SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_||X| Preliminary Proxy Statement |_| Confidential, forFor Use
of the Commission
Only (as permitted by
Rule 14a-6(e)(2)
|X||_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c)Rule 14a-(11(c) or ss.240.14a-12Rule 14a-12
INFINITE GROUP, INC.
________________________________________________________________________________------------------------------------------------
(Name of Registrant as Specified Inin Its Charter)
________________________________________________________________________________
(NameName of Person(s) Filing Proxy Statement, if other than the Registrant)registrant)
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Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computedrequired
January 23, 2006
Dear Stockholder:
You are invited to attend the Annual Meeting of Stockholders of Infinite
Group, Inc. to be held on table below per Exchange Act Rules 14a-6(i)(4)Friday, February 17, 2006 at 10:00 a.m., Pacific Time,
at One America Plaza, 600 West Broadway, Second Floor, San Diego, CA 92101.
At this year's meeting you will be asked to elect three directors;
consider and 0-11.
1. Titleapprove the Infinite Group, Inc. 2005 Stock Option Plan; amend
Infinite Group's Certificate of each class of securitiesIncorporation to which transaction applies:
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2. Aggregateincrease the number of
securitiesauthorized shares of common stock from 20,000,000 to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth60,000,000; and ratify the
amount on which
the filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value transaction:
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5. Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any partselection of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2)Company's independent auditors. The accompanying Notice of
Meeting and identifyProxy Statement describe these proposals. We urge you to read this
information carefully.
Your Board of Directors unanimously believes that the filingelection of its
nominees for whichdirectorships, the offsetting fee was
paid previously. Identifyapproval of our 2005 Stock Option Plan, the
previous filing by registrationincrease in the number or
the Form or Scheduleof authorized shares of common stock and the dateratification
of its filing.
1. Amountselection of independent auditors are in the best interests of Infinite
Group and its stockholders and, accordingly, recommends a vote FOR the election
of the nominees for director and FOR proposals 2, 3 and 4.
In addition to the formal business to be transacted at the Annual Meeting,
management will make a presentation on developments of the past year and respond
to comments and questions of general interest to stockholders. I personally look
forward to greeting those Infinite Group stockholders able to attend the
meeting.
Whether or not you plan to attend the Annual Meeting in person, it is
important that your shares are represented. Therefore, please promptly complete,
sign, date, and return the enclosed proxy card in the accompanying envelope,
which requires no postage if mailed in the United States. You are, of course,
welcome to attend the Annual Meeting and vote in person even if you previously
paid:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
--------------------------------------------------------------------returned your proxy card.
Thank you.
Sincerely,
Michael S. Smith
President and Chief Executive Officer
INFINITE GROUP, INC.
2364 Post595 Blossom Road, Warwick, Rhode Island 02886Suite 309
Rochester, NY 14610
(585) 654-5525
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 22, 2001FEBRUARY 17, 2006
------------------------
To the Stockholders of Infinite Group, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Infinite
Group, Inc. (the "Company"("Infinite Group") will be held at One America Plaza, 600 West
Broadway, Second Floor, San Diego, CA 92101 on March 22, 2001February 17, 2006, at 2:30 p.m. at Laser
Fare Inc.10:00 a.m.,
One Industrial Drive, Smithfield, Rhode Island 02917,Pacific Time, for the following purposes:
1. To elect fivethree directors, each to the Board.serve for a term of one year.
2. To consider and act upon a proposal to approve the issuanceInfinite Group, Inc. 2005 Stock Option
Plan.
3. To amend Infinite Group's Certificate of upIncorporation to 3,300,000increase
the number of shares of the Company'sauthorized common stock under an Equity Line of Credit
Agreement, dated November 20, 2000, between the Company and Cockfield Holdings
Limited.
3.from 20,000,000 to
60,000,000.
4. To ratify the appointment of Freed Maxick & Battaglia, CPAs, P.C. as
Infinite Group's independent auditors for 2000.
4the fiscal years 2002,
2003, 2004 and 2005.
5. To consider and take action upontransact such other mattersbusiness as may properly come before the
meeting or any adjournments thereof.
TheOnly the stockholders of record at the close of business on February 26, 2001 has been fixed as the record
date for the determination of stockholdersDecember 12,
2005 are entitled to notice of and to vote at the Annual Meeting and any
adjournmentadjournments or postponements thereof.
All stockholders are cordially invited to attend the meeting. Whether or
not you expect to attend, you are requested to sign, date and return the
enclosed proxy promptly. Stockholders who execute proxies retain the right to
revoke them at any time prior to the voting thereof. A return envelope, which
requires no postage if mailed in the United States, is enclosed for your
convenience.
By Order of the Board of Directors
Daniel T. Landi,/s/ Deanna Wohlschlegel
Deanna Wohlschlegel, Secretary
Dated: February 27, 2001January 23, 2006
1
INFINITE GROUP, INC.
2364 Post Road
Warwick, Rhode Island 02886
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Infinite Group, Inc. (the "Company", a Delaware corporation ("Infinite
Group"), of proxies in the form enclosed for the Annual Meeting of Stockholders
("Annual Meeting") to be held at the offices
of Laser Fare, Inc.One America Plaza, 600 West Broadway, Second
Floor, San Diego, CA 92101 on February 17, 2006, at 10:00 a.m., One Industrial Drive, Smithfield, Rhode Island 02917, on
March 22, 2001 at 2:30 p.m.Pacific Time,
and for adjournmentany adjournments or adjournmentspostponements thereof, for the purposepurposes set forth in
the accompanying Notice of Annual Meeting of Stockholders. The Boardapproximate date
on which this statement and the accompanying proxy will be mailed to
stockholders is January 23, 2006.
Record Date and Quorum
Only stockholders of Directorsrecord at the close of business on December 12, 2005 (the
"Board""Record Date") knows, are entitled to notice of no other business, which will come
beforeand vote at the meeting.
AllAnnual Meeting. On the
Record Date, there were 19,856,881 shares of common stock, par value $.001 per
share, outstanding ("Common Stock"). At the Annual Meeting, each share of Common
Stock is entitled to one vote. Shares represented by each properly executed,
unrevoked proxy received in time for the meeting will be voted as specified.
InVoting of Proxies
The persons acting as proxies pursuant to the absence of any specification,
proxiesenclosed proxy will be voted (a)vote the
shares represented as directed in the signed proxy. Unless otherwise directed in
the proxy, the proxyholders will vote the shares represented by the proxy: (i)
for the election of the five persons listed herein asdirector nominees as directors, (b)named in this Proxy Statement; (ii) for
approval of the issuance of up to 3,300,000
sharesInfinite Group 2005 Stock Option Plan ("2005 Plan"); (iii) for
amendment of the Company's common stock underCertificate of Incorporation to increase the Equity Linenumber of
Credit Agreement,
dated November 20, 2000, between the Company and Cockfield Holdings Limited, (c)authorized shares from 20,000,000 to 60,000,000 shares; (iv) for ratification of
the appointment of Freed Maxick & Battaglia, CPAs, P.C. as independent auditors
to audit the financial statements of Infinite Group for 2000,the fiscal years 2002,
2003, 2004 and (d)2005; and (v) in the judgment of the Board,proxyholders' discretion, on any other
matters whichbusiness that may properly come before the meeting and any adjournments of the meeting.
AnyAll votes will be tabulated by the inspector of election appointed for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Under Infinite Group's bylaws and Delaware
law: (1) shares represented by proxies that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee that are represented at the
meeting, but with respect to which such broker or nominee is not empowered to
vote on a particular proposal) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum; (2) there
is no cumulative voting, and the director nominees receiving the highest number
of votes, up to the number of directors to be elected, are elected and,
accordingly, abstentions, broker non-votes and withholding of authority to vote
will not affect the election of directors; and (3) proxies that reflect
abstentions or non-votes will be treated as unvoted for purposes of determining
approval of that proposal and will not be counted as votes for or against that
proposal.
2
Voting Requirements
Directors are elected by a plurality of the votes cast at the meeting. The
affirmative vote of a majority of votes cast for or against the matter by
stockholders entitled to vote is required to approve the 2005 Plan and to ratify
the appointment of independent auditors. Approval of the proposed amendment to
the certificate of incorporation to increase the number of shares of authorized
common stock to 60,000,000 requires the affirmative vote of a majority of all
outstanding shares of common stock.
Revocability of Proxy
A proxy may be revoked by the stockholder giving athe proxy has the power to revoke the same at any time before it
is voted.
The approximate date on which this Proxy Statement and the accompanying
form of proxy along with the Company's 1999 Annual Report will be mailedvoted by delivering oral or written notice to the Company's stockholdersSecretary of Infinite Group
at or prior to the meeting, and a prior proxy is February 27, 2001. The principal executive officers of
the Company are located at 2364 Post Road, Warwick, Rhode Island 02886.
VOTING SECURITIES
Only stockholders of record at the close of business on February 26, 2001
are entitled to notice ofautomatically revoked by a
stockholder giving a subsequent proxy or attending and to vote at the Annual Meeting or any adjournment
thereof. On the record date there were issued and outstanding 3,834,143 Common
Shares. Each outstanding Common Share is entitled to one vote upon all matters
to be acted uponvoting at the meeting.
1Attendance at the meeting in and of itself does not revoke a prior proxy.
Expenses of Solicitation
We will pay the expenses of the preparation of proxy materials and the
solicitation of proxies for the Annual Meeting. In addition to the solicitation
of proxies by mail, solicitation may be made by certain directors, officers or
employees of Infinite Group telephonically, electronically or by other means of
communication. We will reimburse brokers and other nominees for costs incurred
by them in mailing proxy materials to beneficial owners in accordance with
applicable rules.
Communications with our Board
Our stockholders may contact our Board or a specified individual director by
writing to the Corporate Secretary, Infinite Group, Inc., 595 Blossom Road,
Suite 309, Rochester, NY 14610. The Corporate Secretary shall forward all such
communications (excluding routine advertisements, business solicitations and
communications that he or she, in his or her sole discretion, deems to be a
security risk or for harassment purposes) to each member of our board of
directors, or, if applicable, to the individual director(s) named in the
correspondence with a courtesy copy to the chairman of our board of directors.
It is Infinite Group's policy that directors are invited and encouraged to
attend the Annual Meeting. All of our then directors attended our last annual
meeting.
Board of Directors Meetings and Committees
During the year-ended December 31, 2004, the Board held two meetings, the Audit
Committee two meetings, and the Compensation Committee one meeting. All
directors attended more than 75% of the number of meetings of the Board and its
committees on which they served.
Compensation Committee
The Compensation Committee reviews and recommends to the Board the compensation
and benefits of all officers of Infinite Group, reviews general policy matters
relating to compensation and benefits of employees of Infinite Group, and
administers the issuance of stock options to Infinite Group's officers,
employees, directors and consultants. The Compensation Committee is comprised of
Paul J. Delmore and Dr. Allan M. Robbins.
3
BENEFICIALAudit Committee
The Audit Committee was established to meet with management and our independent
accountants to determine the adequacy of internal controls and other financial
reporting matters. The Board has adopted a written charter for the Audit
Committee. The Audit Committee is comprised of Paul J. Delmore and Dr. Allan M.
Robbins, both of whom are "independent" (as defined in under Rule 4200(a)(15) of
the National Association of Securities Dealers ("NASD") listing standards).
During our most recent fiscal year, Paul J. Delmore, Chairman of the Audit
Committee, was the "audit committee financial expert" as such term is defined in
Item 401(e)(1) of Regulation S-B.
The Audit Committee Charter is annexed as Appendix I to this proxy statement.
Nominating Committee
We do not have a standing nominating committee. The functions of a nominating
committee are currently performed by the Board. In the event that we expand our
Board in the future we will consider establishing a nominating committee and
adopting a charter for such a committee.
SECURITY OWNERSHIP OF COMMON STOCK
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on review of the copies of such forms
furnished to the Company, or written representations that no Forms 5 were
required, the Company believes that all Section 16(a) filing requirements
applicable to its officers and directors were complied with, except a certain
Form 3, which was filed late by Bruce J. Garreau and a certain Form 4, which was
filed late, by Clifford G. Brockmyre II.CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table together with the accompanying footnotes, sets forth information regarding the beneficial ownership of
our common stock as of JanuaryDecember 31, 2001, regarding stock ownership2005 by:
o each person known to us to be the beneficial owner of more than 5%
of our outstanding shares;
o each of our directors;
o each executive officer named in the Summary Compensation Table
below;
o all persons
known by the Company to own beneficially 5% or more of the Company's outstanding
Common Stock, all directors and nominees, and allour directors and executive officers of the Company as a group.
