will provide the Purchaser copies of all notices it receives notifying the Company of the threatened and actual delisting of the Common Stock from any Principal Market. 6.3 Market Regulations. The Company shall notify the SEC, NASD and applicable state authorities, in accordance with their requirements, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to Purchaser and promptly provide copies thereof to Purchaser. 6.4 Reporting Requirements. (a) Until at least two (2) years from the date hereof, the Company will (i) cause its Common Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange Act, (ii) comply in all respects with its reporting and filing obligations under the Exchange Act, (iii) comply with all reporting requirements that is applicable to an issuer with a class of shares registered pursuant to Section 12(g) of the Exchange Act, and (iv) comply with all requirements related to any registration statement filed pursuant to this Agreement. The Company will not take any action or file any document (whether or not -13- permitted by the Securities Act or the Exchange Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Acts until the earlier of (y) two (2) years S-3 from the date hereof, or (z) the sale by the Purchaser of all the Securities issuable by the Company pursuant to this Agreement. Until at least two (2) years after the Warrants have been exercised, the Company will use its commercial best efforts to continue the listing of the Common Stock on the NASD OTC Bulletin Board and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the NASD and NASDAQ. 6.5 Intentionally Omitted. 6.6 Access to Facilities. Until the Notes have been repaid in full, the Company will permit any representatives designated by the Purchaser (or any transferee of the Purchaser), so long as such person holds any Securities upon reasonable notice and during normal business hours, at such person's expense and accompanied by a representative of the Company, to (a) visit and inspect any of the properties of the Company, (b) examine the corporate and financial records of the Company (unless such examination is not permitted by federal, state or local law or by contract) and make copies thereof or extracts therefrom and (c) discuss the affairs, finances and accounts of any such corporations with the directors, officers and independent accountants of the Company. 6.7 Taxes. Until the Notes have been repaid in full, the Company will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor. 6.8 Insurance. Until the Notes have been repaid in full, the Company will keep its assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in the Company's line of business, in amounts sufficient to prevent the Company from becoming a co-insurer and not in any event less than 100% of the insurable value of the property insured; and the Company will maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner customary for companies in similar businesses similarly situated and to the extent available on commercially reasonable terms. 6.9 Intellectual Property. Until the Notes have been repaid in full, the Company shall maintain in full force and effect its corporate existence, rights and franchises and all licenses and other rights to use Intellectual Property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business. -14- 6.10 Properties. Until the Notes have been repaid in full, the Company will keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and the Company will at all times comply with each provision of all leases to which it is a party or under which it occupies property if the breach of such provision could reasonably be expected to have a material adverse effect. 6.11 Confidentiality. The Company agrees that it will not disclose, and will not include in any public announcement, the name of the Purchaser, unless expressly agreed to by the Purchaser or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement. 6.12 Required Approvals. For so long as at least 20% of the aggregate principal amount of this Note and any other notes from the Company to the Purchaser are outstanding, the Company, without the prior written consent of the Purchaser, shall not: (a) directly or indirectly declare or pay any dividends or make any distributions upon any of its capital stock or other equity securities (or any securities directly or indirectly convertible into or exercisable or exchangeable for equity securities); (b) except as set forth on Schedule 4, directly or indirectly redeem, purchase or otherwise acquire any of the Corporation's capital stock or other equity securities (including, without limitation, the Securities or any warrants, options and other rights to acquire such capital stock or other equity securities) or directly or indirectly redeem, purchase or make any payments with respect to any stock appreciation rights, phantom stock plans or similar rights or plans; (c) except as set forth on Schedule 4, sell, lease or otherwise dispose of more any of the assets of the Company (computed on the basis of book value, determined in accordance with GAAP consistently applied, or fair market value, determined by the Board of Directors in its reasonable good faith judgment) in any transaction or series of related transactions (other than sales of inventory in the ordinary course of business) or sell or permanently dispose of any of its intellectual property; (d) liquidate, dissolve or effect a recapitalization, reclassification or reorganization in any form of transaction (including, without limitation, any reorganization into a limited liability company, a partnership or any other non-corporate entity which is treated as a partnership for federal income tax purposes or a stock split or "reverse" stock split of the Common Stock); (e) become subject to (including, without limitation, by way of amendment to or modification of) any agreement or instrument which by its terms would (under any circumstances) restrict the Company's right to perform the provisions of this Agreement or any of the agreements contemplated thereby; (f) amend, alter or repeal the Company's Bylaws or Charter in order to change the name of the Company or its state of incorporation, or except for the issuance of any Preferred Stock, materially affect the rights or other powers of the Conversion Shares, or -15- otherwise take any action which is designed to, or could have the effect of, adversely affecting the rights or other powers of the Conversion Shares; or (g) materially alter or change the business of the Company. 6.13 Reissuance of Securities. The Company agrees to reissue certificates representing the Securities without the legends set forth in Section 5.7 above at such time as (a) the holder thereof is permitted to dispose of such Securities pursuant to Rule 144(k) under the Securities Act, or (b) upon resale subject to an effective registration statement after such Securities are registered under the Securities Act. The Company agrees to cooperate with the Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow such resales provided the Company and its counsel receive reasonably requested representations from the selling Purchaser and broker, if any. 6.14 Opinion. On the Closing Date, the Company will deliver to the Purchaser an opinion acceptable to the Purchaser from the Company's legal counsel in the form annexed hereto as Exhibit D. The Company will provide, at the Company's expense, such other legal opinions in the future as are reasonably necessary for the conversion of the Notes and exercise of the Warrants. 7. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION. 7.1 Company Indemnification. The Company agrees to indemnify, hold harmless, reimburse and defend Purchaser, each of Purchaser's officers, directors, agents, affiliates, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Purchaser which results, arises out of or is based upon (i) any misrepresentation by Company or breach of any warranty by Company in this Agreement or in any exhibits or schedules attached hereto or any Related Agreement, or (ii) any breach or default in performance by Company of any covenant or undertaking to be performed by Company hereunder, or any other agreement entered into by the Company and Purchaser relating hereto. 7.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company and each of the Company's officers, directors, agents, affiliates, control persons and principal shareholders, at all times against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Company which results, arises out of or is based upon (a) any misrepresentation by Purchaser in this Agreement or in any exhibits or schedules attached hereto or any Related Agreement; or (b) any breach or default in performance by Purchaser of any covenant or undertaking to be performed by Purchaser hereunder, or any other agreement entered into by the Company and Purchaser relating hereto. 7.3 Procedures. The procedures and limitations set forth in Section 9.6 shall apply to the indemnifications set forth in Sections 7.1 and 7.2 above. -16- 8. CONVERSION OF CONVERTIBLE NOTES. Subject to the provisions of Section 2 of the Notes, the following provisions shall apply: 8.1 Mechanics of Conversion. (a) Upon the conversion of the Notes or part thereof, the Company shall, at its own cost and expense, take all necessary action (including the issuance of an opinion of counsel) to assure that the Company's transfer agent shall issue stock certificates in the name of the Purchaser (or its nominee) or such other persons as designated by the Purchaser and in such denominations to be specified representing the number of Conversion Shares issuable upon such conversion. The Company warrants that no instructions other than these instructions have been or will be given to the transfer agent of the Company's Common Stock and that the Conversion Shares issued will be unlegended, free-trading, and freely transferable, and will not contain a legend restricting the resale or transferability of the Conversion Shares, provided the Purchaser has notified the Company of the Purchaser's intention to sell the Conversion Shares and the Conversion Shares are included in an effective registration statement or are otherwise exempt from registration when sold; provided further, that if prior to the time the Conversion Shares have been sold, the registration statement shall no longer be effective, the Purchaser shall return the Conversion Shares to the Company for the placement of a legend. (b) Purchaser will give notice of its decision to exercise its right to convert the Notes or part thereof by telecopying or otherwise delivering an executed and completed notice of the number of shares to be converted to the Company (the "Notice of Conversion"). The Purchaser will not be required to surrender the Notes until the Purchaser receives a certificate or certificates, as the case may be, representing the Conversion Shares or until the Note has been fully satisfied. Each date on which a Notice of Conversion is telecopied or delivered to the Company in accordance with the provisions hereof shall be deemed a "Conversion Date." The Company will or will cause the transfer agent to transmit the Company's Common Stock certificates representing the shares issuable upon conversion of the Notes (and a certificate representing the balance of the Notes not so converted, if requested by Purchaser) to the Purchaser via express courier for receipt by such Purchaser within three trading days after receipt by the Company of the Notice of Conversion (the "Delivery Date"). (c) The Company understands that a delay in the delivery of the Conversion Shares in the form required pursuant to Section 8 hereof, or the Mandatory Redemption Payment described in Section 8.2 hereof, beyond the Delivery Date or Mandatory Redemption Payment Date (as defined in Section 8.2) could result in economic loss to the Purchaser. As compensation to the Purchaser for such loss, the Company agrees to pay late payments to the Purchaser for late issuance of the Conversion Shares in the form required pursuant to Section 8 hereof upon conversion of the Notes or late payment of the Mandatory Redemption Payment, in the amount of $100 per business day after the Delivery Date or Mandatory Redemption Payment Date, as the case may be, for each $10,000 Note principal being converted or redeemed. The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Furthermore, in addition to any other remedies which may be available to the Purchaser, in the event that the Company fails for any reason to effect delivery of the Conversion Shares by the Delivery Date or make payment by the -17- Mandatory Redemption Payment Date, the Purchaser will be entitled to revoke all or part of the relevant Notice of Conversion or rescind all or part of the notice of Mandatory Redemption by delivery of a notice to such effect to the Company whereupon the Company and the Purchaser shall each be restored to their respective positions immediately prior to the delivery of such notice, except that late payment charges described above shall be payable through the date notice of revocation or rescission is given to the Company. (d) Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum amount permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to a Purchaser and thus refunded to the Company. 8.2 Mandatory Redemption. In the event the Company is unable to issue Conversion Shares on a Delivery Date, or upon an occurrence of an Event of Default, as defined in the Note, or at any time when a Note is convertible, for any reason, then at the Purchaser's election, the Company must pay to the Purchaser five (5) business days after request by the Purchaser or on the Delivery Date (if requested by the Purchaser) a sum of money determined by multiplying the principal of the Note required to be converted and not so converted (or otherwise not convertible, as applicable) by 130%, together with accrued but unpaid interest thereon ("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be received by the Purchaser on the same date as the Conversion Shares are otherwise deliverable or within five (5) business days after request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption Payment, the corresponding Note principal and interest will be deemed paid and no longer outstanding. 8.3 Maximum Conversion. The Purchaser shall not be entitled to convert on a Conversion Date that amount of a Note or Notes in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Purchaser on a Conversion Date, and (ii) the number of shares of Common Stock issuable upon the conversion of the Notes with respect to which the determination of this proviso is being made on a Conversion Date, which would result in beneficial ownership by the Purchaser of more than 4.99% of the outstanding shares of Common Stock of the Company on such Conversion Date. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. Subject to the foregoing, a Purchaser shall not be limited to aggregate conversions of only 4.99%. A Purchaser may void the conversion limitation described in this Section 8.3 upon 75 days prior notice to the Company or upon an Event of Default under the Note. A Purchaser may allocate which of the equity of the Company deemed beneficially owned by such Purchaser shall be included in the 4.99% amount described above and which shall be allocated to the excess above 4.99%. 8.4 Injunction - Posting of Bond. In the event a Purchaser shall elect to convert a Note or part thereof, the Company may not refuse conversion for any reason, unless an injunction from a court, on notice, restraining and or enjoining conversion of all or part of said -18- Note shall have been sought and obtained and the Company posts a surety bond for the benefit of such Purchaser in the amount of 130% of the amount of the Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Purchaser to the extent it obtains judgment. 8.5 Buy-In. In addition to any other rights available to the Purchaser, if the Company fails to deliver to the Purchaser Conversion Shares by the Delivery Date and if after the Delivery Date the Purchaser purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of the Common Stock which the Purchaser anticipated receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash to the Purchaser (in addition to any remedies available to or elected by such Purchaser) the amount by which (A) the Purchaser's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate principal and/or interest amount of the Note, for which such conversion was not timely honored, together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty). For example, if the Purchaser purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of Note principal and/or interest, the Company shall be required to pay the Purchaser $1,000, plus interest. The Purchaser shall provide the Company written notice indicating the amounts payable to the Purchaser in respect of the Buy-In. 8.6 NASDAQ Approval. The Company and the Purchaser agree that until the Company either obtains shareholder approval of the issuance of the Conversion Shares, or an exemption from NASDAQ's corporate governance rules as they may apply to the Conversion Shares, and an opinion of counsel reasonably acceptable to the Purchaser that NASDAQ's corporate governance rules do not conflict with nor may result in a delisting of the Company's common stock from the SmallCap Market (the "Approval") upon the conversion of the Notes, the Purchaser may not receive upon conversion of the Notes more than the number of common shares greater than 19.9% of the shares of Company's common stock outstanding on the Closing Date. The Company covenants to obtain the Approval required pursuant to the NASDAQ's corporate governance rules to allow conversion of all the Notes and interest thereon. The Company further covenants to file the preliminary proxy statement relating to the Approval with the Commission on or before thirty days after the Company and Purchaser determine that such filing is necessary ("Proxy Filing Date"). The Company further covenants to obtain the Approval no later than sixty days after the Proxy Filing Date ("Approval Date"). The Company's failure to (i) file the proxy on or before the Proxy Filing Date; or (ii) the Company's failure to obtain the Approval on or before the Approval Date (each being an "Approval Default") shall be deemed an Event of Default under the Note, but only to the extent the Notes and interest thereon that may not be converted due to the Company's failure to obtain such Approval. 9. REGISTRATION RIGHTS. 