EXHIBIT 10.17
INFINITE GROUP, INC.
SECURITIES PURCHASE AGREEMENT
February 5, 2002
TABLE OF CONTENTS
Page
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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
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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
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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............................................22
9.5 Expenses...........................................................22
9.6 Indemnification and Contribution...................................23
10. RIGHT OF FIRST REFUSAL....................................................25
10 Offering Restrictions..............................................25
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
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INFINITE GROUP, INC.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of February 5, 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 $1,000,000 (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 $1,000,000. 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 $2.65. 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 $20,000 for services rendered to Purchaser in preparation of this
Agreement and the Related Agreements, and an additional amount not to exceed
$2,500 in connection with its due diligence review of the Company and relevant
matters. 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
$1,000,000, shall take place on the date hereof, at the offices of Xxxxxx X.
Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, 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.
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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, 5,361,743 shares of which are issued and outstanding.
(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
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(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 Xxxxxxxxx Holdings, LLC ("Xxxxxxxxx"), (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 September 30, 2001.
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
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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 September 30, 2001, 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 Xxxxx & Whitney subsidiary;
(b) Any resignation or termination of any officer, key
employee or group of employees of the Company;
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(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,
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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.
4.11 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.
4.12 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 Xxxxx & Xxxxxxx 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.
4.13 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
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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
Xxxxx & 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.
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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
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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, 2000, (ii) its Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 2001, June 30, 2001
and September 30, 2001, (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 and December 12,
2001 (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.
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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
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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
-00-
XXXX XXXXXXXX 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 S-3
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
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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.
6.1 Required Approvals. For so long as at least 20% of the principal
amount of the Notes 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.
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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 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 file with the SEC no later than 5 days
after the filing with the SEC of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, but no event later than within 65 days
of the Closing Date (the "Filing Date"), and 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 105 days of the Closing 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 registration statement described in this
paragraph must be declared effective by the SEC within 120 days of the Closing
Date (as defined herein) ("Effective Date"). 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 200% of the Conversion Shares
issuable at the Conversion Prices set forth in the Warrants and Notes,
respectively, 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), assuming the conversion of 100% of the
Notes which are then outstanding or issuable hereunder, and at least one share
of common stock for each common share issuable upon exercise of the Warrants
which are then outstanding or issuable hereunder (employing the Conversion Price
that 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
-20-
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;
(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.
-21-
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 filed on or before the Filing Date and 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 filed on or before the Filing Date or 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
(iii) 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
-22-
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 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
-23-
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.
(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
-24-
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 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.
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
-25-
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.
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
-26-
signature page hereof 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 Xxxxxx X. Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx,
XX 00000, facsimile number (000) 000-0000, 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: By:
---------------------------- --------------------------------------------
Name: Name:
Title: Address: c/o Onshore Corporate Services Ltd.
Address: 0000 Xxxx Xxxx X.X. Xxx 0000 G.T., Queensgate House,
Warwick, Rhode Island 02886 Xxxxx Xxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx
[Securities Purchase Agreement Signature Page]
LIST OF EXHIBITS
Schedule of Purchasers Exhibit A
Form of Offering Convertible Note Exhibit B
Form of Warrant Exhibit C
Form of Opinion Exhibit D
EXHIBIT A
SCHEDULE OF PURCHASERS
--------------------------------------------------------------------------------
Purchaser Closing Date Notes
--------------------------------------------------------------------------------
Laurus Master Fund, Ltd. $1,000,000
TOTAL $1,000,000
--------------------------------------------------------------------------------
SCHEDULE OF WARRANT HOLDERS
--------------------------------------------------------------------------------
Name of Warrant Holder Number of Warrant Shares
--------------------------------------------------------------------------------
Laurus Master Fund, Ltd. 50,000
--------------------------------------------------------------------------------
SCHEDULE OF FUND MANAGER'S FEE RECIPIENTS
--------------------------------------------------------------------------------
Fund Manager Closing Date Fund Manager's Fees
--------------------------------------------------------------------------------
Laurus Capital Management, L.L.C. $50,000
--------------------------------------------------------------------------------
TOTAL $50,000 (5% of Closing)
--------------------------------------------------------------------------------
A-1
EXHIBIT B
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., x/x Xxxxxxx Xxxxxxxxx Xxxxxxxx Xxx., X.X. Xxx 0000 G.T., Queensgate
House, South Church Street, Grand Cayman, Cayman Islands, Fax: 000-000-0000 (the
"Holder") on order, without demand, the sum of One Million Dollars ($1,000,000),
with simple interest accruing at the annual rate of 5%, on February 5, 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 in arrears commencing March 31, 2002 and on the
last day of each quarter 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 March 31, 2002 and quarterly
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 $100,000 in principal
amount of the Note that the Holder actually converts into Common Stock solely in
connection with an Optional Conversion Notification, 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 upon the occurrence of an Event of
Default hereunder, in which event the Holder shall have the right to convert the
entire principal amount and interest due under this Note into shares of the
Borrower's Common Stock, as set forth below, 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 $2.25 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
3
Market System, American Stock Exchange, or New York Stock Exchange (whichever of
the foregoing is 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.
4
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
5
period: (a) the Security Agreement dated as of the date hereof between Borrower
and Holder, (b) the Security Agreement dated as of the date hereof between
Holder and Infinite Photonics, Inc. ("Photonics") or (c) the Pledge and Security
Agreement dated as of the date hereof between Holder and 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 Xxxxxx X. Xxxxxx, Esq., 000 Xxxx 00xx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx
Xxxx 00000, facsimile number (000) 000-0000, 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.
6
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. 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.
7
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its
name by its Chief Executive Officer on this 5th day of February, 2002.
INFINITE GROUP, INC.
By: _____________________________
WITNESS:
-------------------------------
8
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
February 5, 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:________________________________________________________________________
------------------------------------------------------------------------
B-1
EXHIBIT C
Form of warrant
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 50,000 Shares of Common Stock of
Infinite Group, Inc. (subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
No. 2002-1 Issue Date: February 5, 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
50,000 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $.001 par value per share, of the Company, at a purchase price of
$2.65 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 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.
3
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 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
4
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 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
11
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.
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.
6
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.
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.
7
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
INFINITE GROUP, INC.
By:_________________________________
Witness:
------------------------------
8
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)