Except as otherwise indicated, the persons listed below have sole voting and
investment power with respect to all shares of common stock owned by them. All
information with respect to beneficial ownership has been furnished to us by the
respective stockholder. The address of record of each individual listed in this
table, except if set forth below, is c/o Infinite Group, Inc., 595 Blossom Road,
Suite 309, Rochester, NY 14610.
Shares of Common
Stock Beneficially Percentage of
Name of Beneficial Owner(1) Owned(2) Class(3)Owner (1) Owned (2) Ownership
- ------------------------------------------------------ --------------------- --------------------------------------------------------------------------------------------------- --------- ---------
Michael S. Smith 1,516,500(4) 6.5%
Paul J. Delmore 4,884,500(5) 21.0%
Allan M. Robbins 57,500(6) *
James D. Frost 2,000,000(7) 8.6%
William J. Carroll 794,900(8) 3.4%
All Directors and Officers (5 persons) as a group 9,253,400(3) 39.7%
5% Stockholders
David N. Slavny Family Trust
20 Cobble Creek Road
Victor, NY 14564 1,100,000 5.5%
Clifford G. Brockmyre II 1,383,058(4) 34.49%
J. Terence Feeley 127,106(5) 3.56%
Bruce J. Garreau 97,000(6) 2.78%
Daniel T. Landi 17,695(7) *
Thomas J. Mueller 5,000 *
Brian Q. Corridan 2,500(8) *
William G. Lyons III 8,333(9) *
Michael S. Smith 10,333(10) *
All executive officers, and directors as a group (8
persons) 1,651,025(11) 39.41%
--------------------- -------------------(9)
c/o Laser Fare, Inc.
One Industrial Drive South
Smithfield, RI 02917 1,047,463 5.3%
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* less than 1%
5% Stockholders
Northeast Hampton Holdings, LLC(12)
PO Box 146
Boca Raton, FL 33429 497,106 14.36%
Neptune Capital, Inc. (13)
6119 Camino-de-la-Costa
La Jolla, CA 92037 300,000 8.49%
Cockfield Holdings, LLC (14)
c/o Mischon deReya Solicitors
21 Southhampton Row
London WC1B 5HS England
Attention: Kevin Gold 200,000 5.46%
24
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** Less than 5%
(1) Unless otherwise indicated below, each director, executive officer and
each 5% stockholder has sole voting and investment power with respect to
all shares beneficially owned. The address of Mr. Brockmyre is c/o the
Company, 2364 Post Road, Warwick, RI 02886.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stockcommon stock which an individual or group has a right to acquire within 60
days from December 31, 2005 pursuant to the exercise of options or
warrants or upon the conversion of securities are deemed to be outstanding
for the purpose of computing the percent of ownership of such individual
or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
(3)On December 31, 2005, we had 19,856,881 shares of common stock
outstanding.
(2) Assumes that all currently exercisable optionoptions or warrants or convertible
notes owned by the individual have been exercised.
(4) Includes 20,000 shares owned by Mr. Brockmyre's wife as to which shares
Mr. Brockmyre disclaims beneficial ownership, and 548,571 shares subject
to currently exercisable warrants and options.
(5) Includes 105,939 shares subject to currently exercisable options.
(6) Includes 30,700 shares subject to currently exercisable options.
(7) Includes 12,284 shares subject to currently exercisable options.
(8) Includes 2,500 shares subject to currently exercisable options.
(9) Includes 8,333 shares subject to currently exercisable options.
(10) Includes 8,333 shares subject to currently exercisable options.
(11)(3) Assumes that all currently exercisable options or warrants owned by
members of the group have been exercised.
(12) This information was derived from the Schedule 13D(4) Includes 526,500 shares subject to currently exercisable options and
Form 4's filed500,000 shares subject to currently exercisable options which are subject
to stockholder ratification.
(5) Includes (i) 4,827,000 shares owned of record by the reporting person.
(13) IncludesUpstate Holding Group,
LLC, an entity wholly-owned by Mr. Delmore, (ii) 7,500 shares subject to
currently exercisable options and (iii) 50,000 shares subject to currently
exercisable warrants and
62,500 sharesoptions which are subject to a subscription agreement.
(14)stockholder ratification.
(6) Includes 200,0007,500 shares subject to currently exercisable warrants
COMPENSATIONoptions and 50,000
shares subject to currently exercisable options which are subject to
stockholder ratification.
(7) Includes 500,000 shares subject to currently exercisable options and
1,000,000 shares subject to currently exercisable options which are
subject to stockholder ratification.
(8) Includes 794,900 shares subject to currently exercisable options which are
subject to stockholder ratification.
(9) Includes 20,000 shares owned by Mr. Brockmyre's wife as to which shares
Mr. Brockmyre disclaims beneficial ownership. The information with respect
to this stockholder was derived from his Officers and Directors
Questionnaire.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and
persons who own more than ten percent of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than ten-percent stockholders are required by
SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to us, or written
representations that no Forms 5 were required, we believe that all Section 16(a)
filing requirements applicable to our officers and directors were complied with
during the year ended December 31, 2004, with the following exceptions: Allan M.
Robbins, James D. Frost, Michael S. Smith, William J. Carroll, Paul J. Delmore
and Upstate Holdings, LLC did not timely file their respective Annual Change in
Beneficial Ownership of Securities on Form 5. With respect to any former
directors, officers, and ten percent (10%) stockholders of Infinite Group,
Infinite Group does not have any knowledge of any known failures to comply with
the filing requirements of Section 16(a).
5
PROPOSAL NO. 1
ELECTION OF DIRECTORS
ELECTION OF DIRECTORS AND EXECUTIVE OFFICERSMANAGEMENT INFORMATION
At this meeting three (3) directors are to be elected to serve for one-year
terms, each to hold office until his successor is duly elected and qualified.
The Summary Compensation Table below includes,following nominees were selected by the Board of Directors of Infinite Group
(the "Board") and are all currently Directors:
Michael S. Smith
Paul J. Delmore
Allan M. Robbins
It is not contemplated that any nominee will be unable to serve as a director,
but if such contingency should occur prior to the meeting, the persons named as
proxies in the enclosed proxy or their substitutes will have the right to vote
for substitute nominees. Mr. Smith is also an officer of Infinite Group. Certain
information with respect to each nominee is stated below.
Our executive officers and directors and their respective ages, as of the fiscal
years ended December 31, 1999, 1998 and 1997 individual compensation for
services to the Company and its subsidiaries paid to: (1) the Chief Executive
Officer, and (2) the other most highly paid executive officers of the Company in
Fiscal 1999 whose salary and bonus exceeded $100,000 (together, the "Named
Executives").Record
Date, are as follows:
Long-Term All OtherAffiliated
Name and PrincipalAge Position Year Annual Compensation Compensation($) CompensationSince
- ------------------------------ -------- -------------------------------- -------------------------------------------------- ------- -------------------------------------------- -------------------
Actual($) Deferred($)
----------- -------------
Clifford G. Brockmyre 1999 163,096 -- 60,019 --Michael S. Smith 51 Chairman, President, Chief Executive 1995
Officer and Chief 1998 175,000 -- 4,038 --
ExecutiveFinancial Officer
1997 175,000 -- 4,038 --
Bruce J GarreauPaul J. Delmore (1) 1999 51,714 -- 75,000 $7,31249 Director 2003
Allan M. Robbins (1) 54 Director 2003
James D. Frost 56 Chief Financial and 1998 -- -- -- --
AccountingTechnology Officer 1997 -- -- -- --2003
William J. Terence Feeley 1999 151,603 9,652 1,731 --
President Advanced 1998 169,120 10,000 56,928 --
Technology Group 1997 142,230 9,500 23,462 --
Daniel T. Landi 1999 101,539 -- 1,270 --Carroll 58 Sr. VP, Federal Operations 2005
Deanna Wohlschlegel 34 Secretary and Corporate 1998 110,000 -- 2,308 --
Controller 1997 110,000 -- 2,308 --2003
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(1) Mr. Garreau joined the Company in July, 1999.
3
Employment Agreements
We have an employment agreement with Clifford G. Brockmyre II, our
President and Chief Executive Officer, for a term expiring on June 30, 2003,
which provides for an annual salaryMembers of $175,000 and various benefits. In
addition to the compensation provided underand the agreement, Mr. Brockmyre is
eligible to participate in the Company bonus plan and is eligible for other
bonuses as determined in the sole directionaudit committees of the Board.
The agreementprincipal occupation of each of our directors and executive officers
for at least the past five years is as follows:
Michael S. Smith became a director in 1995 and assumed the positions of
chairman, president, chief executive officer and chief financial officer in
January 2003. Before joining us, Mr. Smith co-founded and served as the
president and chief executive officer of Micropub Systems International Inc., a
brewery system manufacturer, from July 1997 to January 2003. Mr. Smith holds a
BA degree from Cornell University and a JD degree from Cornell University School
of Law.
6
Paul J. Delmore became a director in April 2003 and is a member of the
audit and compensation committees. Mr. Delmore is a Managing Partner of Simpson,
Delmore, Greene LLP, a full service law firm located in San Diego, California.
Mr. Delmore's practice includes representation of small companies, private and
public, with respect to early formation issues, private placements, regulatory
requirements for sale of securities, assistance with regulatory filing concerns
and mergers and acquisitions. Mr. Delmore has a BA degree from the State
University of New York at Oswego and a JD degree from the University of San
Diego School of Law. Mr. Delmore is a member of the State Bar of California, the
San Diego County Bar Association, the Association of Southern California Defense
Counsel and the San Diego Defense Lawyers Association.
Dr. Allan M. Robbins became a director in April 2003 and is a member of
the audit and compensation committees. Dr. Robbins is the Medical Director and
Chief Surgeon at Robbins Eye Associates and Robbins Laser Site in Rochester, New
York. He has also provides, among other things, that, ifserved as the CEO of the Genesee Valley Eye Institute. Dr.
Robbins is a board-certified ophthalmologist and completed his fellowship
training at the University of Rochester. Dr. Robbins has been recognized and
received the AMA Commendation for Continuing Medical Education as well as the
Americas Top Ophthalmologists 2002-2003 Award from the Consumers Research
Council of America. Dr. Robbins is a member of the New York State Medical
Society, New York State Ophthalmologist Society, American Academy of
Ophthalmology, American College of Surgeons, International Society of Refractive
Surgery (ISRS), and the American Society of Cataract and Refractive Surgery
(ASCRS). Dr. Robbins was on the Scientific Advisory Council for Phoenix Laser
and a principal clinical investigator for the VISX laser during the FDA clinical
trials.
James D. Frost has been our chief technology officer since 2003. Mr. BrockmyreFrost
is terminated other thana Professional Engineer possessing over 25 years of experience at senior and
executive levels in information technology, engineering, and environmental
business units. Prior to joining us, Mr. Frost was the practice director for
cause (which is definedCiber, Inc. where he was responsible for managing the technical IT practice for
the federal systems division and the commercial division for the mid-atlantic
region. Mr. Frost also led the business process re-engineering and start-up
operations for multiple small business enterprises. He has served as the
operations manager for ABB Environmental Services, and the deputy program
manager and section head at Lee Wan & Associates in Oak Ridge, Tennessee. Mr.
Frost has also served 20 years in the United States Navy as a Navy Civil
Engineer Corps Officer.
William J. Carroll has been our Senior Vice President, Federal Operations
since May 2005. Prior to include convictionjoining us, Mr. Carroll was the director of business
development for the federal civilian team at EMC(2) since June 2004. While with
EMC(2), Mr. Carroll was instrumental in introducing a crime involving moral
turpitude, engaging in activities competitivenumber of major
opportunities with the Company, divulging
confidential information, dishonesty or misconduct detrimentalDepartment of Homeland Security, the Department of
Justice and the Department of Transportation. He also held, and continues to
hold, key leadership positions with several industry associations. Prior to
joining EMC(2), Mr. Carroll led a distinguished 27-year career with the U.S.
Immigration and Naturalization Service culminating with his appointment to
District Director, Washington, D.C. District.
Deanna Wohlschlegel has been our corporate secretary and controller since
May 2003. Prior to that Ms. Wohlschlegel was corporate controller for Micropub
Systems International, Inc. from January 1999 until joining Infinite Group. She
has an associates degree in accounting from Finger Lakes Community College.
All directors hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified. Officers are elected
to serve, subject to the Company or
breach of a material termdiscretion of the agreement),Board, until their successors are
appointed. All of the Company will pay to him a lump
sum payment equalnominees have been approved, recommended and nominated for
re-election to the productBoard by the Board.
7
There are no family relationships among the director nominees or among our
executive officers.
The Board Recommends a
Vote FOR the Election of the sum of (i)Foregoing Nominees and
Proxies that are Returned will be so Voted
Unless Otherwise Instructed.