9.1 Registration Rights Granted. The Company hereby grants the following registration rights to holders of the securities purchased hereby. -19- (a) Intentionally omitted. (b) Intentionally omitted. (c) Intentionally omitted. (d) The Company shall use its reasonable commercial efforts to cause to be declared effective a Form S-3 registration statement (or such other form that it is eligible to use) within 75 days of the date hereof (the "Effective Date") in order to register the Conversion Shares and the Warrant Shares issued or issuable with respect to all Notes and Warrants to be issued hereunder (the "Registrable Securities") for resale and distribution under the Securities Act. The holder thereof shall provide the Company with such information as the Company reasonably requests. The Company will register not less than a number of shares of Common Stock in the aforedescribed registration statement that is equal to the Warrant Shares and 125% of the Conversion Shares issuable at the Conversion Prices set forth in the Notes, that would be in effect on the Closing Date or the date of filing of such registration statement (employing the conversion price which would result in the greater number of Shares). The Registrable Securities shall be reserved and set aside exclusively for the benefit of the Purchaser and the holders of the Warrants, as the case may be, and not issued, employed or reserved for anyone other than the Purchaser and the holders of the Warrants. Such registration statement will be promptly amended or additional registration statements will be promptly filed by the Company as necessary to register additional Company Shares to allow the public resale of all Common Stock included in and issuable by virtue of the Registrable Securities. 9.2 Registration Procedures. If and whenever the Company is required by the provisions hereof to effect the registration of any shares of Registrable Securities under the Act, the Company will, as expeditiously as possible: (a) prepare and file with the SEC a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (determined as herein provided), and promptly provide to the holders of Registrable Securities copies of all filings and SEC letters of comment; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until the later of: (i) six months after the latest exercise period of the Warrants; (ii) twelve months after the Maturity Date of the last maturing Notes or (iii) four years after the Closing Date, and comply with the provisions of the Securities Act with respect to the disposition of all of the Registrable Securities covered by such registration statement in accordance with the Seller's intended method of disposition set forth in such registration statement for such period; (c) furnish to the Seller, and to each underwriter if any, such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons reasonably may request to facilitate the public sale or their disposition of the securities covered by such registration statement; -20- (d) use its best efforts to register or qualify the Seller's Registrable Securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the Seller and in the case of an underwritten public offering, the managing underwriter shall reasonably request, provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock of the Company is then listed; (f) immediately notify the Seller and each underwriter under such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and (g) make available for inspection by the Seller, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by the Seller or underwriter, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the seller, underwriter, attorney, accountant or agent in connection with such registration statement. 9.3 Provision of Documents. In connection with each registration hereunder, the Seller will furnish to the Company in writing such information and representation letters with respect to itself and the proposed distribution by it as reasonably shall be necessary in order to assure compliance with federal and applicable state securities laws. In connection with each registration pursuant to Section 9 covering an underwritten public offering, the Company and the Seller agree to enter into a written agreement with the managing underwriter in such form and containing such provisions as are customary in the securities business for such an arrangement between such underwriter and companies of the Company's size and investment stature. 9.4 Non-Registration Events. The Company and the Purchaser agree that the Seller will suffer damages if any registration statement required under Section 9.1(d) above is not declared effective by the SEC on or before the Effective Date, and maintained in the manner and within the time periods contemplated by Section 9 hereof, and it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if the registration statement on Form S-3 or such other form as described in Section 9.1(d) is not declared effective on or before the sooner of the Effective Date, or within five days of receipt by the Company of a -21- communication from the SEC that the registration statement described in Section 9.1(d) will not be reviewed, or (ii) any registration statement described in Section 9.1(d) is filed and declared effective but shall thereafter cease to be effective (without being succeeded immediately by an additional registration statement filed and declared effective) for a period of time which shall exceed 30 days in the aggregate per year but not more than 20 consecutive calendar days (defined as a period of 365 days commencing on the date the Registration Statement is declared effective) (each such event referred to in this Section 9.4 is referred to herein as a "Non-Registration Event"), then, for so long as such Non-Registration Event shall continue, (i) the Company shall pay in cash as Liquidated Damages to each holder of any Registrable Securities an amount equal to two percent (2%) per month or part thereof during the pendency of such Non-Registration Event of the principal of the Notes issued in connection with the Offering, whether or not converted, then owned of record by such holder or issuable as of or subsequent to the occurrence of such Non-Registration Event and (ii) the Conversion Price as defined in Section 2.1 of the Notes shall be reduced by 10% for each 30-day period following the Effective Date that the Registration Statement is not declared effective by the SEC. Payments to be made pursuant to this Section shall be due and payable immediately upon demand in immediately available funds. In the event a Mandatory Redemption Payment is demanded from the Company by the holder pursuant to Section 8.2 of this Agreement, then the Liquidated Damages described in this Section 9.4 shall no longer accrue on the portion of the purchase price underlying the Mandatory Redemption Payment, from and after the date the holder receives the Mandatory Redemption Payment. It shall be deemed a Non-Registration Event to the extent that all the Common Stock included in the Registrable Securities and underlying the Securities is not included in an effective registration statement as of and after the Effective Date at the conversion prices in effect from and after the Effective Date. 9.5 Expenses. All expenses incurred by the Company in complying with Section 9, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars, fees of, and disbursements incurred by, one counsel for the Seller, and costs of insurance are called "Registration Expenses". All underwriting discounts and selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any special counsel to the Seller beyond those included in Registration Expenses, are called "Selling Expenses." The Company will pay all Registration Expenses in connection with the registration statement under Section 9. All Selling Expenses in connection with each registration statement under Section 9 shall be borne by the Seller and may be apportioned among the Sellers in proportion to the number of shares sold by the Seller relative to the number of shares sold under such registration statement or as all Sellers thereunder may agree. 9.6 Indemnification and Contribution. (a) In the event of a registration of any Registrable Securities under the Securities Act pursuant to Section 9, the Company will indemnify and hold harmless each Seller, each officer of each Seller, each director of each Seller, each underwriter of such -22- Registrable Securities thereunder and each other person, if any, who controls any such Seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Seller, or such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities was registered under the Securities Act pursuant to Section 9, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Seller, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by any such Seller, the underwriter or any such controlling person in writing specifically for use in such registration statement or prospectus. (b) In the event of a registration of any of the Registrable Securities under the Securities Act pursuant to Section 9, the Seller will indemnify and hold harmless the Company, and each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement and each director of the Company, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer or director may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registrable Securities were registered under the Securities Act pursuant to Section 9, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such officer or director for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such Seller, as such, furnished in writing to the Company by such Seller specifically for use in such registration statement or prospectus, and provided, further, however, that the liability of the Seller hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense which is equal to the proportion that the public offering price of the Registrable Securities sold by the Seller under such registration statement bears to the total public offering price of all securities sold thereunder, but not in any event to exceed the net proceeds received by the Seller from the sale of Registrable Securities covered by such registration statement. -23- (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to such indemnified party other than under this Section 9.6(c) and shall only relieve it from any liability which it may have to such indemnified party under this Section 9.6(c) if and to the extent the indemnifying party is prejudiced by such omission. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 9.6(c) for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified parties shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. (d) In order to provide for just and equitable contribution in the event of joint liability under the Securities Act in any case in which either (i) the Seller, or any controlling person of the Seller, makes a claim for indemnification pursuant to this Section 9.6 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 9.6 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of the Seller or controlling person of the Seller in circumstances for which indemnification is provided under this Section 9.6; then, and in each such case, the Company and the Seller will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that the Seller is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the registration statement bears to the public offering price of all securities offered by such registration statement, provided, however, that, in any such case, (A) the Seller will not be required to contribute any amount in excess of the public offering price of all such securities offered by it pursuant to such registration statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 10. OFFERING RESTRICTIONS. Except as previously disclosed in the SEC Documents, as set forth on Schedule 4 or stock or stock options granted to employees or directors of the Company; or equity or debt issued in connection with an acquisition of a -24- business or assets by the Company; or the issuance by the Company of stock in connection with the establishment of a joint venture partnership or licensing arrangement (these exceptions hereinafter referred to as the "Excepted Issuances"), the Company will not issue any equity, convertible debt or other securities which are or could be (by conversion or registration) free-trading securities prior to the expiration of 12 months from the actual effective date of the registration statement described in Section 9.1(d) above (the "Exclusion Period") for a price per share less than the then applicable Conversion Price of the Note. This restriction shall not prohibit the Company from issuing any equity, convertible debt or other securities prior to the expiration of the Exclusion Period, provided that such equity, convertible debt or other securities are restricted securities when issued and remain restricted until the expiration of the Exclusion Period. Notwithstanding the above, if the Purchaser elects not to further fund the Company following the transaction contemplated hereby, the Purchaser shall waive the provisions of this Section 10. The provisions of this Section 10 shall become null and void upon the payment in full of all obligations owing under the Note. 11. SECURITY INTEREST. As a condition of Closing, the Company will provide to the Purchaser a security interest in certain assets of the Company as set forth in a Security Agreement. The Company will execute all such documents reasonably necessary to memorialize and further protect the security interest described above. It is hereby agreed and acknowledged by the Company that the Note and any and all monetary obligations arising under the Note or this Agreement are included in the Obligations as defined in each of the Security Agreement between the Company and the Purchaser, dated February 5, 2002 and the Security Agreement between Infinite Photonics, Inc. and the Purchaser, dated February 5, 2002. 12. MISCELLANEOUS. 12.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York. Both parties and the individuals executing this Agreement and other agreements on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. 12.2 Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchaser and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. -25- 12.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Securities from time to time. 12.4 Entire Agreement. This Agreement, the exhibits and schedules hereto, the Related Agreements and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 12.5 Severability. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 12.6 Amendment and Waiver. (a) This Agreement may be amended or modified only upon the written consent of the Company and the Purchaser. (b) The obligations of the Company and the rights of the holders of the Securities under the Agreement may be waived only with the written consent of such holders of Securities. The rights of the holder of a Note may be waived only with the written consent of the holder of such Note. 12.7 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement or the Related Agreements, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on the Purchaser's part of any breach, default or noncompliance under this Agreement, the Notes or the Related Agreements or any waiver on such party's part of any provisions or conditions of the Agreement, a Note or the Related Agreements must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, the Notes or the Related Agreements, by law or otherwise afforded to any party, shall be cumulative and not alternative. 12.8 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address as set forth on the signature page hereof, with a copy to Kenneth S. Rose, Esq., Morse, Zelnick, Rose & Lander, Esq., 450 Park Avenue, Suite 902, New York, New York, facsimile number (212) 838-9190 and -26- to the Purchaser at the address set forth on the signature page hereto for such Purchaser, with a copy in the case of the Purchaser to Daniel M. Laifer, Esq., 152 West 57th Street, 4th Floor, New York, NY 10019, facsimile number (212) 541-4434, or at such other address as the Company or the Purchaser may designate by ten days advance written notice to the other parties hereto. 12.9 Attorneys' Fees. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including, without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 12.10 Titles and Subtitles. The titles of the sections and subsections of the Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 12.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 12.12 Broker's Fees. Each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker's or finder's fee or any other commission directly or indirectly in connection with the transactions contemplated herein, except as specified herein with respect to the Purchaser. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section 12.12 being untrue. 12.13 Indemnification. The Company shall indemnify the Purchaser for any losses or expenses incurred by the Purchaser in connection with any claims brought against the Purchaser by any third party (including any other stockholder of the Company) as a result of the transactions contemplated by this Agreement, other than for a breach of representation or warranty made by the Purchaser herein. 12.14 Construction. Each party acknowledges that its legal counsel participated in the preparation of this Agreement and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Agreement to favor any party against the other. -27- IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof. COMPANY: PURCHASER: INFINITE GROUP, INC. LAURUS MASTER FUND, LTD. By: /s/ Clifford G. Brockmyre II By: /s/ David Grin ------------------------------ ----------------------------------------- Name: Clifford G. Brockmyre II Name: David Grin, Director Title: Chairman Address: c/o Onshore Corporate Services Ltd. Address: 2364 Post Road P.O. Box 1234 G.T., Warwick, Rhode Island 02886 Queensgate House, South Church Street Grand Cayman, Cayman Islands EXHIBIT A SCHEDULE OF PURCHASERS - -------------------------------------------------------------------------------- Purchaser Closing Date Notes - -------------------------------------------------------------------------------- Laurus Master Fund, Ltd. $500,000 TOTAL $500,000 - -------------------------------------------------------------------------------- SCHEDULE OF WARRANT HOLDERS - -------------------------------------------------------------------------------- Name of Warrant Holder Number of Warrant Shares - -------------------------------------------------------------------------------- Laurus Master Fund, Ltd. 25,000 - -------------------------------------------------------------------------------- SCHEDULE OF FUND MANAGER'S FEE RECIPIENTS - -------------------------------------------------------------------------------- Fund Manager Closing Date Fund Manager's Fees - -------------------------------------------------------------------------------- Laurus Capital Management, L.L.C. $25,000 - -------------------------------------------------------------------------------- TOTAL $25,000 (5% of Closing) - -------------------------------------------------------------------------------- THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO INFINITE GROUP, INC., THAT SUCH REGISTRATION IS NOT REQUIRED. CONVERTIBLE NOTE FOR VALUE RECEIVED, INFINITE GROUP, INC., a Delaware corporation (hereinafter called the "Borrower"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o Onshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the "Holder") on order, without demand, the sum of Five Hundred Thousand Dollars ($500,000), with simple interest accruing at the annual rate of 5%, on June 21, 2004 (the "Maturity Date"). The following terms shall apply to this Note: ARTICLE I DEFAULT RELATED PROVISIONS 1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace period to pay any monetary amounts due under this Note, after which grace period a default interest rate of five percent (5%) per annum above the then applicable interest rate hereunder shall apply to the amounts owed hereunder. 