MODIFICATION AGREEMENT No. 3 TO
PROMISSORY NOTES
This MODIFICATION AGREEMENT No. 3 is made as of October 1, 2005 between Infinite
Group, Inc., a Delaware corporation with offices at 000 Xxxxxxx Xxxx, Xxxxx 000,
Xxxxxxxxx, XX 00000 ("Borrower") and Xxxxx Xxxxxxx, an individual residing at
0000 Xxxxxxxx Xxxxxxxxx, Xxxxxxxxx, XX 00000 (the "Lender").
WHEREAS, the Lender is the holder of eight (8) Convertible Promissory Notes
issued by the Borrower to the Lender, as described in more detail in the
attached Schedule A (collectively, the Notes); and
WHEREAS, the Lender and the Borrower are parties to a Modification Agreement No.
2 to Promissory Notes dated June 1, 2005 pursuant to which, among other things,
the parties agreed that the holder shall have the right in its sole discretion
upon written notice to the Borrower at any time after November 30, 2005 to
convert all or part of the principal amount of the Notes, together with accrued
and unpaid interest, for common stock of the Borrower at the conversion rate of
$.05 per share, as adjusted to reflect stock splits, distributions,
recapitalizations, etc.; and
WHEREAS, the parties desire to modify the terms and conditions of the Promissory
Notes as follows:
NOW, THEREFORE, the parties agree as follows:
1) The Notes and each of them are modified to provide that the holder
shall have the right in its sole discretion upon written notice to
the Borrower at any time after that date which is 60 days after the
Borrower, following the approval of the Borrower's shareholders,
authorizes a sufficient number of shares of common stock to permit
such conversion, to convert all or part of the principal amount of
the Notes, together with accrued and unpaid interest, for common
stock of the Borrower at the conversion rate of $.05 per share, as
adjusted to reflect stock splits, distributions, recapitalizations,
etc.
2) The conversion of the Notes and accrued interest thereon to common
stock shall be limited such that the Borrower incurs no limitation
of the use of its net operating loss carryforwards, which may be
triggered by a change of control involving one or more 5%
shareholders. The Borrower shall provide Lender with sufficient
information, including the opinion of an accountant or attorney
reasonably acceptable to Lender, prior to completing the conversion
to document that a change of control will not occur as a result of
Lender's request to convert all of part of the Notes and/or accrued
interest.
If one or more holders of convertible promissory notes exist with
conversion rights that may result in ownership of 5% or more of the
common stock of Borrower, then Borrower shall provide timely
notification to all other such promissory note holders of Lender's
request for conversion of promissory notes and/or accrued interest
to common stock. Such notice shall provide the other such note
holders an opportunity to request a conversion within ten business
days of notification. The Borrower shall include all such conversion
requests in aggregate and document that a change of control has not
occurred prior to completing each note holder's conversion. Lender
agrees to adjust its request for conversion on a pari passu basis
with each other note holder's request so that a change of control
does not occur when all notes holder's conversion requests are
considered in aggregate.
If the Borrower closes a transaction with another third party or
parties that results in a change of control that triggers
limitations of its net operating loss carryforwards, then the
provisions of this section 2) shall no longer be in effect.
3) The interest rate on the Notes shall be increased to eight percent
(8%) per annum effective January 1, 2006.
4) Except as modified by this Agreement, all of the terms, covenants
and conditions of the Notes shall remain the same.
In witness whereof, Borrower and the Lender have executed this Agreement under
the day and year first written above.
INFINITE GROUP, INC.
/s/ Xxxxxxx X. Xxxxx
--------------------
By: Xxxxxxx X. Xxxxx, President
/s/ Xxxxx Xxxxxxx
-----------------
Xxxxx Xxxxxxx
CONVERTIBLE PROMISSORY NOTES OF INFINITE GROUP, INC.
IN FAVOR OF XXXXX XXXXXXX
Holder Principal Amt Date
Xxxxx Xxxxxxx $ 25,000 2/25/03
Xxxxx Xxxxxxx $ 15,000 4/15/03
Xxxxx Xxxxxxx $ 60,000 4/25/03
Xxxxx Xxxxxxx $ 40,000 5/22/03
Xxxxx Xxxxxxx $ 60,000 7/2/03
Xxxxx Xxxxxxx $ 40,000 12/4/03
Xxxxx Xxxxxxx $ 4,000 1/2/04
Xxxxx Xxxxxxx $ 70,000 2/26/04