* * * * *
PROPOSAL NO. 2
APPROVAL OF THE INFINITE GROUP, INC.
2005 STOCK OPTION PLAN
The Board adopted the highest annual rate of
salary paid2005 Plan, subject to Mr. Brockmyre, and (ii) the highest annual bonus paid to or
accrued to the benefit of Mr. Brockmyre during the Employment Term (as defined
in the agreement) multiplied by 2. The agreement also provides for payments to
Mr. Brockmyre in the event of his death or permanent disability.
We have an employment agreement with Mr. J. Terence Feeley, President of
the Advanced Technology Group, for a term expiring on July 1, 2002,stockholder approval, which provides
for an annual salarythe grant to our employees, directors and consultants of $150,000incentive and
various benefits. In additionnon-qualified stock options to purchase 4,000,000 shares of Common Stock.
The purpose of the 2005 Plan is to provide incentives to employees, directors
and consultants whose performance will contribute to our long-term success and
growth, to strengthen Infinite Group's ability to attract and retain employees,
directors and consultants of high competence, to increase the identity of
interests of such people with those of its stockholders and to help build
loyalty to Infinite Group through recognition and the opportunity for stock
ownership. The Compensation Committee of the Board will administer the 2005
Plan.
The following description of the 2005 Plan is a summary and is qualified in its
entirety by reference to the compensation provided under2005 Plan, a copy of which is annexed as Appendix
II to this proxy statement.
Eligibility
Under the agreement, Mr. Feeley is eligible2005 Plan, incentive stock options may be granted only to participate inemployees
and non-qualified stock options may be granted to employees, directors and
consultants. The 2005 Plan will expire 10 years from the Company bonus plandate of stockholder
approval.
Terms of Options
The 2005 Plan permits the granting of both incentive stock options and
is eligible for other bonuses as
determined innonqualified stock options. Generally, the sole directionoption price of both incentive stock
options and non-qualified stock options must be at least equal to 100% of the
Board. The agreement also provides,
among other things, that, if Mr. Feeley is terminated other than for cause
(which is defined to include conviction of a crime involving moral turpitude,
engaging in activities competitive with the Company, divulging confidential
information, dishonesty or misconduct detrimental to the Company or breach of a
material term of the agreement), the Company will pay to him a lump sum payment
equal to the product of the sum of (i) the highest annual rate of salary paid to
Mr. Feeley, and (ii) the highest annual bonus paid to or accrued to the benefit
of Mr. Feeley during the Employment Term (as defined in the agreement)
multiplied by 2. The agreement also provides for payments to Mr. Feeley in the
event of his death or permanent disability.
We have an employment agreement with Bruce J. Garreau, our Chief Financial
and Accounting Officer, for a term expiring on October 1, 2002, which provides
for an annual salary of $135,000 and various benefits including 10,000 shares of
stock and 75,000 options, at $1.00 per share. This option vests and/or vested
with respect to 1/3fair market value of the shares on the date of grant. The maximum term of each
4
option is ten years. For any participant who owns shares possessing more than
10% of the six, twelve and eighteen month anniversaryvoting rights of Infinite Group's outstanding shares of Common Stock,
the exercise price of any incentive stock option must be at least equal to 110%
of the grant date. In addition
to the compensation provided under the agreement, Mr. Garreau is eligible to
participate in the Company bonus plan and is eligible for other bonuses as
determined in the sole directionfair market value of the Board. The agreement also provides,
among other things, that, if Mr. Garreau is terminated other than for cause
(which is definedshares subject to include convictionsuch option on the date of
a crime involving moral turpitude,
engaging in activities competitive withgrant and the Company, divulging confidential
information, dishonesty or misconduct detrimental to the Company or breach of a
material term of the agreement),option may not be longer than five years. Options
become exercisable at such time or times as the CompanyCompensation Committee may
determine at the time it grants options.
8
Federal Income Tax Consequences
Non-qualified Stock Options. The grant of non-qualified stock options will
payhave no immediate tax consequences to himInfinite Group or the grantee. The
exercise of a lump sum paymentnon-qualified stock option will require a recipient to include in
his gross income the amount by which the fair market value of the acquired
shares on the exercise date (or the date on which any substantial risk of
forfeiture lapses) exceeds the option price. Upon a subsequent sale or taxable
exchange of the shares acquired upon exercise of a non-qualified stock option, a
recipient will recognize long or short-term capital gain or loss equal to the
productdifference between the amount realized on the sale and the tax basis of such
shares. Infinite Group will be entitled (provided applicable withholding
requirements are met) to a deduction for Federal income tax purposes at the same
time and in the same amount as the recipient is in receipt of income in
connection with the exercise of a non-qualified stock option.
Incentive Stock Options. The grant of an incentive stock option will have
no immediate tax consequences to Infinite Group or its employee. If the employee
exercises an incentive stock option and does not dispose of the sum of (i)acquired shares
within two years after the highest annual rate of salary paid to
Mr. Garreau, and (ii) the highest annual bonus paid to or accrued to the benefit
of Mr. Garreau during the Employment Term (as defined in the agreement)
multiplied by 2.0. The agreement also provides for payments to Mr. Garreau in
the event of his death or permanent disability.
We have an employment agreement with Thomas M. O'Connor, president of our
plastics group, for a term expiring on December 31, 2001, which provides for an
annual salary of $125,000 and various benefits. In addition to the compensation
provided under this agreement, Mr. O'Connor is eligible to participate in all
executive bonus and option plans established for our senior executives.
Stock Options
The following tables show certain information with respect to stock
options granted in 1999 to Named Executives and the aggregate value at December
31, 1999 of all stock options granted to the Named Executives. All information
contained in this tables and the descriptiongrant of the Stock Option Plansincentive stock option nor within one
year after the date of the transfer of such shares to him (a "disqualifying
disposition"), he will realize no compensation income and any gain or loss that
follow gives effect tohe realizes on a subsequent disposition of such shares will be treated as a
long-term capital gain or loss. For purposes of calculating the one-for-five reverseemployee's
alternative minimum taxable income, however, the option will be taxed as if it
were a non-qualified stock split effected on February
16, 1999. Named Executives exercised no options during 1999.
Option Grants in Last Fiscal Year
- --------------------------------------------------------------------------------
Individual Grants
Percent of
Number of Total
Shares Options/Granted Exercise
Underlying to Employees price Expiration
Name Options Granted in Fiscal Year ($/Sh) Date
- --------------------------- ---------------- ---------------- --------- ----------
Clifford G. Brockmyre II 62,019 37.2% $ 1.875 5/6/04
Bruce J. Garreau 75,000 45.0% $ 1.000 10/1/09
J. Terence Feeley 1,730 1.04% $ 1.875 1/4/04
Daniel T. Landi 6,500 0.76% $ 1.875 1/4/04
5
Aggregate 1999 Year End Option Values
- --------------------------------------------------------------------------------
Number of Shares of Common
Stock Underlying
Unexercised Options at Value of Unexercised
12/31/99 (#) In-The-Money Options at 12/31/99*
Name Exercisable/Unexercisable ($) Exercisable/Unexercisable
- ------------------------- ---------------------------- -----------------------------
Clifford G. Brockmyre 81,689/11,406 $--/--
Bruce J. Garreau 0/75,000 $--/28,125
J. Terence Feeley 71,857/36,798 $--/--
Daniel T. Landi 6,317/3,801 $--/--
- --------------
* Based on December 31, 1999 Nasdaq closing price of $1.375.
Stock Optionoption.
Equity Compensation Plan Information
Securities Authorized for Issuance Under Equity Compensation Plans
We have stock option plans, which were adopted by our boardBoard and approved by our
shareholdersstockholders, covering an aggregate of 2,172,9261,840,000 unexercised shares of our
common stock,Common Stock at December 31, 2005, consisting of both incentive stock options
within the meaning of Section 422 of the United States Internal Revenue Code of
1986 (the "Code")Code) and non-qualified options. The option plans are intended to
qualify under Rule 16b-3 of the Securities Exchange Act of 1934, and were registered under Form S-8 on
May 4, 2000.1934. Incentive stock
options are issuable only to our employees, while non-qualified options may be
issued to non-employees, consultants, and others, as well as to employees. We
also have a stock option plan which was adopted by our Board in March 2005,
which has not yet been approved or ratified by our stockholders, covering an
aggregate of 4,000,000 unexercised shares of our Common Stock at December 31,
2005, consisting of both incentive stock options within the meaning of Section
422 of the Code and non-qualified options.
The Option Plansoption plans are administered by the Compensation Committee, of the
Board, which
determines those individuals who shall receive options, the time period during
which the options may be partially or fully exercised, the number of sharesshare of
Common Stock that may be purchased under each option, and the option price. The members of this committee are eligible to receive 2,500
incentive options under the Directors' Option Plan, per year as approved by the
shareholders.
The per share exercise price of an incentive or non-qualified stock option may
not be less than the fair market value of the Common Stock on the date the
option is granted. The aggregate fair market value (determined as of the date
the option is granted) of the shares of Common Stock for which incentive stock
options are first exercisable by any individual during any calendar year may not
exceed $100,000. No person who owns, directly or indirectly, at the time of the
granting of an incentive stock option to him or her, more than 10% of the total
combined voting power of all classes of stock of the CompanyInfinite Group shall be
eligible to receive any incentive stock option under the Option Plansoption plans unless the
option price is at least $110%110% of the fair market value of theour Common Stock
subject to the option, determined on the date of grant. Non-qualified options
are not subject to this limitation.
9
An optionee may not transfer an incentive stock option, other than by will or
the laws of descent and distribution, and during the lifetime of an optionee,
the option will be exercisable only by him or her. In the event of termination
of employment other than by death or 6
disability, the optionee will have three monthsthirty
(30) days after such termination during which to exercise the option. Upon
termination of employment of an optionee by reason of death or permanent total
disability, the option remains exercisable for one year thereafter to the extent
it was exercisable on the date of such termination. No similar limitation
applies to non-qualified options.
Pursuant to our 1999 Stock Option Plan,option plans, each new non-employee director of
the company is automatically
granted, upon becoming a director, an option to purchase 7,500 shares of common stockour
Common Stock at the fair market value of such shares on the grant date. In
addition, each non-employee director shallis automatically be granted an option to
purchase 5,000 shares at the fair market value of such shares on the date of
grant, on the date of our annual meeting of shareholders.
Each such option shallstockholders. These options vest 1/3
upon grant and 1/3 at the end of each subsequent year of service. In April 2003,
we granted 7,500 options to each of our two new directors. In addition to the
foregoing, in March 2005, we granted 50,000 non-qualified options to each of our
two outside directors. As of December 31, 2005, we have granted 141,500 options
to members of the Board, all of which are exercisable at December 31, 2005 at
prices ranging from $.10 to $7.80.
Options under the Option Plans and Directors' Planoption plans must be granted within 10 years from the
effective date of each respective plan. Incentive stock options granted under
the plan cannot be exercised more than 10 years from the date of grant, except
that incentive stock options issued to greater than 10% stockholders are limited
to four-year terms. All options granted under the plans provide for the payment
of the exercise price in cash or by delivery to the
Company of shares of Common Stock already
owned by the optionee having a fair market value equal to the exercise price of
the options being exercised, or by a combination of such methods of payment.
Therefore, an optionee may be able to tender shares of Common Stock to purchase
additional shares of Common Stock and may theoretically exercise all of his
stock options without making any additional cash investment.
Any unexercised options that expire or that terminate upon an optionee's ceasing
to be affiliated with the CompanyInfinite Group become available once again for issuance.
AsThe following table summarizes as of JanuaryDecember 31, 2001, we had2005 the (i) currently
exercisable options granted under our plans and (ii) all other securities
subject to contracts, options, warrants and rights or authorized for future
issuance outside our plans. The shares covered by outstanding options or
authorized for future issuance are subject to adjustment for changes in
capitalization stock splits, stock dividends and similar events.
10
Equity Compensation Plan Table
----------------------------------------------------------------------
Number of securities
Number of securities Weighted-average remaining available for
to be issued upon exercise price of future issuance under
exercise of outstanding equity compensation plans
outstanding options, options, warrants (excluding securities
warrants and rights and rights reflected in column (a))
(a) (b) (c)
-------------------- ----------------- -------------------------
Equity Compensation Plans Approved By
Security Holders (1) 1,319,000 $0.16 521,000
Equity Compensation Plans Not Approved By
Security Holders (2) 2,743,400 $0.18 1,256,600
Warrants Granted to Service Providers (3) 75,000 $2.40 0
--------- ----- ---------
Total 4,137,400 $0.22 1,777,600
--------- ----- ---------
(1) Includes the 1995, 1996, 1997, 1998 and 1999 Stock Option Plans
(2) Includes the 2005 Stock Option Plan
(3) Consists of warrants to purchase 984,42975,000 shares of Common Stock issued to a
service provider in connection with debt financings in 2002, which are
exercisable at $2.40 per share and expire in 2007.