1.2 Conversion Privileges. The Conversion Privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until the Note is paid in full. 1.3 Interest Rate. (a) Interest payable on this Note shall accrue at the annual rate of five percent (5%) and be payable and be payable in arrears commencing June 30, 2002 and on the last day of each month thereafter, and on the Maturity Date, accelerated or otherwise, when the principal and remaining accrued but unpaid interest shall be due and payable, or sooner as described below. (b) In addition to the interest rate set forth above in Section 1.3(a), an additional fee on this Note shall accrue at the annual rate of ten percent (10%) and be payable in arrears commencing June 30, 2002 and on the last day of each month thereafter, and on the Maturity Date, accelerated or otherwise, when the principal and accrued but unpaid interest shall be due and payable, or sooner as described below. Notwithstanding the foregoing, for every $50,000 in principal amount of the Note that the Holder actually converts into Common Stock, the annual rate of the additional fees payable as set forth in this subsection shall be reduced by 1% and shall be deemed the rate retroactive to the date hereof. In such event, any amounts already received by the Holder with respect to such additional fees shall be rebated to the Borrower. 1.4 Prepayment. All or any portion of this Note shall be prepayable at any time by the Borrower. ARTICLE II CONVERSION RIGHTS At any time during the term of this Note, the Borrower may deliver a written notification (the "Optional Conversion Notification") to the Holder setting forth the portion of the principal amount of the Note and/or interest due and payable (the "Investment Amount") that the Borrower authorizes the Holder to exercise its conversion rights with respect thereto, subject to the terms and provisions set forth below. Except (i) upon the occurrence of an Event of Default hereunder or (ii) in the event that the market price of the Borrower's Common Stock is greater than 125% of the Maximum Base Price (as defined below) for the three consecutive trading days prior to conversion, unless the Borrower delivers an Optional Conversion Notification to the Holder, the Holder will not be permitted to exercise its rights to convert any portion of the Note to Common Stock. 2.1. Conversion into the Borrower's Common Stock. (a) Subject to the Holder's receipt of an Optional Conversion Notification, as described above or following the occurrence of an Event of Default hereunder, the Holder shall have the right, but not the obligation, from and after the receipt of an Optional Conversion Notification or the occurrence of any Event of Default, as the case may be, and then at any time until this Note is fully paid, to convert the principal portion of this Note and/or interest due and payable set forth in each such Optional Conversion Notification or the entire principal portion of this Note and/or interest due and payable following the occurrence or an Event of Default, as the case may be, into fully paid and nonassessable shares of common stock of the Borrower as such stock exists on the date of issuance of this Note, or any shares of capital stock of the Borrower into which such stock shall hereafter be changed or reclassified (the "Common Stock") at the conversion price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon delivery to the Borrower of a Notice of Conversion as described in Section 8 of the Securities Purchase Agreement entered into between the Borrower and certain persons who are signatories thereto, including the Holder, relating to this Note (the "Purchase Agreement") of the Holder's written request for conversion (the date of giving such notice of conversion being a "Conversion Date"), the Borrower shall issue and deliver to the Holder within three business days from the Conversion Date that number of shares of Common Stock for the portion of the Note converted in accordance with the foregoing. At the election of the Holder, the Borrower will deliver accrued but unpaid interest on the Note through the Conversion Date directly to the Holder on or before the Delivery Date (as defined in the Purchase Agreement). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of the Note to be converted and interest, if any, by the Conversion Price. (b) Subject to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per share shall be $2.00 per share (the "Maximum Base Price"). If an Event of Default shall have occurred and be continuing hereunder then the Conversion Price shall be equal to the lower of (i) the Maximum Base Price or (ii) ninety percent (90%) of the average of the five lowest closing prices for the Common Stock on the on the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange, or New York Stock Exchange (whichever of the foregoing is 2 at the time the principal trading exchange or market for the Common Stock, the "Principal Market"), or on any securities exchange or other securities market on which the Common Stock is then being listed or traded, for the twenty two (22) trading days prior to but not including the Conversion Date. (c) The Maximum Base Price described in Section 2.1(b)(i) above, and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(a) and 2.1(b), shall be subject to adjustment from time to time upon the happening of certain events while this conversion right remains outstanding, as follows: A. Merger, Sale of Assets, etc. If the Borrower at any time shall consolidate with or merge into or sell or convey all or substantially all its assets to any other person or entity, this Note, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase such number and kind of shares or other securities and property as would have been issuable or distributable on account of such consolidation, merger, sale or conveyance, upon or with respect to the securities subject to the conversion or purchase right immediately prior to such consolidation, merger, sale or conveyance. The foregoing provision shall similarly apply to successive transactions of a similar nature by any such successor or purchaser. Without limiting the generality of the foregoing, the anti-dilution provisions of this Section shall apply to such securities of such successor or purchaser after any such consolidation, merger, sale or conveyance. B. Reclassification, etc. If the Borrower at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes, this Note, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change. C. Stock Splits, Combinations and Dividends. If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is paid on the Common Stock in shares of Common Stock, the Conversion Price shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of shares of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event. (d) During the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the full conversion of this Note. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. The Borrower agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note. 2.2 Method of Conversion. This Note may be converted by the Holder in whole or in part as described in Section 2.1(a) hereof and the Purchase Agreement. Upon partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of this Note and interest which shall not have been converted or paid. 3 ARTICLE III EVENT OF DEFAULT The occurrence of any of the following events of default ("Event of Default") shall, at the option of the Holder hereof, make all sums of principal and interest and other fees then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable, all without demand, presentment or notice, or grace period, all of which hereby are expressly waived, except as set forth below: 3.1 Failure to Pay Principal or Interest or other Fees. The Borrower fails to pay any installment of principal or interest or fees hereon or on any other promissory note issued pursuant to the Purchase Agreement, when due and such failure continues for a period of ten (10) days after the due date. 3.2 Breach of Covenant. The Borrower breaches any material covenant or other term or condition of this Note in any material respect and such breach, if subject to cure, continues for a period of ten (10) days after written notice to the Borrower from the Holder. 3.3 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein, in the Purchase Agreement, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be materially false or misleading. 3.4 Receiver or Trustee. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed. 3.5 Judgments. Any money judgment, writ or similar final process shall be entered or filed against the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of forty-five (45) days. 3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower, and, in the case of an involuntary case under any such bankruptcy laws, the Borrower shall have failed to have dismissed within thirty (30) days any such case. 3.7 Delisting. Delisting of the Common Stock from the Principal Market or such other principal exchange on which the Common Stock is listed for trading; or the Borrower's failure to comply with the conditions for listing. 3.8 Stop Trade. An SEC stop trade order or Principal Market trading suspension in the Conversion Shares. 3.9 Failure to Deliver Common Stock or Replacement Note. The Borrower's failure to timely deliver Common Stock to the Holder pursuant to and in the form required by this Note and Section 8 of the Purchase Agreement, or if required a replacement Note. 3.10 Registration Default. The occurrence of a Non-Registration Event as described in Section 9.4 of the Purchase Agreement. 3.11 Default Under Related Agreements. An Event of Default occurs under and as defined in any one or more of the following agreements which is not cured during any applicable cure or grace period: (a) the Security Agreement dated as of February 5, 2002 between Borrower and Holder or (b) the 4 Security Agreement dated as of February 5, 2002 between Holder and Infinite Photonics, Inc. ("Photonics"), as each such agreement may be amended, modified and supplemented from time to time. ARTICLE IV MISCELLANEOUS 4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. 4.2 Notices. Any notice herein required or permitted to be given shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Borrower at the address as set forth on the signature page to the Purchase Agreement executed in connection herewith and to the Holder at the address set forth on the signature page to the Purchase Agreement for such Holder, with a copy to Daniel M. Laifer, Esq., 152 West 57th Street, 4th Floor, New York, New York 10019, facsimile number (212) 541-4434, or at such other address as the Borrower or the Holder may designate by ten days advance written notice to the other parties hereto. A Notice of Conversion shall be deemed given when made to the Borrower pursuant to the Purchase Agreement. 4.3 Amendment Provision. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented. 4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may be assigned by the Holder. 4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys' fees. 4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state of New York. Both parties and the individual signing this Note on behalf of the Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Note. 4.7 Maximum Payments. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. 5 In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower. 4.8 Security Interest. The holder of this Note has been granted a security interest in the Borrower's assets as more fully described in a Security Agreement. 4.9 Construction. Each party acknowledges that its legal counsel participated in the preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Note to favor any party against the other. [THIS SPACE INTENTIONALLY LEFT BLANK] 6 IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its name by its Chief Executive Officer on this 21st day of June, 2002. INFINITE GROUP, INC. By: /s/Clifford G. Brockmyre II ---------------------------- Chairman WITNESS: /s/ Daniel Landi - ---------------------- 7 NOTICE OF CONVERSION (To be executed by the Holder in order to convert the Note) The undersigned hereby elects to convert $_________ of the principal and $_________ of the interest due on the Note issued by INFINITE GROUP, INC. on June __, 2002 into Shares of Common Stock of INFINITE GROUP, INC. (the "Company") according to the conditions set forth in such Note, as of the date written below. Date of Conversion:_____________________________________________________________ Conversion Price:_______________________________________________________________ Shares To Be Delivered:_________________________________________________________ Signature:______________________________________________________________________ Print Name:_____________________________________________________________________ Address:________________________________________________________________________ ________________________________________________________________________ THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO INFINITE GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase 25,000 Shares of Common Stock of Infinite Group, Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT No. 2002-2 Issue Date: June 21, 2002 INFINITE GROUP, INC., a corporation organized under the laws of the State of Delaware (the "Company"), hereby certifies that, for value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through five (5) years after such date (the "Expiration Date"), up to 25,000 fully paid and nonassessable shares of Common Stock (as hereinafter defined), $.001 par value per share, of the Company, at a purchase price of $2.40 per share (such purchase price per share as adjusted from time to time as herein provided is referred to herein as the "Purchase Price"). The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Infinite Group, Inc. and any corporation which shall succeed or assume the obligations of Infinite Group, Inc. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Stock, $.001 par value per share, as authorized on the date of the Securities Purchase Agreement referred to in Section 9 hereof, (b) any other capital stock of any class or classes (however designated) of the Company, authorized on or after such date, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even if the right so to vote has been suspended by the happening of such a contingency) and (c) any other securities into which or for which any of the securities described in (a) or (b) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of 8 or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. 1. Exercise of Warrant. 1.1. Number of Shares Issuable upon Exercise. From and after the date hereof through and including the Expiration Date, the holder hereof shall be entitled to receive, upon exercise of this Warrant in whole in accordance with the terms of subsection 1.2 or upon exercise of this Warrant in part in accordance with subsection 1.3, shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2. Full Exercise. This Warrant may be exercised in full by the holder hereof by delivery of an original or fax copy of the form of subscription attached as Exhibit A hereto (the "Subscription Form") duly executed by such Holder, to the Company at its principal office or at the office of its warrant agent (as provided hereinafter), accompanied by payment, in cash, wire transfer, or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock for which this Warrant is then exercisable by the Purchase Price (as hereinafter defined) then in effect. 1.3. Partial Exercise. This Warrant may be exercised in part (but not for a fractional share) by surrender of this Warrant in the manner and at the place provided in subsection 1.2 except that the amount payable by the holder on such partial exercise shall be the amount obtained by multiplying (a) the number of shares of Common Stock designated by the holder in the Subscription Form by (b) the Purchase Price then in effect. On any such partial exercise, the Company, at its expense, will forthwith issue and deliver to or upon the order of the holder hereof a new Warrant of like tenor, in the name of the holder hereof or as such holder (upon payment by such holder of any applicable transfer taxes) may request, the number of shares of Common Stock for which such Warrant may still be exercised. 1.4. Company Acknowledgment. The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.5. Trustee for Warrant Holders. In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrants pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2.1 Delivery of Stock Certificates, etc. on Exercise. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 7 days thereafter, the 2 Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct in compliance with applicable Securities Laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then closing price of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to Section 1 or otherwise. 3. Adjustment for Reorganization, Consolidation, Merger, etc. 3.1. Reorganization, Consolidation, Merger, etc. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2. Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of the Warrants after the effective date of such dissolution pursuant to this Section 3 to a bank or trust company having its principal office in New York, NY, as trustee for the holder or holders of the Warrants. 3.3. Continuation of Terms. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transaction described in this Section 3, then only in such event will the Company's securities and property (including cash, where applicable) receivable by the holders of the Warrants be delivered to the Trustee as contemplated by Section 3.2. 4. Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding 3 Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Purchase Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Purchase Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be increased to a number determined by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Purchase Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Purchase Price in effect on the date of such exercise. 5. Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrants, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 11 hereof). 6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial Statements. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. This Warrant entitles the holder hereof to receive copies of all financial and other information distributed or required to be distributed to the holders of the Company's Common Stock. 7. Assignment; Exchange of Warrant. Subject to compliance with applicable Securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") with respect to any or all of the Shares. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable Securities Laws, the Company at its expense but with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant or Warrants of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. 