At December 31, 2005, we had notes payable and accrued interest of $359,050 due
to Dr. Allan M. Robbins, a member of our Board, and $553,851 due to Northwest
Hampton Holdings, LLC. These notes and accrued interest are convertible into
shares of our Common Stock at $.05 per share at the option of the note holder at
any time after 60 days following the date on which the stockholders of Infinite
Group vote to authorize a sufficient number of shares to permit such conversion,
provided that such conversions do not result in a change of control that would
limit Infinite Group's utilization of its net operating loss carryforwards. If
the principal and accrued interest were converted in full, we would be required
to issue 7,181,000 common shares to the Dr. Robbins and 11,077,020 common shares
Northwest Hampton Holdings, LLC.
As of December 31, 2005 if all of the aforementioned incentive and non-qualified
options and warrants were to be exercised and notes including accrued interest
were to be converted to shares of our Common Stock, we would be obligated to
issue an additional 22,395,420 common shares.
11
The following table summarizes the number and value of unexercised options
granted under the 2005 Plan and held as of December 31, 2005. The realizable
value of options represents the positive spread between the exercise price of
any such option and the market value of Common Stock on December 31, 2005.
Grants Under the 2005 Stock Option Plan
Number of Shares
of Common Stock
RealizableValue of Underlying
Outstanding Options Outstanding
Name and Position ($) (3) Options
----------------- ------------------- ----------------
Michael S. Smith $ -- 500,000
James D. Frost $ 80,000 1,000,000
William J. Carroll $ 87,085 794,900
All executive officers (4 persons) as a group(1) $168,085 2,314,900
All non-executive directors (2 persons) as a $ 15,000 100,000
group(2)
All employees as a group (not including $ 7,760 278,500
executive officers)
Service provider $ 4,500 50,000
Number of Options Awarded 2,743,400
Number of Options Remaining Available For
Future Issuance 1,256,600
(1) Includes options granted to Deanna Wohlschlegel, Infinite Group's
Secretary and Controller.
(2) Consist of Paul J. Delmore and Dr. Allan M. Robbins.
(3) For the purpose of this calculation value is based upon the difference
between the exercise price of the outstanding options and the closing
stock price at December 31, 2005 of $.25 per share.
The Board Unanimously Recommends A Vote FOR the
Approval of the Infinite Group 2005 Stock Option Plans,Plan.
* * * * *
PROPOSAL NO. 3
AMENDMENT OF CERTIFICATE OF INCORPORATION
TO INCREASE NUMBER OF AUTHORIZED SHARES
Our Certificate of Incorporation, as amended, currently authorizes the issuance
of 20,000,000 shares of Common Stock and 1,000,000 shares of preferred stock. On
November 15, 2005, the Board adopted a resolution, subject to stockholder
approval, to amend Article Fourth of our Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 20,000,000 to
60,000,000.
Of the currently authorized shares of Common Stock, 19,856,881 were issued and
outstanding as of December 31, 2005. As a result, 143,119 shares of Common Stock
remain available for issuance as of that date. Of these remaining shares, 75,000
are reserved for issuance upon exercise of outstanding warrants issued to a
service provider in connection with debt financings in 2002, which are
exercisable at $2.40 per share and expire in 2007.
12
The Board believes that the proposed increase in the number of shares of
authorized Common Stock is appropriate so that shares will be available, if
needed, for issuance in connection with outstanding debt conversions, future
equity financings, possible acquisitions, stock splits, stock dividends, equity
compensation plans and for other proper corporate purposes without further
action by our stockholders, except as required by applicable law, regulation or
rule. We have no present agreements, commitments or plans to issue any of these
shares, other than up to 1,319,000 shares which may be issued upon exercise of
currently outstanding options under our 1995, 1996, 1997, and 1999 stock option
plans which were approved by stockholders and up to 2,743,400 shares which may
be issued upon exercise of currently outstanding options under our 2005 Stock
Option Plan which is the subject of proposal number two above, However, at (i)
December 31, 2005, subject to the limitations described below, we have a total
of $912,901 in convertible debt and accrued interest outstanding that, if
converted, would result in the issuance of up to 18,258,020 shares of Common
Stock and (ii) the grant and exercise of all the options available for grant
under our existing equity compensation plans would result in the issuance of up
to 5,840,000 shares of Common Stock.
During 2004 and 2003, to raise proceeds for working capital purposes to fund
current liabilities and provide cash for operations we issued the following
notes:
(i) various convertible notes payable to Dr. Allan M. Robbins, a Board
member, in the aggregate principal amount of $314,000 bearing
interest at 6% per annum which matures on January 1, 2016 (the
"Robbins Note"). The Robbins Notes were issued as follows:
i. on February 25, 2003 in the principal amount of $25,000;
ii. on April 15, 2003 in the principal amount of $15,000;
iii. on April 25, 2003 in the principal amount of $60,000;
iv. on May 22, 2003 in the principal amount of $40,000;
v. on July 2, 2003 in the principal amount of $60,000;
vi. on December 4, 2003 in the principal amount of $40,000;
vii. on January 7, 2004 in the principal amount of $4,000; and
viii. on February 26, 2004 in the principal amount of $70,000;
As of December 31, 2005, the outstanding balance of the Robbins Note,
including 17,000interest, was $359,050;
(ii) on August 5, 2003 a convertible note payable to Northwest Hampton
Holdings, LLC in the aggregate principal amount of $203,324 bearing
interest at 7.75% per annum which matures on January 1, 2016 (the
"Hampton Note"). As of December 31, 2005, the outstanding balance of
the Hampton Note, including interest, was $250,447; and
(iii) various other convertible notes to Northwest Hampton Holdings, LLC,
in aggregate principal amount of $317,800 bearing interest at 6% per
annum which matures on January 1, 2016 (the "Various Hampton
Notes"). The Various Hampton Notes were issued as follows:
i. on January 16, 2003 in the principal amount of $100,000;
ii. on July 17, 2003 in the principal amount of $100,000;
iii. on October 23, 2003 in the principal amount of $800;
iv. on November 5, 2003 in the principal amount of $3,000;
v. on November 6, 2003 in the principal amount of $40,000;
vi. on December 22, 2003 in the principal amount of $50,000;
vii. on January 30, 2004 in the principal amount of $2,000; and
viii. on March 11, 2004 in the principal amount of $22,000.
On December 6, 2005, $25,000 of the principal of the Various Hampton
Notes was converted by the holder into 500,000 shares of Common
Stock reducing the principal balance to $292,800. As of December 31,
2005, the outstanding balance of the Various Hampton Notes,
including interest, was $303,404.
Generally, upon notice, prior to the note maturity date, we can prepay all or a
portion of the outstanding note principal; provided, however, at no time can we
prepay an amount that would result in a change of control and limit the use of
our net operating loss carryforwards if the same amount were converted by the
note holder.
As of January 1, 2006, the interest rate on each of the Robbins Notes, Hampton
Note and Various Hampton Notes (collectively, the "Notes") increased to 8% per
annum. Thereafter, the interest rate will be adjusted annually, on January 1st
of each year, to a rate equal to the prime rate in effect on December 31st of
the immediately preceding year, plus one and one quarter percent, and in no
event, shall the interest rate be less than 6% per annum.
The Notes are convertible into shares of Common Stock subject to the following
limitations:
1. Following stockholder approval of this proposal and sixty days after
the related amendment to our certificate of incorporation is effective under
applicable law, upon written notice to us, all or part of the outstanding
principal and accrued interest on the Notes are convertible into shares of
Common Stock at $.05 per share, which was the fair market value of a share of
Common Stock on the respective issuance date of each of the Notes.
2. The shares of Common Stock issuable upon the proposed conversion will
not result in a change in control of Infinite Group which would limit the use of
our net operating loss carryforwards; provided, however, if we close a
transaction with another third party or parties that results in a change of
control which will limit the use of our net operating loss carryforwards, then
the change of control provision shall no longer be in effect.
13
3. Prior to any conversion by a requesting note holder, each note holder
holding a Note which is then convertible into 5% or more of our Common Stock
shall be entitled to participate on a pari passu basis with the requesting note
holder and upon any such participation the requesting note holder shall
proportionately adjust his conversion request such that, in the aggregate, a
change of control which will limit the use of our net operating loss
carryforwards does not occur.
In the event that the entire principal and accrued interest of the Notes at
December 31, 2005 were converted into shares of our Common Stock, the holders of
the Notes would own 18,758,020 shares (including 500,000 shares of Common Stock
owned by Northwest Hampton Holdings, LLC) or 49.2% of the then issued and
outstanding shares of our Common Stock resulting in their ability to effect
control over our operations.
Infinite Group's stockholders, under its Certificate of Incorporation, do not
have preemptive rights to subscribe to additional securities that may be issued
by Infinite Group. This means that current stockholders do not have a prior
right to purchase any new issue of Infinite Group capital stock in order to
maintain their proportionate ownership of Common Stock. In addition, if Infinite
Group issues additional shares of Common Stock or other securities convertible
into Common Stock in the future, it could dilute the voting rights of existing
stockholders and could also dilute earnings per share and book value per share
of existing stockholders. The increase in authorized Common Stock could also
discourage or hinder efforts by other parties to obtain control of Infinite
Group, thereby having an anti-takeover effect. The increase in authorized shares
of Common Stock is not being proposed in response to any known threat to acquire
control of Infinite Group.
A copy of the proposed amendment to our Certificate of Incorporation is attached
as Appendix III to this proxy statement.
The Board unanimously recommends a vote FOR this proposal.
* * * * *
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
Infinite Group is recommending that the stockholders ratify the appointment of
Freed Maxick & Battaglia, CPAs, P.C. as its independent public accountants for
2002, 2003, 2004 and 2005. Freed Maxick & Battaglia, CPAs, P.C. audited Infinite
Group's financial statements for the fiscal year ended December 31, 2004. The
report of Freed Maxick & Battaglia, CPAs, P.C. with respect to Infinite Group's
financial statements appears in Infinite Group's annual report for the fiscal
year ended December 31, 2004. A representative of Freed Maxick & Battaglia,
CPAs, P.C. will attend the meeting by telephone and will have an opportunity to
make a statement if he desires to do so and will be available to respond to
appropriate questions through conference telephone. In the event the
stockholders fail to ratify the appointment, the Board will consider it a
directive to consider other Independent Public Accountants for the subsequent
year.
14
The Board Recommends a Vote FOR the Ratification of the
Appointment of Freed Maxick & Battaglia, CPAs, P.C. for Fiscal Years 2002,
2003, 2004 and 2005 and
Proxies that are Returned will be so Voted
Unless Otherwise Instructed.
* * * * *
AUDIT COMMITTEE REPORT
The Audit Committee is comprised of two non-management Directors and operates
pursuant to a written Charter, both of whom are "independent" (as defined in
under Rule 4200(a)(15) of the NASD listing standards). During fiscal 2004, the
Audit Committee held one meeting and one private session with our independent
auditors. The Audit Committee's purpose is to assist the Board in its oversight
of (i) the integrity of our financial statements, (ii) our compliance with legal
and regulatory requirements, (iii) our independent auditors' qualifications and
independence, (iv) the performance of our internal audit function and
independent auditors and (v) our management of market, credit, liquidity and
other financial and operational risks; to decide whether to appoint, retain or
terminate our independent auditors and to pre-approve all audit, audit-related
and other services, if any, to be provided by the independent auditors; and to
prepare this audit committee report. The Board has determined that each member
is financially literate and at least one member of the Audit Committee has
accounting or related financial management expertise, as such qualifications are
defined under NASD listing standards, and that Mr. Delmore is an "audit
committee financial expert" as such term is defined in Item 401(e)(1) of
Regulation S-B.
Management is responsible for the preparation, presentation and integrity of our
financial statements, accounting and financial reporting principles and the
establishment and effectiveness of internal controls and procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
The independent auditors are responsible for performing an independent audit of
the financial statements in accordance with generally accepted auditing
standards. The independent auditors have free access to the Audit Committee to
discuss any matters they deem appropriate.
In performing its oversight role, the Audit Committee has considered and
discussed the audited financial statements with management and the independent
auditors. The Audit Committee has also discussed with the independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as currently in effect. The Audit Committee
has received the written disclosures and the letter from its independent
auditors required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, as currently in effect, and has discussed
with the auditors, of Freed Maxick & Battaglia, CPAs, P.C., the auditors'
independence. All non-audit services performed by the independent auditors must
be specifically pre-approved by the Audit Committee or a member thereof.
During fiscal 2004, the Audit Committee performed all of its duties and
responsibilities under the Audit Committee Charter. The Audit Committee has
reviewed and discussed with management Infinite Group's audited financial
statements for the year ended December 31, 2004. In addition, based on the
reports and discussions described in this Report, the Audit Committee
recommended to the Board that the audited financial statements of Infinite Group
for fiscal 2004 be included in its Annual Report on Form 10-KSB for such fiscal
year.
15
Audit Committee Matters and Fees Paid to Independent Auditors
Under its charter, the Audit Committee must pre-approve all engagements of our
independent auditor unless an exception to such pre-approval exists under the
Exchange Act or the rules of the SEC. Each year, the independent auditor's
retention to audit our financial statements, including the associated fee, is
approved by the Audit Committee before the filing of the preceding year's Annual
Report on Form 10-KSB. At the beginning of the fiscal year, the Audit Committee
will evaluate other known potential engagements of the independent auditor,
including the scope of the work proposed to be performed and the proposed fees,
and approve or reject each service, taking into account whether the services are
permissible under applicable law and the possible impact of each non-audit
service on the independent auditor's independence from management. At each
subsequent Audit Committee meeting, the Audit Committee will receive updates on
the services actually provided by the independent auditor, and management may
present additional services for approval. Typically, these would be services
such as due diligence for an acquisition, that would not have been known at the
beginning of the year. The Audit Committee has delegated to the Chairperson of
the Audit Committee the authority to evaluate and approve engagements on behalf
of the Audit Committee in the event that a need arises for pre-approval between
committee meetings. This might occur, for example, if we proposed to execute a
financing on an accelerated timetable. If the Chairperson so approves any such
engagements, he will report that approval to the full Audit Committee at the
next Audit Committee meeting.
Since the May 6, 2003 effective date of the SEC rules stating that an auditor is
not independent of an audit client if the services it provides to the client are
not appropriately approved, each new engagement of Freed Maxick & Battaglia,
CPAs, P.C. was approved in advance by the Audit Committee, and none of those
engagements made use of the de minimis exception to pre-approval contained in
the SEC's rules.
Audit Committee Pre-Approved Policies and Procedures
The Audit Committee will pre-approve audit services and non-audit services to be
provided by Infinite Group's independent auditors before the accountant is
engaged to render these services. The Audit Committee may consult with
management in the decision-making process, but may not delegate this authority
to management. The Audit Committee may delegate its authority to pre-approve
services to one or more committee members, provided that the designees present
the pre-approvals to the full committee at the next committee meeting.
16
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed by our principal accounting firm, Freed Maxick &
Battaglia, CPA's, PC, for fees billed for fiscal years ended December 31, 2004
and 2003 are as follows:
2004 2003
------- -------
Audit fees $66,032 $82,712
Audit related fees -- --
------- -------
$66,032 $82,712
Total audit and audit related fees
Tax fees -- --
All other fees -- --
------- -------
$66,032 $82,712
======= =======
Total fees
Audit-Related Fees
The Audit Related fees were zero for the periods presented.
Tax Fees
The tax fees were zero for the periods presented.
All Other Fees
All other fees were zero for the periods presented.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Summary Compensation Table below includes, for each of the fiscal years
ended December 31, 2002, 2003, 2004 and 2005 individual compensation for
services to Infinite Group and its subsidiaries paid to: (1) the Chief Executive
Officer, and (2) the other most highly paid executive officers of Infinite Group
in 2002, 2003, 2004 and 2005 whose salary and bonus exceeded $100,000 (together,
the "Named Executives").
17
All other
Name and Principal Position Year Salary Bonus compensation (1)
- ------------------------------------------------- --------- ------------- ------------------- ---------------------
Michael S. Smith
President, Chief Executive Officer, Chief 2005 $179,086 $ 5,005 $ 2,036
Financial Officer and Director commencing May 2004 $181,789 $ 3,500 $ 854
1, 2003, Director 2003 $108,856 $ 30,000 --
2002 -- -- --
Mark J. Ackley
Chief Operating Officer and Director of 2005 -- -- --
Business Development commencing April 2004 $173,682 $ 10,000 --
19, 2003 (2) 2003 $103,846 $ 15,000 --
2002 -- -- --
William J. Carroll
Senior Vice President, 2005 $168,750 -- $ 564
Federal Operations commencing 2004 -- -- --
April 8, 2005 2003 -- -- --
2002 -- -- --
James D. Frost 2005 $201,923 -- $ 502
Chief Technology Officer and Director of 2004 $173,978 $ 10,000 --
Delivery commencing May 12, 2003 2003 $ 89,423 $ 15,000 --
2002 -- -- --
Clifford G. Brockmyre II
President and Chief Executive Officer 2005 -- -- --
through January 3, 2003, CEO Laser Fare from 2004 -- -- --
January 3, 2003 through December 31, 2003 2003 $149,376 $ 1,500 --
2002 $106,672 -- --
Clifford G. Brockmyre III
President Laser Fare, Inc. 2005 -- -- --
through December 31, 2004 2004 $ 90,679 $ 1,050 --
2003 $107,655 $ 2,099 --
2002 $108,718 -- --
(1) Reflects stock grants, matching contributions to the employee's IRA Plan
and life insurance premiums paid by Infinite Group.
(2) Mr. Ackley's employment was terminated in March 2005.
Employment Agreements
In 2003, we entered into employment agreements with Messrs. Smith, 15,500Ackley and
Frost. These agreements are essentially identical and provide, among other
things, for annual base compensation of $150,000 for five-year terms. In
addition, each agreement provides for the issuance of 500,000 shares of our
common stock with a value of $25,000 as of the date of issuance and 500,000
employee stock options exercisable at $.05 per share. Each agreement also
provides for, among other things, incentive compensation, termination benefits
in the event of death, disability and termination for other than cause, and a
covenant against competition. Mr. Ackley's employment was terminated for cause
in March, 2005.
Stock Options
The following table sets forth certain information regarding options granted by
us in 2005 through December 31, 2005 to William G. Lyons III,each of the Named Executives. There were
no stock options granted to the Named Executives in 2004.
18
Number of Shares Percent of Total
of Common Stock Options Granted to
Name Underlying Option Employees in Year Exercise Price ($/Sh) Expiration Date
--------------------- ----------------- ----------------- --------------------- ---------------
James D. Frost 500,000 18.2% $ .09 3/9/2015
James D. Frost 500,000 18.2% $ .25 3/9/2015
Michael S. Smith 500,000 18.2% $ .25 3/9/2015
William J. Carroll 750,000 27.4% $ .13 4/18/2015
William J. Carroll 7,500 .3% $ .14 7/1/2015
William J. Carroll 37,400 1.4% $ .35 10/1/2015
Paul J. Delmore 50,000 1.8% $ .10 3/30/2015
Allan M. Robbins 50,000 1.8% $ .10 3/30/2015
----------- ------
Total 2,394,400 87.3%
========= =====
The following table provides information with respect to options exercised by
the named executive officers for the twelve months ended December 31, 2005 and
the number and value of unexercised options held by the named executive officers
as of December 31, 2005.
Number of Number of Shares Underlying Value of Unexercised
Shares Dollar Unexercised Options at In-the-Money Options at
Underlying Value December 31, 2005 December 31, 2005 (1)
Options Realized on ---------------------------- ------------------------------
Name Exercised Exercise Exercisable Nonexercisable Exercisable Nonexercisable
---- --------- -------- ----------- -------------- ----------- --------------
Michael S. Smith -- $-- 1,000,000 -- $ 100,000 $--
William J. Carroll -- $-- 794,400 -- $ 87,085 $--
James D. Frost -- $-- 1,500,000 -- $ 180,000 $--
Paul J. Delmore -- $-- 57,500 -- $ 8,625 $--
Allan M. Robbins -- $-- 57,500 -- $ 8,625 $--
----- ----- --------- ----- --------- -----
Total -- $-- 3,409,400 -- $ 384,335 $--
===== ===== ========= ===== ========= =====
(1) For the purpose of this calculation value is based upon the difference
between the exercise price of the options and the stock price at December
31, 2005 of $.25 per share.
Compensation of Directors
Pursuant to our option plans, each new non-employee director is automatically
granted, upon becoming a director, an option to purchase 7,500 shares of our
Common Stock at the fair market value of such shares on the grant date. In
addition, each non-employee director is automatically granted an option to
Brian Q. Corridan underpurchase 5,000 shares at the Directors' Plan.fair market value of such shares on the date of
grant, on the date of our annual meeting of stockholders. These options vest 1/3
upon grant and 1/3 at the end of each subsequent year of service. In April 2003,
we granted 7,500 options to each of our two new directors. In addition to the
foregoing, in March 2005, we granted 50,000 non-qualified options to each of our
two outside directors under our 2005 Plan. As of December 31, 2005, we have
granted 141,500 options to members of the board of directors, all of which are
exercisable at December 31, 2005 at prices ranging from $1.375$.10 to $9.40 per share.$7.80.
19
Limitation of Directors' Liability and Indemnification
The Delaware General Corporation Law (the "DGCL") authorizes corporations to
limit or eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. The Infinite Group's Certificate of Incorporation limits the liability of
its directors to Infinite Group or its stockholders to the fullest extent
permitted by Delaware law.
Infinite Group's Certificate of Incorporation provides mandatory indemnification
rights to any officer or director of Infinite Group who, by reason of the fact
that he or she is an officer or director of Infinite Group, is involved in a
legal proceeding of any nature. Such indemnification rights include
reimbursement for expenses incurred by such officer or director in advance of
the final disposition of such proceeding in accordance with the applicable
provisions of the DGCL. Insofar as indemnification for liabilities under the
Securities Act of 1933 (the "Act") may be provided to officers and directors or
persons controlling Infinite Group, Infinite Group has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
None of the Directors serving on the Compensation Committee of our board is
employed by the Company.Infinite Group. In addition, none of our Directors or executive
officers of the CompanyInfinite Group is a director or executive officer of any other
corporation that has a director or executive officer who is also a member of our
Board.
Directors Compensation
Pursuant to our 1999 Stock Option Plan, each non-employee Director
receives 5,000 stock options at the end of each year of service as a director.
The Company does not pay a fee to directors for services rendered as directors.
Each director is reimbursed for travel expenses incurred in connection with
attendance at meetings of the Board and its committees.
7
Report of the Audit Committee of the Board of Directors
Membership and Role of the Audit Committee
The Audit Committee consists of three outside members of the Company's
Board of Directors. Each member of the Audit Committee is independent and
possesses other qualifications as required by Nasdaq. The Audit Committee
operates under a written charter adopted by the Board of Directors, which is
included in this Proxy Statement as Exhibit A.
The primary function of the Audit Committee is to assist the Board of
Directors in monitoring (1) the integrity of the financial statements of the
Company, (2) the compliance by the Company with legal and regulatory
requirements, and (3) the independence and performance of the Company's internal
and external auditors.
Review of the Company's Audited Financial Statements for the Fiscal Year ended
December 31, 1999
The Audit Committee has reviewed, and by its Chairman has discussed with
management, the audited financial statements of the Company for the fiscal year
ended December 31, 1999. The Audit Committee has discussed with Freed Maxick
Sachs & Murphy, P.C., the Company's independent public accountants, the matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
The Audit Committee has also received the written disclosures and the
letter from Freed Maxick Sachs & Murphy, P.C., required by Independence
Standards Board Standard No. 1 (Independence Discussion with Audit Committees),
and the Audit Committee has discussed the independence of Freed Maxick Sachs &
Murphy, P.C., with that firm. Based on the Audit Committee's review and
discussions noted above, the Audit Committee recommended to the Board of
Directors that the Company's audited financial statements be included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999 for filing with the SEC.
Submitted by:
Michael S. Smith, Chairman of the Audit Committee
William G. Lyons III
Brian Q. Corridan*
*Joined the Committee on November 19, 2000.
8
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DuringMr. Clifford G. Brockmyre II was the period from January 1, 1998President and Chief Executive Officer of
our Laser Fare, Inc. subsidiary until December 31, 2003. Mr. Brockmyre's son,
Clifford G. Brockmyre III, was employed as the General Manager of our Laser
Fare, Inc. subsidiary at an annual salary of $100,000 through September 30, 2000, our
presidentDecember 31, 2004,
at which time the business, assets and chief executive officer loaned the Company an aggregatecertain liabilities of $2,274,000, which bore interest at various interest rates. In consideration for
these loans, our president was issued warrants to purchase 689,000 shares of
common stock. As of September 30, 2000, the Company had repaid approximately
$1,045,000 of the loans and approximately $809,000 had been converted into
556,000 shares of common stock.