4 8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. Registration Rights. The Holder of this Warrant has been granted certain registration rights by the Company. These registration rights are set forth in a Securities Purchase Agreement entered into by the Company and Purchaser of the Company's 5% Convertible Notes (the "Notes") at or prior to the issue date of this Warrant. The terms of the Securities Purchase Agreement are incorporated herein by reference. Upon the occurrence of a Non-Registration Event as described in the Securities Purchase Agreement, in the event the Company is unable to issue Common Stock upon exercise of this Warrant that has been registered in the Registration Statement described in the Securities Purchase Agreement, within the time periods described in the Securities Purchase Agreement, which Registration Statement must be effective throughout the exercise period of this Warrant, then upon written demand made by the Holder, the Company will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a sum equal to the closing ask price of the Company's Common Stock on the Principal Market (as defined in the Securities Purchase Agreement) or such other principal trading market for the Company's Common Stock on the trading date immediately preceding the date notice is given by the Holder, less the Purchase Price, for each share of Common Stock designated in such notice from the Holder. 10. Maximum Exercise. The Holder shall not be entitled to exercise this Warrant on an exercise date, in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this proviso is being made on an exercise date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company on such date. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be limited to aggregate exercises which would result in the issuance of more than 4.99%. The restriction described in this paragraph may be revoked upon 75 days prior notice from the Holder to the Company or upon an Event of Default under the Notes. The Holder may allocate which of the equity of the Company deemed beneficially owned by the Subscriber shall be included in the 4.99% amount described above and which shall be allocated to the excess above 4.99%. 11. Warrant Agent. The Company may, by written notice to the each holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 12. Transfer on the Company's Books. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 5 13. Notices, etc. All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such holder or, until any such holder furnishes to the Company an address, then to, and at the address of, the last holder of this Warrant who has so furnished an address to the Company. 14. Voluntary Adjustment by the Company. The company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 15. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the laws of State of New York without regard to principles of conflicts of laws. Any action brought concerning the transactions contemplated by this Warrant shall be brought only in the state courts of New York or in the federal courts located in the state of New York. The individuals executing this Warrant on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. The Company acknowledges that legal counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Warrant to favor any party against the other party. [THIS SPACE INTENTIONALLY LEFT BLANK] 6 IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of the date first written above. INFINITE GROUP, INC. By: /s/ Clifford G. Brockmyre II --------------------------------- Chairman Witness: /s/ Daniel Landi - -------------------- 7 Exhibit A FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) TO: Infinite Group, Inc. The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ___ ________ shares of the Common Stock covered by such Warrant. The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ___ $__________ in lawful money of the United States; and/or ___ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a market value of $_______ per share for purposes of this calculation). The undersigned requests that the certificates for such shares be issued in the name of, and delivered to ____________________ whose address is ________________ ________________________________________________________. The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from registration under the Securities Act. Dated:___________________ ____________________________________ (Signature must conform to name of holder as specified on the face of the Warrant) ____________________________________ (Address) Exhibit B FORM OF TRANSFEROR ENDORSEMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of Infinite Group, Inc. to which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of Infinite Group, Inc. with full power of substitution in the premises. ================================================================================ Percentage Number Transferees Transferred Transferred - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ Dated: __________, _____ ___________________________________ (Signature must conform to name of holder as specified on the face of the warrant) Signed in the presence of: ___________________________ ___________________________________ (Name) (address) ___________________________________ ACCEPTED AND AGREED: (address) [TRANSFEREE] ___________________________ (Name) EX-10.(C) 7 d51283_ex10-c.txt SECURITIES PURCHASE AGREEMENT EXHIBIT 10-C AMENDMENT NO. 1 TO THE SECURITIES PURCHASE AGREEMENT This Amendment No. 1 to the Securities Purchase Agreement dated February 5, 2002 (the "Original Agreement") by and among Infinite Group, Inc., a Delaware corporation (the "Company"), and Laurus Master Fund, Ltd. (the "Purchaser") is made and entered into as of June 21, 2002. The Company and the Purchaser hereby amend the Original Agreement pursuant to Section 12.6 of the Original Agreement, as follows: 1. The introductory paragraph of Section 6.12 is hereby amended and restated in its entirety to read as follows: For so long as at least 20% of the aggregate principal amount of this Note and any other notes from the Company to the Purchaser are outstanding, the Company, without the prior written consent of the Purchaser, shall not: 2. Section 9.1(d) is hereby amended and restated in its entirety to read as follows: The Company shall use its reasonable commercial efforts to cause to be declared effective a Form S-3 registration statement (or such other form that it is eligible to use) within 75 days of June __, 2002 (the "Effective Date") in order to register the Conversion Shares and the Warrant Shares issued or issuable with respect to all Notes and Warrants to be issued hereunder (the "Registrable Securities") for resale and distribution under the Securities Act. The holder thereof shall provide the Company with such information as the Company reasonably requests. The Company will register not less than a number of shares of Common Stock in the aforedescribed registration statement that is equal to the Warrant Shares and 125% of the Conversion Shares issuable at the Conversion Prices set forth in the Notes, that would be in effect on the Closing Date or the date of filing of such registration statement (employing the conversion price which would result in the greater number of Shares). The Registrable Securities shall be reserved and set aside exclusively for the benefit of the Purchaser and the holders of the Warrants, as the case may be, and not issued, employed or reserved for anyone other than the Purchaser and the holders of the Warrants. Such registration statement will be promptly amended or additional registration statements will be promptly filed by the Company as necessary to register additional Company Shares to allow the public resale of all Common Stock included in and issuable by virtue of the Registrable Securities. 3. Section 9.4 is hereby amended and restated in its entirety to read as follows: Non-Registration Events. The Company and the Purchaser agree that the Seller will suffer damages if any registration statement required under Section 9.1(d) above is not declared effective by the SEC on or before the Effective Date, and maintained in the manner and within the time periods contemplated by Section 9 hereof, and it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if the registration statement on Form S-3 or such other form as described in Section 9.1(d) is not declared effective on or before the sooner of the Effective Date, or within five days of receipt by the Company of a communication from the SEC that the registration statement described in Section 9.1(d) will not be reviewed, or (ii) any registration statement described in Section 9.1(d) is filed and declared effective but shall thereafter cease to be effective (without being succeeded immediately by an additional registration statement filed and declared effective) for a period of time which shall exceed 30 days in the aggregate per year but not more than 20 consecutive calendar days (defined as a period of 365 days commencing on the date the Registration Statement is declared effective) (each such event referred to in this Section 9.4 is referred to herein as a "Non-Registration Event"), then, for so long as such Non-Registration Event shall continue, (i) the Company shall pay in cash as Liquidated Damages to each holder of any Registrable Securities an amount equal to two percent (2%) per month or part thereof during the pendency of such Non-Registration Event of the principal of the Notes issued in connection with the Offering, whether or not converted, then owned of record by such holder or issuable as of or subsequent to the occurrence of such Non-Registration Event and (ii) the Conversion Price as defined in Section 2.1 of the Notes shall be reduced by 10% for each 30-day period following the Effective Date that the Registration Statement is not declared effective by the SEC. Payments to be made pursuant to this Section shall be due and payable immediately upon demand in immediately available funds. In the event a Mandatory Redemption Payment is demanded from the Company by the holder pursuant to Section 8.2 of this Agreement, then the Liquidated Damages described in this Section 9.4 shall no longer accrue on the portion of the purchase price underlying the Mandatory Redemption Payment, from and after the date the holder receives the Mandatory Redemption Payment. It shall be deemed a Non-Registration Event to the extent that all the Common Stock included in the Registrable Securities and underlying the Securities is not included in an effective registration statement as of and after the Effective Date at the conversion prices in effect from and after the Effective Date. 4. Section 12.8 is hereby amended and restated in its entirety to read as follows: All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with 2 a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address as set forth on the signature page hereof, with a copy to Kenneth S. Rose, Esq., Morse, Zelnick, Rose & Lander, Esq., 450 Park Avenue, Suite 902, New York, New York, facsimile number (212) 838-9190 and to the Purchaser at the address set forth on the signature page hereto for such Purchaser, with a copy in the case of the Purchaser to Daniel M. Laifer, Esq., 152 West 57th Street, 4th Floor, New York, NY 10019, facsimile number (212) 541-4434, or at such other address as the Company or the Purchaser may designate by ten days advance written notice to the other parties hereto. 5. Except as otherwise provided herein, the Original Agreement shall in all other respects remain in full force and effect. 6. This Agreement may be executed in more than one counterpart with the same effect as if the parties executing the several counterparts had all executed one document. 7. This amendment shall be effective as of June 21, 2002. 3 IN WITNESS WHEREOF, the undersigned hereby execute this Amendment as a deed as of the date set forth above. Infinite Group, Inc. /s/ Clifford G. Brockmyre II - ------------------------------- Name: Clifford G. Brockmyre II Title: Chairman Laurus Master Fund, Ltd. /s/ David Grin - ------------------------------- Name: David Grin Title: Director 4 ALLONGE TO PROMISSORY NOTE DATED FEBRUARY 5, 2002 Reference is hereby made to the Note dated February 5, 2002 in the amount of $1,000,000 (the "Note") by and between Infinite Group, Inc., a Delaware corporation (the "Maker"), with principal offices located at 2364 Post Road, Warwick, Rhode Island 02886, and LAURUS MASTER FUND, LTD. (the "Payee"), residing at c/o Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands. Maker and Payee hereby agree to amend the Note in accordance with the following terms: 1. The Maximum Base Price, as defined in Section 2.1(b) shall be $2.00; 2. The introductory paragraph to Article II is hereby amended in its entirety to read as follows: At any time during the term of this Note, the Borrower may deliver a written notification (the "Optional Conversion Notification") to the Holder setting forth the portion of the principal amount of the Note and/or interest due and payable (the "Investment Amount") that the Borrower authorizes the Holder to exercise its conversion rights with respect thereto, subject to the terms and provisions set forth below. Except (i) upon the occurrence of an Event of Default hereunder or (ii) in the event that the market price of the Borrower's Common Stock is greater than 125% of the Maximum Base Price (as defined below) for the three consecutive trading days prior to conversion, unless the Borrower delivers an Optional Conversion Notification to the Holder, the Holder will not be permitted to exercise its rights to convert any portion of the Note to Common Stock. 3. Section 1.3 is hereby amended in its entirety to read as follows: (a) Interest payable on this Note shall accrue at the annual rate of five percent (5%) and be payable in arrears commencing June 30, 2002 and on the last day of each month thereafter (with the payment on June 30, 2002 to cover the period from April 1, 2002 through June 30, 2002), and on the Maturity Date, accelerated or otherwise, when the principal and remaining accrued but unpaid interest shall be due and payable, or sooner as described below. (b) In addition to the interest rate set forth above in Section 1.3(a), an additional fee on this Note shall accrue at the annual rate of ten percent (10%) and be payable in arrears commencing June 30, 2002 and on the last day of each month thereafter (with the payment on June 30, 2002 to cover the period from April 1, 2002 through June 30, 2002), and on the Maturity Date, accelerated or otherwise, when the principal and accrued but unpaid interest shall be due and payable, or sooner as described below. Notwithstanding the foregoing, for every $100,000 in principal amount of the Note that the Holder actually converts into Common Stock, the annual rate of the additional fees payable as set forth in this subsection shall be reduced by 1% and shall be deemed the rate retroactive to the date hereof. In such 5 event, any amounts already received by the Holder with respect to such additional fees shall be rebated to the Borrower. 4. There are no other modifications to the Note. INFINITE GROUP, INC. By: /s/ Clifford G. Brockmyre II ------------------------------------------- Name/Title: Clifford G. Brockmyre II/Chairman Dated: June 21, 2002 AGREED AND ACCEPTED: LAURUS MASTER FUND, LTD. By: /s/ David Grinn -------------------------- 6 ALLONGE TO WARRANT DATED FEBRUARY 5, 2002 Reference is hereby made to the Common Stock Purchase Warrant dated February 5, 2002 (the "Warrant") granting Laurus Master Fund, Ltd. ("Laurus") the right to purchase of 50,000 shares of common stock of Infinite Group, Inc., a Delaware corporation (the "Company"), with principal offices located at 2364 Post Road, Warwick, Rhode Island 02886. The Company and Laurus hereby agree to amend the Warrant in accordance with the following terms: 1. The Purchase Price, as defined in the Warrant, shall be $2.40; 2. There are no other modifications to the Warrant. INFINITE GROUP, INC. By: /s/ Clifford G. Brockmyre II ----------------------------------------- Name/Title: Clifford G. Brockmyre II/Chairman Dated: June 21, 2002 AGREED AND ACCEPTED: LAURUS MASTER FUND, LTD. By: /s/ David Grinn ------------------------- 1 EX-10.(D) 8 d51283_ex10-d.txt STOCK PURCHASE WARRANT EXHIBIT 10-D NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT. STOCK PURCHASE WARRANT To Purchase 200,000 shares of Common Stock of Infinite Group, Inc. THIS CERTIFIES that, for value received, Rosecrest Venture Capital (the "Holder"), is entitled upon the terms and subject to the conditions hereinafter set forth, at any time on or after April 15, 2002 (the "Initial Exercise Date") and on or prior to the close of business on April 14, 2005 (the "Termination Date") but not thereafter, to subscribe for and purchase from Infinite Group, Inc., a Delaware corporation (the "Company"), 200,000 share (the "Warrant shares") of Common Stock, $.001 par value, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $3.00. The Exercise Price and the number of shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in that certain Stock Purchase Agreement, dated April 15, 2002, between the Company and the Holder. In the event of a conflict between the terms of the Purchase Agreement and this Warrant, this Warrant shall control. 1. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. 2. Authorization of Shares. The Company covenants that all shares of Common Stock which may be issued upon the exercise of rights represented by this Warrant will, upon exercise of the rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). 3. Exercise of Warrant. Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date, and before the close of business on the Termination Date. Exercise of this Warrant or any part hereof shall be effected by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank, the holder of this Warrant shall be entitled to receive a certificate for the number of shares of Common Stock so purchased. Certificates for shares purchased hereunder shall be delivered to the holder hereof within five (5) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such Shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. Commencing on the 180th day after the Date above, if a Registration Statement covering the resale of the Warrant Shares is not then effective, this Warrant may also be exercised by means of a "cashless exercise" in which the holder shall be entitled to receive a certificate for the number of shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = the average of the high and low trading prices per share of Common Stock on the Trading Day preceding the date of such election; (B) = the Exercise Price of the Warrants; and (X) = the number of shares issuable upon exercise of the Warrants in accordance with the terms of this Warrant. 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share, which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the Exercise Price. 5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 2 6. Closing of Books. The Company will not close its shareholder books or records in any manner that prevents the timely exercise of this Warrant. 7. Transfer, Division and Combination. (a) Subject to compliance with any applicable securities laws, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of shares of Common Stock without having a new Warrant issued. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. 8. No Rights as Shareholder until Exercise. This Warrant does not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares so purchased shall be and be deemed to be issued to such holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant certificate or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, or indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 3 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 11. Adjustments of Exercise Price and Number of Warrant Shares. (a) Stock Splits, etc. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the holder of this Warrant shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which he would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the holder of this Warrant shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then Holder shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such 4 reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of shares of Common Stock for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 11. For purposes of this Section 11, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 11 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 12. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the holder of this Warrant notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. 13. Notice of Corporate Action. If at any time: (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company, then, in any one or more of such cases, the Company shall give to Holder (i) at least 30 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, 5 consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 15 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 16(d). 14. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the amount payable therefore upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (c) use all commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Upon the request of Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form reasonably satisfactory to Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. Before taking any action which would cause an adjustment reducing the current Exercise Price below the then par value, if any, of the shares of Common Stock issuable upon exercise of the Warrants, the Company shall take any corporate action which may be necessary 6 in order that the Company may validly and legally issue fully paid and non-assessable shares of such Common Stock at such adjusted Exercise Price. Before taking any action that would result in an adjustment in the number of shares of Common Stock for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 15. Miscellaneous. (a) Jurisdiction. This Warrant shall be binding upon any successors or assigns of the Company. This Warrant shall constitute a contract under the laws of New York without regard to its conflict of law principles or rules, and be subject to arbitration pursuant to the terms set forth in the Purchase Agreement. (b) Restrictions. The holder hereof acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. (c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company willfully fails to comply with any material provision of this Warrant, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. (d) Notices. Any notice, request or other document required or permitted to be given or delivered to the holder hereof by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. (e) Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of Holder hereof, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. (f) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 7 (g) Successors and Assigns. Subject to applicable securities law, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. (h) Indemnification. The Company agrees to indemnify and hold harmless Holder from and against any liabilities, obligations, losses, damages, penalties, actions, judgements, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against Holder in any manner relating to or arising out of any failure of the Company to perform or observe in any material respect any of its covenants, agreements, undertakings or obligations set forth in this Warrant: provided, however, that the Company will not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgements, suits, claims, costs, attorneys' fees, expenses or disbursements are found in a final non-appealable judgement by a court to have resulted from Holder's negligence, bad faith or willful misconduct in its capacity as a stockholder or warrantholder of the Company. (i) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. (j) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. (k) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: April 15, 2002 Infinite Group, Inc. By: /s/Clifford G. Brockmyre II ----------------------------------------- Clifford G. Brockmyre II, President & CEO 8 EX-10.(E) 9 d51283_ex10-e.txt AGREEMENT EXHIBIT 10-E AGREEMENT This Agreement, dated as of July 23, 2002 (the "Agreement"), is entered into by and between Infinite Group, Inc. a Delaware corporation (together with its successors and permitted assigns, the "Company"), and Cockfield Holdings Limited (together with its successors and permitted assigns, "Cockfield"). Recitals A. The Company and Cockfield are parties to that certain Private Equity Line of Credit Agreement, dated as of November 20, 2000, as amended (the "Purchase Agreement"). B. Pursuant to the Purchase Agreement, the Company issued Cockfield warrants to purchase 200,000 shares of the Company's Common Stock (the "Warrant"). C. Cockfield and the Company wish to terminate the Purchase Agreement and amicably resolve all matters pertaining to the Purchase Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Cockfield, intending to be legally bound, hereby agree as follows. 1. Termination and Release. The Purchase Agreement and the agreements entered into in connection therewith, and any amendments thereto, except as set forth in Section 6 hereunder, are hereby terminated, whereupon such agreements shall become void and of no further force and effect, and neither party shall have any legal liability to the other as a result of such termination, and that, except as set forth in Section 5 hereunder, each party shall be irrevocably, unconditionally and generally released and forever discharged (each, a "Releasee") from any and all debts, obligations, reckonings, promises, covenants, agreements, contracts, endorsements, bonds, suits, actions, specialties, claims, controversies, causes of action, defaults, demands or judgments, at law or in equity, which any of such parties ever had, now has or hereafter can, shall or may have, against such Releasee under or in connection with the transactions contemplated by the Purchase Agreement. 2. Representations and Warranties. Each party to this Agreement hereby represents and warrants to the other that (x) it has the requisite corporate and other authority to enter into, deliver and fulfill its obligations under this Agreement and each other document delivered by it in connection herewith, (y) that each of this Agreement and each other document to which it is a party that is delivered to the other party hereto has been duly authorized and executed by such party and, when delivered to the other party, will be its legal and binding obligation, enforceable against it in accordance with its terms. 3. The Warrant. All of the terms, provisions and conditions of the Warrants shall remain in full force and effect. 4. Admissions; Press Releases. Neither party hereto will issue any press release or make any other public announcement relating to this Agreement unless the content thereof is mutually agreed by both parties, or if such party is advised by its counsel that such press release or public announcement is required by law, in which case the party making such statement shall endeavor to provide the other party with a copy of such statement prior to its public release. This Agreement and any payments made or documents delivered pursuant hereto are not an admission or concession by either party or any of their respective affiliated entities, predecessors, officers, employees, agents, advisors, representatives, successors or assigns of any liability, fault, wrongdoing, or illegal acts or omissions. Neither party or its agents shall directly or indirectly make any oral or written statements that either party or any of their respective affiliated entities, predecessors, officers, employees, advisors, agents, or representatives, successors or assigns have made or implied any such admission or concession. 5. Survival of Certain Provisions of the Purchase Agreement. It is understood and agreed that the provisions of Article 7 and Section 8.9 of the Purchase Agreement, the Warrant, Sections 6 and 7 of the registration rights agreement entered into in connection with the Purchase Agreement (the "Registration Rights Agreement") and any provisions of the Registration Rights Agreement as they pertain to the shares of the Company's common stock underlying the Warrant shall survive the execution of this Agreement and continue in full force and effect solely with respect to the Registration Statement. 6. Miscellaneous. (a) The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, except in a writing executed by each of the Company and Cockfield. No waiver of any term of this Agreement shall be effective except if contained in a writing by the party against whom such waiver is to be enforced, and no such waiver shall be a continuing waiver or extend to any additional matters or further events, each of which must be addressed in a separate writing. 2 (b) All notices or other communications or deliveries under this Agreement shall be in writing, addressed to a party in accordance with the information set forth by such party on its signature page to this Agreement, or such other address as such party may hereafter indicate in a writing to the other, given in accordance with this provision. All notices and other communications shall be deemed to given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile on a business day, (ii) the business day after the date of transmission, if such notice or communication is delivered via facsimile on a day that is not a business day, (iii) the business day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is given. (c) A party may not assign its obligations under this Agreement without the prior written consent of the other party. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties. This Agreement is intended for the benefit of and may only be enforced by Cockfield and the Company and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person or entity. (d) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. (e) This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of this Agreement and the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) (each a "Proceeding") shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan (the "New York Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for all Proceedings, and hereby irrevocably waives, and agrees not to assert in any such Proceeding, any claim that it is not personally subject to the jurisdiction of any of the New York Courts, or that such Proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and 3 consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the other documents delivered in connection herewith. If either party shall commence a Proceeding to enforce any provisions of this Agreement, then the prevailing party in such Proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding. (f) The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. (g) If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. (h) This Agreement, together with the Annexes hereto, contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and its Annexes. *********************** 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of this 23rd day of July, 2002. INFINITE GROUP, INC. By: /s/ Clifford G. Brockmyre II ---------------------------------- Name: Clifford G. Brockmyre II Title: Chairman COCKFIELD HOLDINGS LIMITED By: /s/ David Sims ---------------------------------- Name: David Sims Title: Director 5 EX-10.(F) 10 d51283_ex10-f.txt AMENDMENT AND RESTATED EXHIBIT 10-F AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT THIS AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT (this "Agreement") is entered into as of November 14, 2001 between INFINITE GROUP, INC., a Delaware corporation, (the "Company"), and GENEVIEVE M. LAZZARA, as EXECUTRIX of THE ESTATE OF RALPH P. LAZZARA (the "Purchaser"). WHEREAS, on April 16, 1999, the Company issued a promissory note in the principal amount of $828,000 (the "Note") to Ralph P. Lazzara ("Ralph") and Ralph died on March 7, 2000 and the Purchaser succeeded to Ralph's ownership of the Note; and. WHEREAS, by check dated June 9, 2000, the Company paid the Purchaser $342,240 representing principal of $276,000 and interest of $66,240 that had been due on the Note on April 16, 2000; and WHEREAS, accordingly, the principal balance of the Note has been reduced from $828,000 to $552,000 which remains outstanding as of the date hereof; and WHEREAS, as of the date hereof there is due under the Note (i) the principal amount of $552,000, (ii) interest due on April 16, 2001 of $44,160, (iii) interest calculated at 8% on (i) and (ii) above for the 259 days ending December 31, 2001 of $33,842.27 and (iv) interest of $4,060 on the amount due on April 16, 2000 and actually paid on June 9, 2000, or an aggregate of $634,062.27; and WHEREAS, as guarantor of the obligations of its subsidiary, Osley & Whitney, Inc. ("O&W"), under a Consulting Agreement dated April 16, 1999 with Ralph (the "Consulting Agreement"), the Company is obligated to the Purchaser for the sum of $94,444.91 for consulting fees now due, overdue, or to become due through April 16, 2002; and WHEREAS, the Purchaser has incurred or will have incurred approximately $15,000 of legal fees and $15,000 of other related expenses in connection with collection of amounts due under the Note which the Company is obligated to reimburse pursuant to the terms of the Note (the "Legal Fees"). (The sum of the amount due under the Note, the Consulting Agreement and the Legal Fees equaling $758,507.18, is hereafter referred to as the "Indebtedness".) WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, securities of the Company as more fully described in this Agreement. NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agree as follows: ARTICLE I PURCHASE AND SALE 1.1 Closing. Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase from the Company, 379,253 shares (the "Purchased Shares") of the Company's common stock par value $.001 per share ("Common Stock") for an aggregate purchase price of $758,507.18. Such purchase price shall be paid by conversion of the Note and cancellation of the Indebtedness. 332,031 of the Purchased Shares shall be issued upon conversion of the Note (the "Note Conversion Shares") and 47,222 of the Purchased Shares shall be issued in full payment of the amounts due under the Consulting Agreement (the Consulting Fee Shares"). The Closing shall take place at the offices of Purchaser's Counsel on January 4, 2002 at 11:00 am, or at such other location as the parties may agree. Time shall be of the essence with respect to the date and time of the Closing. 1.2 Closing Deliveries. (a) Within five business days after the Closing, the Company shall deliver or cause to be delivered to the Purchaser one or more stock certificates evidencing the Purchased Shares registered in the name of the Purchaser; and (b) At the Closing, the Purchaser shall deliver or cause to be delivered to the Company the original Note. ARTICLE II REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to the Purchaser: (a) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder. The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Company. This Agreement has been duly executed by the Company and, constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms. (b) Issuance of the Securities. The Purchased Shares are duly authorized and, when issued in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable. 2 (c) SEC Reports; Financial Statements. The Company has filed all reports required to be filed by it under the Securities Act of 1933, as amended (the "Securities Act") and the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (the foregoing materials, together with all exhibits thereto, being collectively referred to herein as the "SEC Reports") on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports complied in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved ("GAAP"), except as may be otherwise specified in such financial statements or the notes thereto, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. (d) Form S-3 Eligibility. The Company is eligible to register its Common Stock for resale by the holders thereof under Form S-3 promulgated under the Securities Act. 2.2 Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company as follows: (a) Authority. This Agreement has been duly executed by the Purchaser, and constitutes the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms. (b) Investment Intent. The Purchaser is acquiring the Purchased Shares as principal for its own account for investment purposes only. (c) Purchaser Status. The Purchaser is an "accredited investor" as defined in Rule 501(a) under the Securities Act. (d) Experience. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the Purchased Shares. (e) Reliance. The Purchaser understands and acknowledges that (i) the Purchased Shares are being offered and sold to it without registration under the Securities Act in a private 3 placement that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption depends in part on, and the Company will rely upon the accuracy and truthfulness of, the foregoing representations and the Purchaser hereby consents to such reliance. ARTICLE III OTHER AGREEMENTS OF THE PARTIES 3.1 Transfer Restrictions. (a) The Purchased Shares may only be disposed of pursuant to an effective registration statement under the Securities Act, to the Company or pursuant to an available exemption from or in a transaction not subject to the registration requirements of the Securities Act, and in compliance with any applicable state securities laws. (b) The Purchaser agrees to the imprinting, of a legend on the certificates evidencing the above mentioned transfer restrictions. 