In May 2000, we completed a $500,000 private placement of Common StockLaser Fare were
sold. Mr. Brockmyre is no longer affiliated with Neptune Capital, Inc., at a price of $2.00 per share, of which $250,000 was
paid in cash and the remainder is due in four equal installments (August 31,
2000, November 29, 20000, February 28, 2001 and May 28, 2001) with accrued
interest at 10% per annum. In conjunction with the financing, we issued warrants
to purchase 50,000 and 100,000 shares of Common Stock, at exercise prices of
$1.625 and $2.00 per share, respectively, exercisable commencing on the first
anniversary date of the warrant and expiring five years from the date of
issuance. In October 2000, our president converted $242,064 of outstanding debt
into 88,668 shares of common stock.us.
We believe that the foregoing transactions, which involved affiliates,
wereMr. Brockmyre's employment with Laser Fare was on terms no less
favorable to the Companyus than could have been obtained from unaffiliated third parties. As a matter of
policy, in order to reduce the risks of self-dealing or a breach of the duty of
loyalty to the Company,Infinite Group, all transactions between the CompanyInfinite Group and any of
its officers, directors or principal stockholders are for bona fide purposes and
are approved by a majority of the disinterested members of theour Board.
ELECTION OF DIRECTORS
At the meeting, five Directors will be elected by the stockholdersDecember 31, 2005, we had notes payable and accrued interest of $359,050 due
to serve until the next annual meeting or until their successors are elected and
qualified. The accompanying form of proxy will be voted for the election as
Directors of the five persons named below, unless the proxy contains contrary
instructions. Proxies cannot be voted for a greater number of persons than the
number of nominees named herein. Management has no reason to believe that any of
the nominees will not be a candidate or unable or unwilling to serve as
Directors, the proxy will be voted for the election of such person or persons as
shall be designated by the Board.
Clifford G. Brockmyre II. Mr. Brockmyre, age 59, has been a director of
the Company since October 1994 and its President since October 1995. He has been
involved with manufacturing since 1966. For over 27 years, he has been involved
in the tooling, machining and manufacturing industries and was the 1992 Chairman
of the 3000+ corporation member National Tooling and Machining Association. He
developed the laser manufacturing liaison to the National Laboratories at Los
Alamos, Sandia and Oak Ridge for Laser Fare. The Department of Energy has set up
Laser Fare as a model for technology transfer under its
9
Small Business Initiative. Mr. Brockmyre serves on the Rhode Island State
Economic Advisory Council, a position to which he was appointed by the Governor
of Rhode Island.
Brian Q. Corridan. Mr. Corridan, age 52, became a director in June 2000
and isDr. Allan M. Robbins, a member of the auditour board of directors, and compensation committees. Since 1994, he has
been president of Corridan & Co. after founding the privately owned full service
investment firm registered with the SEC, NYSE$553,851 due to
Northwest Hampton Holdings, LLC. These notes and NASD. He has served as a
Registered Representative with Prudential Securities, Tucker Anthony-R.L., Day,
and Kidder Peabody & Co. Mr. Corridan received his BA from Stonehill College,
and is a graduate of the Naval Officers Candidate School in Newport. Also, he is
a director of Health New England, serves on the Finance Committee of Baystate
Health System, and as a Trustee for several civic and educational organizations,
including Our Lady of Elms College and Springfield Technical Community College
Assistance Corporation.
J. Terence Feeley. Mr. Feeley, age 50, has been a director of the Company
since March, 1999 and the President of the Laser Fare -- Advanced Technology
Group since 1994. He was the co-founder, President and CEO of Laser Fare prior
to it being acquired by the Company. Mr. Feeley is the President of the Laser
Institute of America, the author of over 50 papers on laser technology and the
co-editor of three books in the area of laser based rapid manufacturing. Mr.
Feeley received a BA from the University of Rhode Island.
William G. Lyons III. Mr. Lyons, age 43, became a director of the Company
in December 1998 and is a member of the audit and compensation committees. Mr.
Lyons is president of Third Generation Consultants, LLC and chairman of
Blackstone Medical, Inc. He was previously employed by Brimfield Precision,
Inc., from 1981 through 1998, a manufacturer of surgical instruments and
orthopedic implants in various capacities including President and Chief
Executive Officer. Mr. Lyons received a B.S. in Mechanical Engineering --
Material Science from the University of Connecticut and a M.S. in Biomedical
Engineering from Hartford Graduate Center/Rensselaer Polytechnical Institute.
Michael S. Smith. Mr. Smith, age 46, became a director of the Company in
1995 and is a member of the Audit and Compensation Committee. Mr. Smith is the
President and CEO of Micropub Systems International, Inc., a brewery system
manufacturer.. From October 1992 through January 1997, Mr. Smith was the
Managing Director of Corporate Finance of H.J. Meyers & Co., an investment
banking firm, and was general counsel of such firm from May 1991 through May
1995. Mr. Smith was associated with the law firm of Harter, Secrest & Emery from
1987 until 1991. Mr. Smith received a B.A. from Cornell University and a J.D.
magna cum laude from Cornell University School of Law.
During the year ended December 31, 2000, the Board held 4 meetings. Each
director standing for re-election, who was a member of the Board at such time,
attended at least 75% of such meetings. The Board maintains an Audit Committee
comprised of Messrs. Corridan, Lyons and Smith and a Compensation Committee
comprised of Messrs. Corridan, Lyons and Smith.
10
The Audit Committee approves the selection of the Company's auditors and
meets and interacts with the auditors to discuss questions in regard to the
Company's financial reporting. They assist the Board in fulfilling its
responsibility to the shareholders, potential shareholders, and the investment
community relating to corporate accounting, reporting practices of the Company,
and quality and integrity of the financial reports of the Company. The
Compensation Committee evaluates the performance of the Company's executive
employees and determines the salaries and other compensation payable to such
persons. Each such Committee met twice during the fiscal year with all members
present.
The affirmative vote of holders of a plurality of the shares of Common
Stocks present or represented at the Annual Meeting is required for the election
of directors.
The Board recommends a vote FOR the election of foregoing nominees.
Proposal to approve the issuance of up to 3,300,000
shares of the Company's common stock under
the Equity Line of Credit Agreement, between
THE Company and Cockfield Holdings Limited
On November 20, 2000 we enteredaccrued interest are
convertible into an equity line of credit agreement
with Cockfield Holdings Limited ("Cockfield"). The purpose of the equity line of
credit is to provide us with a source of funding for our current activities and
for the development of our current and planned products. The equity line of
credit agreement establishes what is sometimes referred to as an equity drawdown
facility. Under the equity line of credit agreement we have the right to sell to
Cockfield up to 3,000,000 shares of our common stock. An additional 300,000
shares are issuable upon the exercise of warrants, which were granted to
Cockfield and Jesup & Lamont in connection with the equity line of credit
agreement. The total number of shares to be issued, 3,300,000, represented
approximately 95% of our issued and outstanding common stock as of January 31,
2001.
Under the equity line of credit agreement, Cockfield has agreed to
purchase up to 3,000,000 shares of our common stock during a 36-month period.
During this period, we may request a drawdown underat $.05 per share at the equity lineoption of
credit by
selling shares of our common stock to Cockfield, and Cockfield will be obligated
to purchase the shares we put to them. The minimum amount we can draw downnote holder at any one time is $200,000. The maximum amount we can draw down at any one time
will be determined at the time of the drawdown request under a formula contained
in the equity line of credit agreement, but cannot be more than $5,000,000. We
may request a drawdown once every 20 tradingafter 60 days although we are under no
obligation to request any drawdowns.
In order to exercise our drawdown rights under the equity line of credit
agreement, we must have an effective registration statement on file with the
Securities and Exchange Commission registering the resale of the shares of our
common stock that may be sold to
11
Cockfield. We must also give at least 20 business days advance notice to
Cockfield offollowing the date on which we intendthe
stockholders of Infinite Group vote to exerciseauthorize a particular put right and
we must indicate the maximum number of shares of our common stock that we intend
to sell to Cockfield. At our option, we may also designate a maximum dollar
amount of our common stock that we will sell under the put and/or a minimum
purchase price per share at which Cockfield may purchase shares under the put.
The maximum amount may not to exceed the lesser of a) $5,000,000 or b) fifteen
percent (15%) of the weighted average price of our common stock during the 20
trading days immediately prior to the put date, multiplied by the total trading
volume of our common stock during the 20 trading days immediately prior to that
date.
During the 20 trading days following a drawdown request, we will calculate
the number of shares that we will sell to Cockfield and the price per share. The
purchase price per share of common stock will be at a discount to the daily
volume weighted average price of our common stock during the 20 trading days
immediately following the drawdown date. On each of the 20 trading days during
the calculation period, thesufficient number of shares
to be purchased by Cockfield will
be determined by dividing 1/20th of the drawdown amount by the purchase price on
each trading day. If we designate a minimum purchase price in our drawdown
request and the daily volume weighted average price for our common stock on any
trading day during the 20 trading day calculation period is below the minimum
threshold price, and Cockfield electspermit such conversion, provided that such conversions do not to purchase shares at the minimum
threshold price, then the drawdown amount will be reduced by 1/20th.
For each share of our common stock, Cockfield will pay us 87.5% of the
volume weighted market price for a share of our common stock during the 20-day
trading period following the exercise of a put. The percentage will increase to
90% if we move our principal market to the Nasdaq National Market or to 91% if
we move our principal market to the New York Stock Exchange. It will decrease to
84% if our common stock is delisted from the Nasdaq SmallCap Market. Market
price is defined as the volume weighted average price for our common stock (as
reported by Bloomberg Financial LP using its VAP function) on its principal
market during the pricing period. The pricing period is defined as the 20 day
trading period immediately prior to the day we exercise our put right.
Cockfield will pay for the shares on the 22nd trading day following the
drawdown request. We will receive the purchase price less a brokerage fee
payable to Jesup & Lamont ranging between 4.25% and 4.75% of the aggregate
purchase price, depending on the dollar volume of the transaction. Jesup &
Lamont is the placement agent that introduced Cockfield to us and is a
registered broker-dealer.
At the closing of each drawdown, we will grant to Cockfield warrants to
purchase a number of shares of our common stock equal to 33% of the number of
shares purchased by Cockfield at the closing of the drawdown. These unit
warrants will expire one day after they are granted and will have an exercise
price equal to the weighted average of the purchase price of a share of our
common stock purchased at the closing of each drawdown. The 3,000,000 shares
available under the equity line of credit will be reduced by the number of
shares issued as a result of the exercise of these unit warrants.
12
The equity line of credit agreement prevents us from drawing down funds
and issuing the corresponding shares of common stock to Cockfield if the
issuance would result in Cockfield beneficially owning more than 9.9%a
change of our
then outstanding sharescontrol that would limit the Infinite Group's utilization of common stock. In addition, the listing requirements
of the Nasdaq SmallCap Market prohibit us from issuing 20% or more of our issued
and outstanding shares of common stock in a single transaction or series of
related transactions at a price less than the greater of market value or book
value unless we get stockholder approval.
As consideration for establishing the equity line of credit, we granted to
Cockfield warrants to purchase up to 200,000 shares of our common stock. As
consideration for the services rendered by Jesup & Lamont as placement agent in
connection with the equity line of credit, we granted to Jesup & Lamont warrants
to purchase up to 100,000 shares of our common stock. These warrants, covering
300,000 shares of our common stock, are exercisable at any time prior to
November 20, 2003, for $3.135 per share.its net
operating loss carryforwards. If the 300,000 warrants are exercisedprincipal and accrued interest were
converted in full, we would receive gross proceeds of $940,500. However, neither Cockfield
nor Jesup & Lamont are obligatedbe required to exercise the warrants.
This proposal is being submitted to shareholders for approval pursuantissue 7,181,000 common shares to the
Nasdaq SmallCap corporate governance rules which requires Shareholder
approval priorDr. Robbins and 11,077,020 common shares to Northwest Hampton Holdings, LLC at
December 31, 2005. Northwest Hampton Holdings, LLC is the issuancebeneficial owner of
shares of our common stock in a transaction
other than a public offering involving the sale, issuance or potential issuance
of a number of shares equal to or in excess of 20% of the shares then
outstanding at a price per share less than the greater of book or market value.
The Board believes that the equity line of credit affords the Company maximum
flexibility in funding our current activities and for the development of our
current and planned products.
The affirmative vote of holders of a plurality of the shares of Common
Stock present or represented at the Annual Meeting is required for the approval
to issue up to 3,300,000500,000 shares of our Common Stock under the equity lineat December 31, 2005.
20
OTHER MATTERS
Infinite Group knows of credit agreement with Cockfield Holdings Limited.