3.2 Release. In consideration of the delivery of the Purchased Shares and the other obligations of the Company hereunder, the Purchaser and its successors and assigns (collectively, the "Releasor") hereby release and discharge O&W and the Company and their respective affiliates, successors and assigns (collectively, the "Releasee"), from all known and unknown actions, causes of action, suits, debts, dues, sums of money, accounts, bonds, bills, covenants, contracts, controversies, agreements, promises, trespasses, damages, judgments, executions, claims, and demands whatsoever, in law, admiralty or equity, (collectively "Claims") which against the Releasee, the Releasor and Releasor's affiliates ever had, now have or hereafter can, shall or may, have for, upon, or by reason of any matter, cause or thing whatsoever from the beginning of the world to the day of the date of this Release and for which Releasee would otherwise be liable. Notwithstanding the foregoing, (a) the obligations of the Company contained herein shall survive the execution and closing hereunder until fully discharged by the Company, and (b) the obligation of O&W to pay Ralph an amount up to $50,000 as reflected on O&W's books and records shall survive the execution and closing hereunder. ARTICLE IV REGISTRATION OF AND SALE OF PURCHASED SHARES 4.1 Shelf Registration. On or prior to September 15, 2002, the Company shall prepare and file with the Securities and Exchange Commission a Registration Statement covering the resale of the Consulting Fee Shares by the Purchaser for an offering to be made on a continuous basis. The Registration Statement shall be on Form S-3 or any successor form. The Company shall use its reasonable best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, and shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act until December 31, 2003. 4 4.2 Registration Procedures. In connection with the Company's registration obligations hereunder, the Company shall: (a) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement continuously effective until December 31, 2003; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible, and in any event within ten business days, to any comments received from the Commission with respect to the Registration Statement or any amendment thereto. (b) Notify the Purchaser as promptly as reasonably possible, of any of the following events: (i) the Commission notifies the Company whether there will be a "review" of the Registration Statement; (ii) the Registration Statement or any post-effective amendment is declared effective; (iii) the Commission or any other Federal or state governmental authority requests any amendment or supplement to a Registration Statement or Prospectus or requests additional information related thereto; (iv) the Commission issues any stop order suspending the effectiveness of the Registration Statement or initiates any Proceedings for that purpose; (v) the Company receives notice of any suspension of the qualification or exemption from qualification of any the Purchased Shares for sale in any jurisdiction, or the initiation or threat of any Proceeding for such purpose. (c) Promptly deliver to the Purchaser, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as the Purchaser may reasonably request. (d) The Company may require the Purchaser to furnish to the Company information regarding such Purchaser and the distribution of such Purchased Shares as is required by law to be disclosed in the Registration Statement; and the Purchaser shall furnish any such information to the Company. 4.3 Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Purchased Shares are sold pursuant to the Registration Statement. 4.4 Indemnification by the Company. The Company shall indemnify and hold harmless the Purchaser to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs and expenses (collectively, "Losses"), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent that such untrue statements or omissions are based solely upon information regarding such Purchaser furnished in writing to the Company by such Purchaser expressly for use therein. 5 4.5 Indemnification by Purchaser. The Purchaser shall indemnify and hold harmless the Company, its directors, officers, agents and employees, and each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising out of or based upon any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising out of or based upon any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Purchaser to the Company specifically for inclusion in such Registration Statement or such Prospectus. 4.6 Manner of Sale. (a) Purchaser agrees that in connection with the sale of the Purchased Shares, except as otherwise agreed to in writing by the Company, (i) the maximum number of Purchased Shares which may be sold on the NASDAQ Small Cap Market or a subsequent market or exchange on which the shares are listed and/or traded (the "NSCM") on any day shall be equal to twenty-five percent (25%) of the average of the number of shares of Common Stock traded on the NSCM for the seven trading days preceding such sale, and (ii) any Purchased Shares which are sold in a transaction not on the NSCM will be sold at a price per share which is greater than 80% of the average of the closing price of a share of Common Stock on the NSCM for the seven trading days preceding such sale. Notwithstanding the foregoing, in the event that the average of the closing bid and ask on the NSCM is less than $1.00 for five consecutive trading days then the volume restrictions set forth in subsection (i) above shall no longer be applicable. (b) Subject to the provisions of Section 4.6(a), the Purchaser agrees to use its reasonable best efforts to sell the Purchased Shares prior to January 31, 2003. ARTICLE IV MISCELLANEOUS 5.1 Fees and Expenses. Each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. 5.2 Entire Agreement. This Agreement and the other agreements referred to herein contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents. 5.3 Notices. All notices, requests, demands and other communications which are required to be or may be given under this Agreement by any party to any of the other parties shall be in writing and shall be deemed to have been duly given when delivered in person, the day following dispatch by an overnight courier service (such as Federal Express or UPS, etc.) or five (5) days after 6 dispatch by certified or registered first class mail, postage prepaid, return receipt requested, to the party to whom the same is so given or made: If to the Company: Infinite Group, Inc. 2364 Post Road Warwick, RI 02886 Attn: Clifford G. Brockmyre, II With a copy to: Morse, Zelnick, Rose & Lander, LLP 450 Park Avenue, Suite 902 New York, NY 10022 Attn: Kenneth S. Rose, Esq. If to the Purchaser: Gary E. Martinelli & Associates, P.C. 1500 Main Street, Suite 912 Springfield, MA 01115 Attn: Gary E. Martinelli, Esq. or such other address as may be designated in writing hereafter, in the same manner, by such Person. 5.4 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. 5.5 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 5.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser. 5.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person or entity. 5.8 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. 5.9 Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. 7 5.10 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. INFINITE GROUP, INC. By: /s/ Clifford G. Brockmyre II ----------------------------------- Clifford G. Brockmyre II, President THE ESTATE OF RALPH P. LAZZARA By: /s/ GENEVIEVE M. LAZZARA ----------------------------------- GENEVIEVE M. LAZZARA, as EXECUTRIX 8 EX-10.(G) 11 d51283_ex10-g.txt ASSET PURCHASE AGREEMENT EXHIBIT 10-G ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT ("this Agreement") is made as of March 13, 2002 among EXPRESS PATTERN, INC., a Delaware corporation ("Seller"), INFINITE GROUP, INC., a Delaware corporation ("Infinite"), EXPRESS PATTERN, INC., an Illinois corporation ("Buyer") and THOMAS MUELLER of East Greenwich, Rhode Island and DAVID FLYNN of Barrington, Illinois (each a "Shareholder" and together, the "Shareholders"). BACKGROUND Seller is engaged in the business of providing stereolithography and thermoject based rapid prototyping services to the metal casting and other industries. Seller wishes to sell, and Buyer wishes to acquire, substantially all of the assets and properties of Seller. Infinite is the owner of all of the issued and outstanding capital stock of Seller, and the Shareholders are the owners of all of the issued and outstanding capital stock of Buyer. NOW THEREFORE, in consideration of the mutual promises contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I PURCHASE AND SALE OF ASSETS Section 1.1 Assets to be Purchased and Sold. Description of Assets. At the Closing (defined below), Seller shall sell and convey to Buyer, and Buyer shall purchase and acquire from Seller, all of the business and tangible and intangible assets of Seller existing and owned by Seller on the Closing Date (defined below) other than the Excluded Assets (defined below). The assets of Seller to be purchased hereunder (which exclude the Excluded Assets) are referred to as the "Purchased Assets". The Purchased Assets shall include without limitation all goodwill and the following assets and property, and all additions thereto, less dispositions in the ordinary course of business and permitted under this Agreement, before the Closing Date: (a) all inventories, furniture and equipment and other tangible personal property, (the "Equipment"), including, without limitation, the items of Equipment described in Exhibit 1.1(a); (b) all rights under the contracts, leases and agreements described or referred to in Exhibit 1.1(b) hereto (the "Operating Agreements"), true and correct copies of which are being delivered to Buyer concurrently with the Agreement; (c) all intellectual properties, including, without limitation, trade secrets, trademarks, trade names, copyrights, Internet domain names and other rights or registrations, including the name "Express Pattern" (the "Name") (collectively, the "Intellectual Property"); (d) all executory or continuing agreements and other contracts or commitments for the sale of Seller's goods and services of products entered into in the ordinary course of Seller's business ("Customer Orders"); (e) all lists and records relating to Seller's business, including lists and records of Seller's present and former customers, vendors, suppliers, and customers; and (f) all cash, cash equivalents, accounts receivable, deposits and similar property. 1.2 Excluded Assets. The Purchased Assets shall not include the following assets of Seller existing on the Closing Date (the "Excluded Assets"): (a) claims and rights to federal, state and local income tax refunds, credits and benefits (the "Tax Benefits"); (b) insurance policies and insurance or other deposits for which Buyer will receive no benefit; (c) Seller's corporate charter, original minute and stock record books, tax returns and other documents relating to the organization and existence of Seller as a corporation; (d) the assets and properties listed in Exhibit 1.2(d); and (e) all claims, causes of action, chooses in action, rights of necessary and rights of set-off of any kind against any person or entity on account of, arising out of or related to the Excluded Assets described above or damages incurred by Seller prior to the Closing Date. ARTICLE II LIMITED ASSUMPTION OF LIABILITIES Section 2.1 Assumption of Liabilities. At the Closing, Buyer shall assume and be responsible for performance of (a) the obligations of Seller under the Operating Agreements and Customer Orders in existence on the Closing Date and (b) all trade accounts payable of Seller as of the Closing Date, including the trade accounts payable listed in Exhibit 2.1, except to the extent paid prior to the Closing. The obligations assumed by Buyer pursuant to the Section 2.1 are called the "Assumed Liabilities". 2 Section 2.2 Excluded Liabilities. Apart from the Assumed Liabilities, Buyer will neither assume nor have any responsibility for any obligations, liabilities or indebtedness of Seller of any kind. All such obligations, liabilities and indebtedness of Seller, except the Assumed Liabilities, are referred to as the "Excluded Liabilities". ARTICLE III PURCHASE PRICE AND PAYMENT Section 3.1 Purchase Price. In addition to the assumption of the Assumed Liabilities, Buyer shall pay Seller an amount equal to $675,000 (the "Closing Payment"). The Closing Payment shall be made (a) by the delivery of Buyer's promissory note in the principal amount of $100,000 (the "Note") bearing interest at 8% per annum, payable, as to interest, quarterly in arrears, and as to principal on March 31, 2005 anniversary of the Closing Date, and (b) $575,000 by wire transfer of immediately available funds on the Closing Date to an account designated by Seller. The Note shall otherwise be in form and substance, and shall contain subordination provisions, in each case reasonably acceptable to Seller and Buyer. The amount payable for the Purchased Assets is referred to as the "Purchase Price." Section 3.2 Allocation of Purchase Price. The Purchase Price will be allocated between Seller and among the Purchased Assets as set forth on Exhibit 3.2, which allocation shall be within classes or categories as provided in Section 1060 of the Internal Revenue Code of 1986, as amended. Each of Buyer and Seller agrees that it will adopt and utilize the amounts so allocated for purposes of all federal, state and other tax returns filed by it and it will not voluntarily take any position inconsistent with such allocation upon examination of any such tax return, in any claim, in any litigation or otherwise with respect to such tax returns. The provisions of this Section 3.2 shall survive the Closing Date without limitation. ARTICLE IV CLOSING Section 4.1 Closing; Closing Date. The Closing of the purchase and sale of the Purchased Assets provided in this Agreement (the "Closing") shall take place at the offices of Infinite, 2364 Post Road, Warwick, Rhode Island 02886 concurrently with the execution and delivery of this Agreement. The time and the date of Closing are referred to as the "Closing Date". ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER To induce Buyer to enter into this Agreement and to purchase the Purchased Assets, Seller represents and warrants to Buyer that, except to the extent otherwise within the actual knowledge of any of Buyer and the Shareholder: Section 5.1 Corporate Organization and Authority. Seller is a corporation duly organized and validly existing in good standing under the laws of Delaware with full corporate power and authority to conduct its business as now conducted, to own its assets and enter into 3 and perform its obligations under this Agreement. Seller's execution, delivery and performance of this Agreement and the sale to Buyer of the Purchased Assets have been duly authorized by all requisite corporate action on the part of Seller. This Agreement constitutes, and all bills of sale, assignments, agreements and other instruments and documents to be executed and delivered by Seller hereunder will constitute, Seller's legal, valid and binding obligations, enforceable against Seller in accordance with their respective terms. Section 5.2 Subsidiaries and Foreign Qualification. Seller has no subsidiaries and no other equity investments in any other corporation, partnership or other business entity. Except as set forth in Exhibit 5.2, Seller is duly qualified to transact business as a foreign corporation in each jurisdiction in which the failure to qualify would have a material adverse affect on Seller. Section 5.3 Absence of Conflicts and Consent Requirements. Except as set forth in Exhibit 5.3, Seller's execution and delivery of this Agreement and performance of its obligations hereunder will not (a) conflict with, violate or result in any breach or default or, with notice or lapse of time constitute a default, under (i) Seller's Certificate of Incorporation or Bylaws, or (ii) any mortgage, indenture, agreement, instrument or other contract to which Seller is a party or by which Seller or its property is bound, (b) result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any assets or properties of Seller, or (c) violate any judgment, order, decree, law, statute, regulation or other judicial or governmental restriction to which Seller or any of its assets is subject or by which it is bound. Except as set forth in Exhibit 5.3 hereto, Seller's execution and delivery of this Agreement and performance of its obligations hereunder, including the sale of the Purchased Assets, will not require the consent of, or any prior filing with or notice to, any governmental authority, lender or other third party, and any such consent, filing or notice will be received or delivered, as the case may be, on or prior to the Closing Date. Section 5.4 Financial Statements. Immediately following the execution and delivery of this Agreement, Seller shall deliver to Buyer, to be attached hereto as Exhibit 5.4, a true and correct copy of Seller's balance sheet as of December 31, 2001 and Profit and Loss Statement for the year then ended (the "Financial Statement"). The Financial Statement (a) present fairly the financial position of Seller at December 31, 2001, and for the year then ended (b) have been prepared in accordance with GAAP consistently applied subject to normal adjustment and (c) show all material liabilities, absolute and contingent, of Seller required to be shown as of such date by generally accepted accounting principles ("GAAP"). Section 5.5 Absence of Certain Changes. Since the date of the Financial Statement, there has not been any material adverse change in the financial position of Seller or in the results of its operations or to its assets, properties or business. Section 5.6 Title to Assets. (a) Contract Rights. The rights of Seller under the Operating Agreements and the Customer Orders are valid and enforceable by Seller and will, at the Closing, be validly assigned to and thereupon enforceable by Buyer, in each case in accordance with their 4 respective terms. Neither Seller nor any of the other parties thereto is in default in any material respect (nor is Seller aware of any circumstance which, with notice or the passage of time or both, would result in such a default) under any of the Operating Agreements or Customer Orders, and the assignment by Seller of its rights thereunder to Buyer will not violate the terms thereof. (b) Purchased Assets. Seller has good and marketable title to the Purchased Assets, free and clear of all liens, claims, security interests and encumbrances other than those set forth on Exhibit 5.6(b) (the "Permitted Encumbrances") and has the right to convey the Purchased Assets to Buyer. At the Closing, Seller shall have conveyed to Buyer good and marketable title to the Purchased Assets free and clear of all liens, claims, security interests and encumbrances other the Permitted Encumbrances, and Seller will warrant and defend the title to the Purchased Assets in Buyer against the lawful claims of all persons whomsoever, subject to the Permitted Encumbrances. Section 5.7 Loss Contingencies. Except as set forth in Exhibit 5.7, there are no claims, actions, suits or other proceedings pending, or to the knowledge of Seller threatened, against Seller or any of the Purchased Assets before any court, agency or other judicial, administrative or other governmental body or arbitrator, and to Seller's knowledge, no state of facts exists which would be likely to give rise to any such claim, action, suit or other proceeding, in each case which, if adversely determined, would have a material adverse affect on the Purchased Assets or Seller's ability to perform its obligations under this Agreement. Section 5.8 