The Board recommends a vote FOR approval of the issuance of up to
3,300,000 shares of the Company's common stock under the Equity Line of Credit
Agreement between the Company and Cockfield Holdings Limited.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The directors propose that the stockholders ratify the appointment of
McGladrey & Pullen, LLP as the Company's independent auditors for 2000. Freed
Maxick Sachs & Murphy, P.C. were the Company's independent auditors for 1999.
Freed Maxick Sachs & Murphy, P.C. merged with McGladrey & Pullen, LLP on
November 1, 2000. The report of Freed Maxick Sachs & Murphy, P.C. with respect
to the Company's financial statement appears in the Company's annual report on
Form 10-KSB for such year. A representative of McGladrey & Pullen, LLP. will be
at the annual meeting and will have an opportunity to make
13
a statement if he desires to do so and will be available to respond to
appropriate questions. In the event the stockholders fail to ratify the
appointment, the directors will consider it a directive to considerno other auditors for the subsequent year.
The affirmative vote of holders of a plurality of the shares of Common
Stock present or represented at the Annual Meeting is required for the
ratification of appointment of independent auditors.
The Board recommends a vote FOR the approval of McGladrey & Pullen, LLP as
the Company's independent auditors for 2000.
MISCELLANEOUS
Other Matters
The management of the Company does not know of any matters other than
those stated in the Proxy Statement, which are to be presented for action atsubmitted to the meeting. If any
other matters should properly come before the meeting, it is intended thatthe intention of the
persons named in the enclosed form of proxy to vote the shares they represent as
the Board of Directors may recommend.
Stockholder Proposals
Stockholders interested in presenting a proposal for consideration at the annual
meeting of stockholders for 2006 must follow the procedures found in Rule 14a-8
under the Exchange Act. To be eligible for inclusion in Infinite Group's 2006
proxy materials, all qualified proposals must be received by our Corporate
Secretary no later than 120 prior to the anniversary date of filing this
definitive proxy statement. If a stockholder fails to give notice by this date,
then the persons named as proxies in the accompanying formproxies solicited by us for the next
Annual Meeting will be voted on any such other
matters in accordance with the judgment of the persons voting such proxies.
Discretionaryhave discretionary authority to vote on suchthe proposal.
Code of Ethics
We have adopted a Code of Ethics that applies to our principal executive
officer, principal financial officer and other matterspersons performing similar
functions, as well all of our other employees and directors. This Code of Ethics
is conferred by such
proxies upon the persons voting them.
The Company expects representatives of McGladrey & Pullen, LLP, the
Company's independent auditors, toposted and can be availableviewed on our website at thewww.us-igi.com.
Proxy Materials
We will mail our 2004 Annual Meeting to respond
to pertinent questions of stockholders.
Solicitation of Proxies
The Company will bear the cost of preparing, assembling and mailing the
Proxy,Report, this Proxy Statement and other material, which maythe accompanying
proxy card to stockholders beginning on or about January 3, 2006. The Annual
Report and Proxy Statement will also be sent toavailable on the stockholders
in connection with this solicitation. In addition to the solicitationInternet at
www.us-igi.com. The Annual Report is not part of proxies
by use of the mail, officers and regular employees of the Company may solicit
the return of proxies. The Company may reimburse persons holding stock in their
names or in the names of other nominees for their expenses in sending proxies
andour proxy material to principals. Proxies may be solicited by mail, personal
interview, telephone and telegraph.soliciting materials.
Reports and Financial Statements
The Company'sInfinite Group's Annual Report on Form 10-KSB for the year ended December 31,
20002004 including Audited Financial Statementsthe financial statements and the Company's quarterly report on Form 10-QSB
for the quarter ended September 30, 2000 arefinancial statement schedules
included therein is included with this proxy material. Management's DiscussionThe management's
discussion and Analysis, the Reportanalysis of Independent Certified Public
Accountantsfinancial condition and the Audited Financial Statementsresults of operations and
financial statements contained in the Company's
Annual Report and the Form 10-QSB Report are incorporated herein by
reference and are considered part of this soliciting material.
1421
A copy of the Company's Annual Report on Form 10-KSB, without exhibits,
will be provided without charge to any stockholder submitting a written request.
Such request should be addressed to Infinite Group, Inc., 2364 Post Road,
Warwick, Rhode Island 02886, Att: Secretary.
Shareholder Proposals
All proposals of stockholders intended to be included in the proxy
statement to be presented at the 2001 Annual Meeting of Stockholders must be
received at the Company's executive offices no later than April 15, 2001 and
should be directed to the Secretary of the Company.
By Order of the Board of Directors
Daniel T. Landi,EVERY STOCKHOLDER, WHETHER OR NOT HE OR SHE EXPECTS TO ATTEND THE ANNUAL MEETING
IN PERSON, IS URGED TO EXECUTE THE PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
BUSINESS REPLY ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Deanna Wohlschlegel
----------------------------------
Deanna Wohlschlegel, Secretary
Dated: February 27, 2001
15Rochester, New York
January 23, 2006
22
Exhibit A-
Infinite Group, Inc.
Audit Committee Charter
Audit Committee of the Board of DirectorsAPPENDIX I
INFINITE GROUP, INC.
AUDIT COMMITTEE CHARTER
Composition
The Audit Committee shall be composed of at least threetwo outside directors who are
independent (as defined below) of the management of the company and are free of
any relationship that would interfere with their exercise of independent
judgment as a committee member. The Audit Committee must consist of directors
who are financially literate and at least one director must have past employment
experience in finance or accounting, requisite professional certification in
accounting, or other comparable experience or background, including a current or
past position as a chief executive or financial officer or other senior officer
with financial oversight responsibilities.
Independent Directors
The relationships that disqualify a director from being considered "independent"
for purposes of serving as a member of the audit committee are, if among other
things, he or she has:
o Been employed by the corporationCompany or its affiliates in the current or
past three years;
o Accepted any compensation from the corporationCompany or its affiliates in
excess of $60,000 during the previous fiscal year (except for board
service, retirement plan benefits, or non-discretionary
compensation);
o An immediate family member who is, or has been in the past three
years, employed by the corporationCompany or its affiliates as an executive
officer;
o Been a partner, controlling shareholderstockholder or an executive officer of
any for-profit business to which the corporationCompany made, or from which it
received, payments (other than those which arise solely from
investments in the corporation'sCompany's securities) that exceed five percent of
the organization's consolidated gross revenues for that year, or
$200,000, whichever is more, in any of the past three years; or
o Been employed as an executive of another entity where any of the
company'sCompany's executives serve on that entity's compensation committee.
16
Objective of the Audit Committee
The Audit Committee shall assist the board of directors in fulfilling its
responsibility to the shareholders,stockholders, potential shareholders,stockholders, and the investment
community relating to corporate accounting, reporting practices of the company,
and the quality and integrity of the financial reports of the company.
Specific Responsibilities of the Audit Committee
In fulfilling its objective, the Audit Committee shall have the responsibility
with respect to:
The Company's Risk and Control Environment:
o To review management's overview of the risks, policies, procedures
and controls surrounding the integrity of financial reporting and,
particularly, the adequacy of the company'sCompany's controls in areas
representing significant financial and business risks;
o To review, with the company'sCompany's counsel, legal matters, including
litigation, compliance with securities trading policies, the foreign
corrupt practices act and other laws, having a significant impact on
the company'sCompany's business or its financial statements, and
o To investigate and matter brought to its attention within the scope
of its duties, and retain outside counsel for this purpose if, in
its judgment, that is appropriate;
The Hiring and Firing of and Relationship with the Independent Accountants:
o To participate, on behalf of the board of directors, in the process
by which the companyCompany selects the independent accountants to audit
the company'sCompany's financial statements, evaluate annually the
effectiveness and objectivity of such accountants, and recommend the
engagement or replacement of independent accountants to the board of
directors;
o To have an open line of communications with the independent
accountants, who shall have ultimate accountability to the board of
directors and the audit committee, as representatives of the
shareholders;stockholders;
o To approve the fees and other compensation paid to the independent
accountants; and
o To review the independence of the independent accounts prior to
engagement, annually discuss with the independent accountants their
independence annually based upon the written disclosures and the
letter from the independent accountants required by Independent
Standards Board Standard and discuss with the board of 17
directors any
relationship that may adversely affect the independence of the
independent accountants.
The Financial Reporting Process:
o To meet with the independent accountants and the financial
management of the companyCompany with respect to major changes to the
company'sCompany's auditing and accounting principles;
2
o To meet with the independent accountants and the financial
management of the companyCompany together and separately with the
independent accountants (a) prior to the performance by the
independent accountants of the audit to discuss the scope of the
proposed audit for the current year and the audit procedures to be
utilized; and (b) at the conclusion of the audit to discuss (i) the
independent accountants' judgments about the quality, not just the
acceptability, of the company'sCompany's accounting principles as applied in
its financial reporting, the consistency of application of the
company'sCompany's accounting policies and the clarity, consistency, and
completeness of the entity's accounting information contained in the
financial statements and related disclosures, (ii) the adequacy and
effectiveness of the accounting and financial controls of the
companyCompany and any recommendations for improvement of such internal
control procedures or for new or mere detailed controls or
procedures of the company,Company, (iii) any other results of the audit,
including any comments or recommendations, and (iv) the views of the
independent accountants with respect to the financial, accounting,
and auditing personnel and the cooperation that the independent
accountants received during the course of the audit;
o To review and discuss with the independent accountants and the
financial management of the companyCompany the company'sCompany's financial results
before they are made public. In general, the chairman of the audit
committee manmay represent the entire committee with respect to the
review and discussions about interim financial results; and
o To review other reports submitted by the companyCompany to any governmental
body or the public, including any certification, reports, opinion or
review rendered by the independent accountants;
Other Responsibilities of the Audit Committee:
o To review and update periodically the charter for the Audit
Committee:Committee;
o To review, assess, and approve or disapprove conflicts of interest
and related-party transactions;
o To review accounting, and financial, human resources and succession
planning within the company;
18
Company;
o To meet at least fourtwo times annually, or more frequently as
circumstances dictate;
o To report to the board of directors the matters discussed at each
committee meeting;
o To assess the performance of the audit committee members through a
self-assessment process, led by the chairman of the committee; and
o To keep an open line communication with the financial and senior
management, the independent accountants, and the board of directors.
193
APPENDIX II
INFINITE GROUP, INC.
2005 STOCK OPTION PLAN
1. PURPOSES. The purposes of this Stock Option Plan (the "Plan") are to
attract and retain the best qualified personnel for positions of substantial
responsibility, to provide additional incentive to the Employees of the Company
or its Subsidiaries, if any (as defined in Section 2 below), as well as other
individuals who perform services for the Company or its Subsidiaries, and to
promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options" as
defined in Section 422A of the Internal Revenue Code, or "non-qualified stock
options," at the discretion of the Board and as reflected in the terms of the
written instrument evidencing an Option.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "Common Stock" shall mean the Common Stock of the Company, par
value $.001 per share.
(c) "Company" shall mean Infinite Group, Inc., a Delaware
corporation.
(d) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(e) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board.
(f) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(h) "Incentive Stock Option" shall mean a stock option intended to
qualify as an incentive stock option within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended.
(i) "Non-qualified Stock Option" shall mean a stock option not
intended to qualify as an Incentive Stock Option.
(j) "Option" shall mean a stock option granted pursuant to the Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean an Employee or other person who receives
an Option.
(m) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Internal Revenue Code of
1986, as amended.
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(o) "SEC" shall mean the Securities and Exchange Commission.
(p) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 425(f) of the Internal Revenue Code
of 1986, as amended.
3. STOCK.
Subject to the provisions of Section 11 of the Plan, the maximum
aggregate number of shares which may be optioned and sold under the Plan is four
million (4,000,000) shares of authorized, but unissued, or reacquired $.001 par
value Common Stock. If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for further grant under the Plan.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors may appoint a
Committee to administer the Plan. The Committee shall consist of not less than
two members of the Board of Directors who shall administer the Plan on behalf of
the Board of Directors, subject to such terms and conditions as the Board of
Directors may prescribe. Once appointed, the Committee shall continue to serve
until otherwise directed by the Board of Directors. From time to time the Board
of Directors may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause), and appoint new members
in substitution therefore, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
If a majority of the Board of Directors is eligible to be granted
Options or has been eligible at any time within the preceding year, a Committee
must be appointed to administer the Plan. The Committee must consist of not less
than two members of the Board of Directors, all of whom are "non-employee
directors" as defined in Rule 16b-3 of the General Rules and Regulations
promulgated under the Exchange Act.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, in accordance with Section 422A of the Internal Revenue Code of 1986,
as amended, or to grant Non-Qualified Stock Options; (ii) to determine, upon
review of relevant information and in accordance with Section 8(a) of the Plan,
the fair market value of the Common Stock; (iii) to determine the exercise price
per share of Options to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the persons to whom,
and the time or times at which, Options shall be granted and the number of
shares to be represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an Option
previously granted by the Board; and (x) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) Effect of the Board's Decision. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
2
5. ELIGIBILITY. Incentive Stock Options may be granted only to Employees.
Nonqualified Stock Options may be granted to Employees as well as directors
(subject to the limitations set forth in Section 4), independent contractors and
agents, as determined by the Board. Any person who has been granted an Option
may, if he is otherwise eligible, be granted an additional Option or Options.