Compliance With Law. Except as set forth in Exhibit 5.8, Seller has complied in all material respects with, and is in compliance in all material respects with, all laws, statutes, regulations, rules and other requirements of any governmental authority applicable to Seller, its assets and properties and the conduct of its business. The permits and licenses (the "Licenses") listed in Exhibit 5.8 are the only licenses, permits or authorizations of any governmental authority required in connection with Seller's business. All of the Licenses are in full force and effect. Section 5.9 Taxes. (a) Returns and Payment of Taxes. All Federal, state and local income, excise or franchise tax returns, real estate and personal property tax returns, sales and use tax returns and all other tax returns required to be filed on or prior to the Closing Date by Seller with all taxing authorities have been or prior to the Closing Date will have been filed. All amounts shown to be due and payable on such returns, all other taxes, duties and other governmental charges payable by Seller or imposed upon any of the Purchased Assets and for the payment of which there may arise any lien upon the Purchased Assets sold hereunder subsequent to such sale, and all deficiencies, assessments, penalties and interest with respect thereto, in each case due and payable on or before the Closing Date, have been or prior to the Closing Date will have been paid. (b) Sales, Use and Excise Taxes. All sales, use and excise taxes collectible with respect to all transactions connected with Seller's business through the Closing Date have 5 been or will be collected, all amounts due in connection therewith to state and local revenue authorities have been or will be remitted to the appropriate authorities, and no lien or claim with respect thereto will be asserted by such authorities before or after the Closing Date. (c) Withholding of Taxes. There has been withheld or collected from each payment made to each employee of Seller the amount of all taxes (including without limitation federal income taxes, Federal Insurance Contributions Act taxes, and state and local income, payroll and wage taxes) required to be withheld or collected therefrom prior to the date hereof and the same have been or will be paid to the proper tax depositories or collecting authorities. Seller shall withhold, collect and pay all such amounts required during the period ending the Closing Date. Section 5.10 Employee Benefit Plans. Buyer, by reason of the transactions contemplated by this Agreement, will not incur any claims, losses, damages, costs, and expenses with respect to or in connection with any pension, welfare, fringe, or other employee benefit plan maintained or contributed to by Seller or any predecessor that provides or provided benefits to any current or former employees or other parties who performed services for Seller (or their beneficiaries or dependents). Section 5.11 Employee Relations. To Seller's knowledge, no officer or employee of Seller is subject to any agreement with any other person or entity which requires such officer or employee to keep confidential any trade secrets, proprietary data, customer lists or other business information or which restricts such officer or employee from engaging in competitive activities or solicitation of customers. Section 5.12 Prospective Changes. Except as described in Exhibit 5.12 hereto, Seller knows of no impending changes in its business, assets, liabilities, relations with employees, competitive situation or relations with its suppliers or customers, or in any governmental actions or regulations affecting Seller's business, which, if they occur, could have a material adverse effect on Seller or its business or assets. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER To induce Seller to enter into this Agreement and to sell the Purchased Assets, Buyer hereby represents and warrants to the Seller that: Section 6.1 Corporate Organization and Authority. Buyer is a corporation duly organized and validly existing in good standing under the laws of Illinois, with full corporate power and authority to conduct its business as now conducted and to enter into and perform its obligations under this Agreement. Buyer's execution, delivery and performance of this Agreement, the Note and the other documents and agreements contemplated hereby have been duly authorized by all requisite corporate action on the part of Buyer. This Agreement constitutes, and the Note and all other agreements and instruments and documents to be executed and delivered by Buyer hereunder will constitute, Buyer's legal, valid and binding obligations, enforceable against Buyer in accordance with their respective terms. 6 Section 6.2 Absence of Conflicts and Consent Requirements. Buyer's execution and deliver of this Agreement and performance of its obligations hereunder, including the purchase of and payment for the Purchased Assets hereunder, do not and will not conflict with, violate or result in any breach or default or, with notice or lapse of time, or both, constitute a default, under Buyer's Articles of Incorporation or Bylaws or any mortgage, indenture, agreement, instrument or other contract to which Buyer is a party or any judgment, order, decree, law, statute, regulation or other judicial or governmental restriction to which Buyer is subject. Buyer's execution and delivery of this Agreement and performance of its obligations hereunder, including the purchase of and payment for the Purchased Assets, do not and will not require the consent of, or any prior filing with or notice to, any governmental authority or other third party. ARTICLE VII CERTAIN COVENANTS AND AGREEMENTS Section 7.1 Conduct Prior to Closing. (a) Ordinary Course of Business. Through the Closing Date, unless Buyer otherwise, consents in writing, Seller will not and will not take any action which would cause any representation or warranty made in Article V hereof to be incorrect in any material respect if such representation or warranty were made on any date from the date hereof through the Closing Date. (b) Access. Through the Closing Date, Seller shall give Buyer and its agents, attorneys and representatives full access to such of its properties, books, records and documents as Buyer may reasonably request. Until the Closing, Buyer shall not disclose and shall cause its agents, attorneys and representatives not to disclose to any other party any confidential data or information secured from Seller, and, if the Closing does not occur as herein provided, Buyer will promptly return to Seller, at Buyer's expense, all books records and other documents and papers obtained from Seller and all copies thereof. (c) Press Releases and Announcements. Through the Closing Date, Buyer and Seller will cooperate in the preparation and dissemination of any press releases, announcements and other disclosures to others relating to the transactions contemplated hereby, and neither party shall make any such press releases, announcements or other disclosures, without the prior written consent of the other party; provided, however, that this section shall not preclude either party from making any disclosure as to the transactions contemplated hereby which the disclosing party reasonably believes is required by applicable law or is necessary in order to obtain any third-party consent or approval to the transactions contemplated by this Agreement. Section 7.2 Change of Name. Concurrently with or promptly after the Closing, Seller will take all action necessary to enable Buyer exclusively to use the Name as a corporate name in Illinois and Delaware, and at the Closing shall deliver to Buyer all documents necessary to accomplish the foregoing. 7 Section 7.3 Seller's Employees. Seller shall give such notice to its employees and to all governmental authorities, as required by applicable law, of the sale of its assets to Buyer under this Agreement on or prior to the Closing Date. Seller shall remain liable to such employees for all wages, salaries, vacation, sick and severance pay and all other benefits accruing to its employees prior to and including the Closing Date. Buyer shall not, under any circumstances, become obligated for any such payments or for any notices or other obligations under applicable law. Concurrently with the Closing, Buyer shall offer employment to Seller's employees on such terms and conditions as Buyer shall deem appropriate. Section 7.4 Further Assurances. Each of Seller and Buyer agrees that at any time and from time to time it will promptly execute and deliver to the other such further assurances, instruments and documents and take such further action as the other may reasonably request in order to carry out the full intent and purpose of this Agreement. Section 7.5 Fees and Expenses. Whether or not the transactions contemplated by this Agreement are consummated, Seller and Buyer shall each pay its or her own fees and other costs or expenses incident to the negotiation, preparation and execution of this Agreement and the transactions contemplated hereby, including the fees and expenses of its or her own counsel, accountants, appraisers and other experts. Section 7.6 No Brokers. Each of Seller and Buyer represents that no broker or finder has been involved or engaged by it in connection with the transactions contemplated hereby. Section 7.7 Bulk Sales Laws. Seller and Buyer hereby waive the requirement of any bulk sales laws which may be applicable to the transactions contemplated hereby, but such waiver shall not affect any representation or warranty by Seller under this Agreement. ARTICLE VIII CONDITIONS TO CLOSING Section 8.1 Conditions to Buyer's Obligations. The obligations of Buyer to complete the Closing are contingent upon the fulfillment of each of the following conditions on or before the Closing Date, except to the extent that Buyer may, in its absolute discretion, waive in writing any one or more thereof, in whole or in part: (a) Instruments of Transfer. Seller shall have delivered to Buyer such assignments, bills of sale, certificates of title, and other instruments of transfer, all in form and substance reasonably satisfactory to Buyer, as are necessary to fully and effectively convey to Buyer all of the Purchased Assets in accordance with the terms hereof; (b) Consents; Estoppel Certificates. The consents described in Exhibit 5.3 hereto, and all other consents required for Seller to perform its obligations hereunder, shall have been obtained in form and substance reasonably satisfactory to Buyer. Buyer shall have received estoppel certificates in form and substance reasonably satisfactory to Buyer from each of the parties to the Operating Agreements and Customer Orders; 8 (c) No Adverse Proceedings. No action, suit or proceeding before any court or governmental or regulatory authority shall have been commenced, no investigation by any governmental or regulatory authority shall have been commenced, and no action, suit or proceeding by any governmental or regulatory authority shall have been threatened, against any of the parties to this Agreement, or any of the principals, officers or directors of any of them, or any of the Purchased Assets seeking to restrain, prevent or change the transactions contemplated hereby or questioning the validity or legality of any of such transactions or seeking damages in connection with any of such transactions; (d) Seller Closing Deliveries. Seller shall have provided to Buyer on or before the Closing Date the following: (i) good standing certificate issued by the Secretary of State of Delaware; (ii) certified copies of resolutions of the shareholder and board of directors of Seller authorizing the execution, delivery and performance by Seller of this Agreement, the conveyance of the Purchased Assets and the transactions contemplated hereby; (iii) the documents described in Section 8.1(b); and (iv) UCC searches for the State of Illinois and Delaware; and (e) Other Assurances. Seller shall have delivered to Buyer such other and further certificates, assurances and documents as Buyer may reasonably request in order to evidence the accuracy of Seller's representations and warranties, the performance of its covenants and agreements to be performed at or prior to the Closing, and the fulfillment of the conditions to Buyer's obligations. Section 8.2 Conditions to Seller's Obligations. The obligations of Seller to complete the Closing are contingent upon the fulfillment of each of the following conditions on or before the Closing Date, except to the extent that Seller may, in its absolute discretion, waive any one or more thereof in whole or in part: (a) Payment of Purchase Price and Assumption of Obligations. Buyer shall have executed and delivered the Note and paid to Seller the portion of the Purchase Price required pursuant to Article IV, and shall have assumed the Assumed Liabilities pursuant to agreements in form and substance reasonably acceptable to Seller; (b) Corporate Approval. The transactions occurring pursuant to this Agreement shall be approved by Buyer's Board of Directors (and, to the extent necessary by its Shareholders) and Buyer shall have delivered to Seller copies of any resolutions approving the transactions contemplated by this Agreement, certified by the Secretary of the Buyer; (c) No Adverse Proceedings. No action, suit or proceeding before any court or governmental or regulatory authority shall have been commenced, no investigation by any governmental or regulatory authority shall have been commenced, and no action, suit or 9 proceeding by any governmental or regulatory authority shall have been threatened, against any of the parties to this Agreement, or any of the principals, officers or directors of any of them, or any of the Purchased Assets seeking to restrain, prevent or change the transactions contemplated hereby or questioning the validity or legality of any of such transactions or seeking damages in connection with any of such transactions; (d) Release of Obligations. Infinite shall have received (i) written evidence satisfactory to it that it has been released from all obligations under the Operating Agreements (the "Infinite Obligations") or (ii) indemnities from third parties against the Infinite Obligations satisfactory to Infinite; and (e) Other Assurances. Buyer shall have delivered to Seller such other and further certificates, assurances and documents as Seller may reasonably request in order to evidence the accuracy of Buyer's representations and warranties, the performance of its covenants and agreements to be performed at or prior to the Closing, and the fulfillment of the conditions to Seller's obligations. ARTICLE IX TERMINATION; RIGHTS TO PROCEED Section 9.1 Termination. At any time prior to the Closing, this Agreement may be terminated as follows: (a) by mutual written consent of all the parties to this Agreement; or (b) at the election of the affected party, whether Buyer or Seller, and subject to such party's rights to proceed as set forth in Section 9.3 and subject to the limitations contained in Section 11.4, if any of the conditions to its obligations set forth in Article VIII of this Agreement has not been satisfied at or prior to the Closing, by written notice given to the other and setting forth such conditions which have not been so satisfied. Section 9.2 Effect of Termination. All obligations of the parties hereunder shall cease upon any termination pursuant to Section 9.1 provided, however, that: (a) the provisions of Sections 7.1(b) relating to confidentiality, and 7.5 shall survive any termination of this Agreement; (b) nothing herein shall relieve any party from any liability or a material error or omission in any of its representations or warranties contained herein or a material failure to comply with any of its covenants, conditions or agreements contained herein, if such error, omission or failure was wilful or deliberate; and (c) the parties shall have rights to proceed as further set forth in Section 9.3. Section 9.3 Right to Proceed. Anything in this Agreement to the contrary notwithstanding, if any of the conditions specified in Section 8.1 hereof has not been satisfied, Buyer shall have the right to proceed with the transactions contemplated hereby without waiving any of its rights hereunder, and if any of the conditions specified in Section 8.2 hereof have not been satisfied, Seller shall have the right to proceed with the transactions contemplated hereby without waiving any of its rights hereunder. 10 ARTICLE X RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING Section 10.1 Collection of Assets. Seller agrees that it will promptly transfer or deliver to Buyer from time to time, any cash or other property that Seller may receive with respect to any claims, contracts, licenses, leases, commitments, sales orders, purchase orders, receivables of any character or any other items included in the Purchased Assets. Buyer agrees that it will promptly transfer or deliver to Seller from time to time all property Buyer may receive with respect to the Excluded Assets. Section 10.2 Payment of Obligations. Seller shall pay all of the Excluded Liabilities in the ordinary course of business as they become due. Buyer shall pay all of the Assumed Liabilities in the ordinary course of business as they become due. If requested, each shall furnish proof of payment to the other. ARTICLE XI SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION Section 11.1 Survival of Representations, Etc. The representations and warranties of Seller and Buyer contained in this Agreement will survive the consummation of the transactions contemplated by this Agreement for the period ending June 30, 2003, without regard to any investigation made by any of the parties hereto except as otherwise expressly provided in this Agreement; provided, however, the representations contained in Section 5.6(b) shall survive until the expiration of the applicable statute of limitations. Section 11.2 Indemnification of Buyer by Seller and Infinite. Seller and Infinite, jointly and severally, shall indemnify and hold Buyer and its attorneys, affiliates, representatives, agents, officers, directors, successors or assigns harmless from and against any liability, loss, cost, expense, judgment, order, settlement, obligations, deficiency, claim, suit, proceeding (whether formal or informal), investigation, Lien or other damage, including, without limitation, reasonable attorneys' fees and expenses (collectively, "Damages"), resulting from, arising out of or incurred with respect to: (a) a breach of any representation, warranty, covenant or agreement of Seller contained herein; or (b) the Excluded Liabilities. The term "Damages" as used in this Agreement is not limited to matters asserted by third parties against a party, but includes Damages incurred or sustained by a party in the absence of third-party claims. Section 11.3 Indemnification of Seller by Buyer and Shareholders. Buyer and the Shareholders, jointly and severally, shall indemnify and hold Seller and its attorneys, 11 affiliates, representatives, agents, officers, directors, successors or assigns, harmless from and against any Damages resulting from, arising out of, or incurred with respect to: (a) a breach of any representation, warranty, covenant or agreement by Buyer contained herein; or (b) the Assumed Liabilities. Section 11.4 Limitation. Notwithstanding the foregoing, neither Seller nor Buyer will have any liability under this Article XI unless and until the aggregate amount of all claims for Damages exceeds $10,000, at which time Seller or Buyer, as the case may be, will be liable for all claims for Damages to the extent they exceed, in the aggregate, $10,000; provided, however, that such limitations shall not be applicable to (a) claims of fraud or intentional misrepresentation or (b) the failure to pay the Excluded Liabilities or the Assumed Liabilities, as the case may be. ARTICLE XII MISCELLANEOUS Section 12.1 Merger Clause. This Agreement contains the final, complete and exclusive statement of the agreement between the parties with respect to the transactions contemplated herein and all prior or contemporaneous written or oral agreements with respect to the subject matter hereof are merged herein. Section 12.2 Amendments. No change, amendment, qualification or cancellation hereof shall be effective unless in writing and executed by each of the parties hereto by their duly authorized officers. Section 12.3 Benefits and Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Section 12.4 Notices. All notices, requests and demands and other communications hereunder must be in writing and shall be deemed to have been duly given when personally delivered, or when place in the United States Mails and forwarded by Registered or Certified Mail, return receipt requested, postage prepaid, or delivered pre-paid by a nationally recognized courier service, addressed to the party to whom such notice is being given at the following addresses: If to Seller or Infinite: Express Pattern, Inc. c/o Infinite Group, Inc. 2364 Post Road Warwick, Rhode Island 02886 Attn: Clifford G. Brockmyre 12 with a copy to: Joseph F. Whinery, Jr. Cameron & Mittleman LLP 56 Exchange Terrace Providence, Rhode Island 02903 If to Buyer or the Shareholders: Express Pattern, Inc. 1574 Barclay Boulevard Buffalo Grove, Illinois 60089 Attn: President with a copy to: Joseph de LaVan, Esq. McCracken & Walsh 134 N. LaSalle Street Chicago, Illinois 60602 Any party may change the address(es) to which notices to it are to be sent by giving notice of such change to the other parties in accordance with this Section. Section 12.5 Captions. The captions are for convenience of reference only and shall not be construed as a part of this Agreement. Section 12.6 Governing Law. This Agreement shall be construed, interpreted, enforced and governed by and under the laws of Illinois. Section 12.7 Exhibits. All of the Exhibits hereto referred to in this Agreement are hereby incorporated herein by reference and shall be deemed and construed to be a part of this Agreement for all purposes. Section 12.8 Severability. The invalidity or unenforce- ability of any one or more phrases, sentences, clauses or provisions of this Agreement shall not affect the validity or enforceability of the remaining portions of this Agreement or any part thereof. Section 12.9 Counterparts. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument. Section 12.10 Time. Time is of the essence of this Agreement and all of its terms and conditions. [SIGNATURE PAGE FOLLOWS] 13 IN WITNESS WHEREOF, the parties have each executed this Agreement or caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written. EXPRESS PATTERN, INC. a Delaware corporation By: /s/ Clifford G. Brockmyre II ----------------------------- Chairman INFINITE GROUP, INC. By: /s/ Clifford G. Brockmyre II ----------------------------- President EXPRESS PATTERN, INC., an Illinois corporation By: /s/ Thomas J. Mueller -------------------------- Treasurer /s/ Thomas Mueller ----------------------------- Thomas Mueller /s/ David Flynn ----------------------------- David Flynn 14 EXHIBITS Exhibit 1.1(a) - Tangible Personal Property Exhibit 1.1(b) - Operating Agreements Exhibit 1.2(d) - Excluded Assets Exhibit 2.1 - Accounts Payable Exhibit 3.2 - Allocation of Purchase Price Exhibit 5.2 - Foreign Qualification Exhibit 5.3 - Consents Exhibit 5.4 - Financial Statements Exhibit 5.6(b) - Permitted Encumbrances Exhibit 5.7 - Litigation Exhibit 5.8 - Compliance Exhibit 5.12 - Prospective Changes 15 EXHIBIT B SUBORDINATED PROMISSORY NOTE $100,000 March 13, 2002 FOR VALUE RECEIVED, the undersigned EXPRESS PATTERN, INC., an Illinois corporation with its principal office at 1574 Barclay Boulevard, Buffalo Grove, Illinois 60089 (the "maker"), promises to pay, on or before March 31, 2005 (the "Maturity Date") to the order of EXPRESS PATTERN, INC., a Delaware corporation having its principal office c/o Infinite Group, Inc., 2364 Post Road, Warwick, Rhode Island 02886 (the "Holder"), the principal sum of One Hundred Thousand Dollars ($100,000) in lawful money of the United States of America, payable at the principal office of the Holder, or such other place as the holder hereof may reasonably direct, together with interest on the unpaid balance of this Note outstanding at any time (computed on the basis of a 365-day year) at an annual rate of eight percent (8%). Subject to the terms hereof, interest as provided above shall be payable on the outstanding principal amount hereof from time to time in arrears, on the last day of February, May, August and November in each year (a "Payment Date"), commencing March 31, 2002. The maker, for itself and its successors and assigns, agrees, and any holder of this Note, by its acceptance hereof, agrees, that the indebtedness evidenced by this Note and the payment of the principal and interest hereunder are hereby expressly made subordinate and subject in right of payment to the prior payment or satisfaction in full of the principal, interest, fees and other sums payable under the maker's indebtedness to NCP Leasing, Inc. in the principal amount of Five Hundred Seventy-Five Thousand Dollars ($575,000), together with interest thereon, evidenced by the promissory note of the maker of even date herewith in such principal amount (the "Senior Indebtedness") as follows: (a) Payment Over of Proceeds Upon Dissolution. In the event of (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, relief, arrangement, reorganization or other similar case or proceeding in connection therewith, relative to the maker or its creditors, as such, or to any of its assets, or (ii) any liquidation, dissolution, reorganization or other winding up of the maker, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the maker, then the holders of the Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due on or in respect of the Senior Indebtedness, or provision shall be made for such payment in cash, before the Holder is entitled to receive any payment on account of principal of interest hereunder, and to that end the holders of the Senior Indebtedness shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities which may be payable or deliverable in respect of the Note in any such case, proceeding, dissolution, liquidation or other winding up or event. Notwithstanding the foregoing provisions of this clause (a), if the Holder shall have received any payment or distribution of assets of the maker of any kind or character, whether in cash, property or securities during the pendency of any proceeding referred to in clause (a) before all Senior Indebtedness is paid in full or payment thereof provided for, then such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other person making payment or 2 distribution of assets of the maker for the application to the payment of all the Senior Indebtedness remaining unpaid, to the extent necessary to pay all the Senior Indebtedness in full, after giving effect to any concurrent payment or distribution to or for the holders of the Senior Indebtedness. (b) No Payment on Note in Certain Circumstances. After the delivery to the Holder of written notice by the Holder of the Senior Indebtedness of the occurrence, and during the continuance, of any Senior Default (defined below), unless and until such default shall have been cured or waived or shall have ceased to exist and any declaration that the Senior Indebtedness has become due and payable prior to the date on which it would otherwise have become due and payable shall have been rescinded or annulled, or if any judicial proceeding shall be pending with respect to any such default, then no payment shall be made by the maker on account of principal of or interest on this Note. (c) Subrogation to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness, the Holder shall be subrogated, to the extent of the payments or distributions made to the holder of the Senior Indebtedness pursuant to the provisions of clause (a) or (b), to the rights of the holder of the Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of and interest on this Note, and all other amounts payable under this Agreement, shall be paid in full. For purposes of such subrogation, no payments or distributions to the holder of the Senior Indebtedness of any cash, property or securities to which the Holder would be entitled except for the provisions of clause (a) or (b) and no payments made pursuant to the provisions of clause (a) or (b) to the holder of the Senior Indebtedness by the Holder shall, as among the maker, its creditors other than holder of the 3 Senior Indebtedness and the Holder, be deemed to be a payment or distribution by the maker to or on account of the Senior Indebtedness. (d) Provisions Solely to Define Relative Rights. The provisions of clauses (a) through (c) are and are intended solely for the purpose of defining the relative rights of the Holder on the one hand and the holder of the Senior Indebtedness on the other hand. Nothing contained in this Note is intended to or shall: (i) impair, as among the maker, its creditors other than holder of the Senior Indebtedness and the Holder, the obligation of the maker, which is absolute and unconditional (and which, subject to the rights under this Note of the holder of the Senior Indebtedness, is intended to rank equally with all other general obligations of the maker) to pay to the Holder the principal of and interest on the Note when the same shall become due and payable in accordance with its terms; (ii) affect the relative rights against the maker of the Holder and the creditors of the maker other than the holder of the Senior Indebtedness; or (iii) prevent the Holder from exercising all remedies otherwise permitted by applicable law upon the occurrence of an Event of Default (defined below), subject to the rights, if any, under this Note of the holder of the Senior Indebtedness. (e) For purposes of this Note, the term "Senior Default" shall mean the default by the maker in the payment or performance of any obligation under the Senior Indebtedness when due in accordance with the terms thereof beyond any applicable grace period with respect thereto or by acceleration (unless rescinded or annulled) or otherwise. In each case the happening of any one or more of the following events (an "Event of Default"): 4 (a) if the maker shall default in the due and punctual payment of any interest or principal as provided herein for more than ten (10) days after the date when the same shall become due and payable, whether at the due date thereof or by acceleration or otherwise; (b) if the maker or any of its shareholders shall fail to pay or perform when due any obligation under a certain Asset Purchase Agreement of even date between the maker and the Holder and such failure shall continue for more than twenty (20) days after written notice to the maker; (c) if the maker shall make an assignment for the benefit of creditors or shall admit in writing its inability to pay its debts as they become due or shall file a voluntary petition in bankruptcy, or shall file any petition or answer seeking any reorganization, arrangement, composition, adjustment, liquidation, dissolution or similar relief under the federal Bankruptcy Code or any future federal bankruptcy act or other applicable federal, state or other statutes, laws or regulations, or shall seek or consent to or acquiesce in the appointment of any custodian, trustee, receiver or liquidator of the maker, or all or any substantial part of its properties, or if corporation action shall be taken for the purpose of effecting any of the foregoing; or (d) if the maker shall be the subject of any order for relief in an involuntary case under the federal Bankruptcy Code or if any petition or proceeding against the maker seeking any reorganization, arrangement, composition, adjustment liquidation, dissolution or similar relief under the federal Bankruptcy Code or any future federal bankruptcy act or other applicable federal, state or other statutes, laws or regulations shall remain undismissed or unstayed for an aggregate of sixty (60) days (whether or not consecutive) after the commencement thereof, or if any custodian, trustee, receiver or liquidator of the maker (or all 5 or any substantial part of the properties of the maker) shall be appointed without the consent or acquiescence of the maker and such appointment shall remain unvacated or unstayed for an aggregate of sixty (60) days (whether or not consecutive); then and in every such Event of Default at any time thereafter during the continuance of such Event of Default, the holder hereof may, by written notice to the maker, declare the entire principal and accrued interest hereunder to be due and payable, whereupon this Note will thereupon immediately become due and payable without presentment, demand, protest or further notice of any kind whatsoever, all of which are hereby expressly waived. The maker may prepay all or any portion of the principal amount hereof without penalty; provided, however, that any such prepayment, whether in whole or in part, and whether voluntary or as the result of acceleration of the maturity, shall require the prior written consent of the holders of the Senior Indebtedness if any Senior Indebtedness is outstanding on the date of such contemplated prepayment. If this Note shall not be paid when due and shall be placed by the holder hereof in the hands of any attorney for collection, through legal proceedings or otherwise, the maker will pay reasonable attorneys' fees to the holder hereof together with reasonable costs of collection. This Note shall be governed by the laws of Rhode Island. In no event shall the amount of interest payable hereunder with all amounts reserved, charged or taken by Holder as compensation for fees, services or expenses incidental to the making, negotiating or collection of the loan evidenced hereby exceed the maximum rate of interest on the unpaid balance hereof allowable by applicable law. In the event of any such 6 payment in excess of such maximum shall be extended to the maker or credited against the principal amount hereof. EXPRESS PATTERN, INC. (an Illinois corporation) By: /s/ Thomas J. Mueller -------------------------- Treasurer 7 GUARANTY The undersigned ("Guarantor") hereby absolutely and unconditionally guarantees to the Holder (which term shall include the Holder, its successors and assigns and any other holder) the punctual payment in full (and not merely the collectibility), as and when due (whether by acceleration or otherwise), of all payments and other obligations (the "Obligations") of the maker under the foregoing Subordinated Promissory Note (the "Note"), as the same may be modified, amended or extended. Guarantor expressly waives any notice of, or right to consent to, any such modification, amendment or extension. Guarantor agrees that Guarantor's obligations hereunder shall not be affected by any circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. The liability of Guarantor shall be primary, direct and immediate and not conditional or contingent upon pursuit by the Holder of any remedy it may have against the maker. Guarantor hereby expressly waives: (a) notice of the acceptance of this Guaranty; (b) presentment and demand for payment of any of the Obligations; (c) protest and notice of dishonor or default to Guarantor or to any other person with respect to any of the Obligations; (d) any demand for payment under this Guaranty; and (e) any defenses available to a guarantor under the laws of Rhode Island or Illinois. This Guaranty shall operate as an irrevocable and continuing guaranty of all Obligations. This Guaranty shall be governed by and construed in accordance with the laws of the State of Rhode Island. Each of the undersigned, if more than one, acknowledges and agrees that references to Guarantor shall include the undersigned and each of them and that the agreements of Guarantor shall be the joint and several obligations of each of the undersigned. WITNESS: /s/ Thomas Mueller - ----------------------- ---------------------------- Thomas Mueller /s/ David Flynn - ----------------------- ---------------------------- David Flynn 8 EX-10.(H) 12 d51283_ex10-h.txt LOAN AGREEMENT EXHIBIT 10-H First International Capital 55 Dorrance Street Providence, RI 03903 U.S.A. 401-553-2400 Telephone 401-553-2402 Facsimile www.upscapital.com First International Capital A UPS Capital Company March 13, 2002 Laser Fare, Inc. Clifford G. Brockmyre, II, President One Industrial Drive South Smithfield, RI 02917 Dear Mr. Brockmyre: First International Capital ("First International") has approved your request to waive the below referenced loan covenant violations for the year ended 12/31/01. These covenants are outlined in the Loan Agreements dated 12/21/95 and 12/23/99 between First International and Laser Fare, Inc. This waiver is granted exclusively for the company's FYE 12/31/01. o The Company's "debt-to-tangible net worth ratio" was 10.79x at 12/31/01. This violated the Loan Agreements, which state that the company's debt-to-tangible net worth ratio shall not exceed 10.0x. o The company acquired $362,000 of fixed assets, which were not financed, in fiscal year 2001. This violated the Loan Agreements, which state that non-financed fixed asset expenditures are limited to $100,000 per annum for a five year period. By waiving the above referenced covenant violations for the year ended 12/31/01, First International does not consent to any future waivers of covenant violations contained in the Loan Agreements. First International reserves all of its rights and remedies in the loan documents between First International and Laser Fare, Inc. Sincerely, /s/ Ronald A. Palumbo - --------------------------- Ronald A. Palumbo Loan Officer c: Tim McPoland EX-23.1 13 d51283_ex23-1.txt CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Registration Statement of Infinite Group, Inc. on Amendment 2 to Form S-3 of our report, dated March 15, 2002 on our audit of the consolidated financial statements of Infinite Group, Inc. for the years ended December 31, 2001 and 2000 appearing in the Annual Report on Form 10-KSB of Infinite Group, Inc. for the year ended December 31, 2001. We also consent to the reference to our Firm under the caption "Experts" in the Prospectus, which is part of this Registration Statement. /s/ Freed Maxick & Battaglia CPAs, PC -------------------------------------- FREED MAXICK & BATTAGLIA CPAs, PC Buffalo, NY August 6, 2002 -----END PRIVACY-ENHANCED MESSAGE-----