No Incentive Stock Option may be granted to an Employee if, as the
result of such grant, the aggregate fair market value (determined at the time
each Option was granted) of the Shares with respect to which such Incentive
Stock Options are exercisable for the first time by such Employee during any
calendar year (under all such plans of the Company and any Parent and
Subsidiary) shall exceed One Hundred Thousand Dollars ($100,000).
The Plan shall not confer upon any Optionee any right with respect
to continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur
of (i) its adoption by the Board of Directors, or (ii) its approval by vote of a
majority of the outstanding shares of the Company entitled to vote on the
adoption of the Plan. The Plan shall continue in effect for a period of ten (10)
years from the effective date of the Plan, unless sooner terminated pursuant to
Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be ten (10) years from
the date of the grant thereof, or such shorter term as may be provided in the
instrument evidencing the Option. However, in the case of an Incentive Stock
Option granted to an Employee who, immediately before the Incentive Stock Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant thereof or such shorter time as may be provided in the instrument
evidencing the Option.
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued
pursuant to the exercise of an Option shall be such price as is determined by
the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, immediately before the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the fair market value per Share on the date of the grant; or, as the case may be
(B) granted to an Employee not subject to the provisions
of Section 8(a)(i)(A), the per Share exercise price shall be no less than one
hundred percent (100%) of the fair market value per Share on the date of the
grant.
(ii) In the case of a Non-qualified Stock Option, the per
Share exercise price shall be no less than one hundred percent (100%) of the
fair market value per Share on the date of the grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices or, if applicable, the closing price of the Common Stock on the
date of the grant, as reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) System or, in the event the Common Stock is listed
on a stock exchange, the fair market value per Share shall be the closing price
on the exchange on the date of the grant of the Option, as reported in the Wall
Street Journal.
3
(c) The consideration to be paid for the Shares to be issued upon
the exercise of an Option or in payment of any withholding taxes thereon,
including the method of payment, shall be determined by the Board and may
consist entirely of (i) cash, check or promissory note; (ii) other Shares of
Common Stock owned by the Employee that has a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised; (iii) an assignment by the Employee of the net
proceeds to be received from a registered broker upon the sale of the Shares or
the proceeds of a loan from such broker in such amount; or (iv) any combination
of such methods of payment, or such other consideration and method of payment
for the issuance of Shares to the extent permitted under Delaware law and
meeting rules and regulations of the SEC to plans meeting the requirements of
Section 16(b)(3) of the Exchange Act.
9. EXERCISE OF OPTION.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and subject to such
conditions as may be determined by the Board, including performance criteria
with respect to the Company and/or the Optionee, as shall be permissible under
the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the instrument evidencing the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment may, as authorized by
the Board, consist of any consideration and method of payment allowable under
Section 8(c) of the Plan; it being understood that the Company shall take such
action as may be reasonably required to permit use of an approved payment
method. Until the issuance, which in no event will be delayed more than thirty
(3) days from the date of the exercise of the Option, (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the sock certificate is issued, except as provided in
the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for the sale under the Option, by the number of Shares as to which
the Option is exercised.
(b) Termination of Status as an Employee. If an Employee ceases to
serve as an Employee, he may, but only within thirty (30) days (or such other
period of time not exceeding three (3) months as is determined by the Board)
after the date he ceases to be an Employee of the Company, exercise his Option
to the extent that he was entitled to exercise it as of the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of such termination, or if he does not exercise such option (which he
was entitled to exercise) within the time period specified herein, the Option
shall terminate. Notwithstanding the provisions of this Section 9(b), in the
event that the Employee's employment is terminated "for cause," as such term is
defined and interpreted by the courts of the State of New York, the Employee's
right to exercise his Option shall expire on the date of his termination.
(c) Notwithstanding the provisions of Section 9(b) above, in the
event an Employee is unable to continue his employment with the Company as a
result of his total and permanent disability (as defined in Section 105(d)(4) of
the Internal Revenue Code of 1986, as amended), he may, but only with three (3)
months (or such other period of time not exceeding twelve (12) months as is
determined by the Board) from the date of disability, exercise his Option to the
extent he was entitled to exercise it at the date of such disability. To the
extent that he was not entitled to exercise the Option at the date of
disability, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option, who is at the time of his
death an Employee of the Company and who shall have been in Continuous Status as
an Employee since the date of the grant of the Option, the Option may be
exercised, at any time within twelve (12) months following the date of death, by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living one (1) month
after the date of death; or
4
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Board) after the termination
of Continuous Status as an Employee, the Option may be exercised at any time
within three (3) months following the date of death, by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of termination.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated or disposed of in any manner other than by will or by the
laws of descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split or the payment of a stock dividend with
respect to the Common Stock or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, or in the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Board of Directors of the Company shall, as to outstanding
Options, either (i) make appropriate provision for the protection of any such
outstanding Options by the substitution on an equitable basis of appropriate
stock of the Company or of the merged, consolidated or otherwise reorganized
corporation which will be issuable in respect to one share of Common Stock of
the Company; provided, only that the excess of the aggregate fair market value
of the shares subject to the Options immediately after such substitution over
the market price thereof is not more than the excess of the aggregate fair
market value of the shares subject to such Options immediately before such
substitution over the purchase price thereof, or (ii) upon written notice to an
Optionee, provide that all unexercised Options must be exercised within a
specified number of days of the date of such notice or they will be terminated.
In any case, the Board of Directors may, in its discretion, advance the lapse of
any waiting or installment period and exercise dates.
12. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each person to whom
an Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) The Board may amend or terminate the Plan from time to time in
such respects as the Board may deem advisable; provided, however, that the
following revisions or amendments shall require the approval of the holders of a
majority of the outstanding shares of the Company entitled to vote:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the Plan;
5
(ii) any change in the designation of the class of persons
eligible to be granted Options;
or
(iii) any material increase in the benefits accruing to
participants under the Plan.
(b) Stockholder Approval. If any amendment requiring stockholder
approval under Section 13(a) of the Plan is made, such stockholder approval
shall be solicited as described in Section 17(a) of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act,
the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by, or
appropriate under, any of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company shall be under no obligation to
reserve shares of capital stock to fill Options. The grant of Options to
Employees hereunder shall not be construed to constitute the establishment of a
trust of such shares and no particular shares shall be identified as optioned
and reserved for Employees hereunder. The Company shall be deemed to have
complied with the terms of the Plan if, at the time of issuance and delivery
pursuant to the exercise of an Option, it has a sufficient number of shares
authorized and unissued or in its treasury which may then be appropriated and
issued for purposes of the Plan, irrespective of the date when such shares were
authorized.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuation of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. If such stockholder approval is obtained at
a duly held stockholders' meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon. The approval of such stockholders of
the Company shall be (1) solicited substantially in accordance with Section
14(a) of the Exchange Act and the rules and regulations promulgated thereunder,
or (2) solicited after the Company has furnished in writing to the holders
entitled to vote substantially the same information concerning the Plan as that
which would be required by the rules and regulations in effect under Section
14(a) of the Exchange Act at the time such information is furnished.
18. OTHER PROVISIONS. The Stock Option Agreement authorized under the Plan
shall contain such other provisions, including without limitation restrictions
upon the exercise of the Option, as the Board of Directors of the Company shall
deem advisable. Any Incentive Stock Option Agreement shall contain such
limitations and restrictions upon the exercise of the Incentive Stock Options as
shall be necessary in order that such Option will be an Incentive Stock Option
as defined in Section 422A of the Internal Revenue Code of 1986, as amended.
6
19. INDEMNFICATION OF BOARD. In addition to such other rights of
indemnification as they may have as directors or as members of the Board, the
members of the Board shall be indemnified by the Company against the reasonable
expenses, including attorneys fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such Board
member is liable for negligence or misconduct in the performance of his duties,
provided that within 60 days after the institution of any such action, suit or
proceeding a Board member shall, in writing, offer the Company the opportunity,
at its own expense, to handle and defend the same.
20. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
21. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the singular
shall include the plural, and masculine pronoun shall include the feminine
gender.
22. HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
Adopted by Directors: March 9, 2005
Adopted by Stockholders:
7
APPENDIX III (CHARTER AMENDMENT)
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
INFINITE GROUP, INC.
(Pursuant to Section 242 of
the Delaware General Corporation Law)
----------
Infinite Group, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the Delaware General Corporation Law (the
"DGCL") does hereby certify that:
1. The name of the Corporation is Infinite Group, Inc.
2. The Board of Directors of the Corporation unanimously duly adopted a
resolution to amend the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") to increase the number of shares of common stock
authorized for issuance from 20,000,000 to 60,000,000, declaring the amendment's
advisability to its stockholders, and directing that the amendment be considered
at the 2005 annual meeting of the stockholders of the Corporation followed by a
majority vote in favor of the amendment by the stockholders at such annual
meeting. The amendment adopted provides as follows:
(i) That the first sentence of Article Fourth of the Certificate of
Incorporation would be amended in its entirety to read as follows:
"FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is sixty-one million (61,000,000) shares of which
sixty million (60,000,000) shares shall be Common Stock with a par value
of each of $.001 per share and one million (1,000,000) shares shall be
Preferred Stock with a par value of $.01 per share.
Additional designations of powers, the rights and preferences and
the qualifications, limitations or restrictions with respect to each class
of stock of the corporation shall be determined by the Board of Directors
from time to time."
3. That the Amendment herein certified have been duly adopted in
accordance with the provisions of Section 242 of the DGCL by the Board of
Directors.
4. This Certificate of Amendment shall become effective upon the filing
hereof in the Office of the Secretary of State of the State of Delaware.
Executed on this ____ day of ____, 2006
Infinite Group, Inc.
By:
--------------------------------
Michael S. Smith
President and Chief Executive Officer
8
SOLICITED BY THE BOARD OF DIRECTORS
INFINITE GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
March 22, 2001February 17, 2006
PROXY
The undersigned stockholder of Infinite Group Inc. (the "Company") hereby
appoints Clifford G. Brockmyre IIMichael S. Smith and Kenneth S. Rose and each of them acting singly,
with power of substitution, the attorneys and proxies of the undersigned and
authorizes them to represent and vote on behalf of the undersigned, as
designated, all of the shares of capital stock of the Company that the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held on March 22, 2001,Friday, February 17, 2006 at 10:00 a.m., Pacific time, at
One America Plaza, 600 West Broadway, Second Floor, San Diego, CA 92101 ("Annual
Meeting"), and at any adjournment or postponement of such meeting for the
purposes identified on the reverse side of this proxy and with discretionary
authority as to any other matters that properly come before the Annual Meeting, of Stockholders of the Company,
in accordance with and as described in the Notice of Annual Meeting of
Stockholders and the Proxy Statement. This proxy when properly executed will be
voted in the manner directed herein by the undersigned stockholder. If this
proxy is returned without direction being given, this proxy will be voted FOR
all proposals.
SEE REVERSE
(IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE)
9
|X| Please mark votes as in this example.
The Board of Directors recommends a vote FOR proposals 1, 2, 3 and 3.4.
1. Election of Directors:
Nominees: FOR WITHHOLD
Clifford G. Brockmyre IIMichael S. Smith |_| |_|
Brian Q. CorridanPaul J. Delmore |_| |_|
J. Terence Feeley |_| |_|
William G. Lyons III |_| |_|
Michael S. SmithAllan M. Robbins |_| |_|
FOR AGAINST ABSTAIN
2. Proposal to ratify and approve the issuance |_| |_| |_|
the Company's 2005 Stock Option
Plan
FOR AGAINST ABSTAIN
3. Proposal to approve an increase |_| |_| |_|
in the number of up to 3,300,000authorized
shares of the
Company's common stock under the
Equity Line of Credit Agreement
3.from
20,000,000 to 60,000,000
4. Ratify the appointment of |_| |_| |_|
McGladreyFreed Maxick & Pullen, LLPBattaglia, CPAs,
P.C. as independent auditors.
MARK HERE FOR MARK
ADDRESS CHANGE |_| HERE FOR |_|
AND NOTE BELOW COMMENTS
Please sign exactly as your name appears on stock certificate. If actingThe undersigned hereby acknowledges receipt of the Notice of, and Proxy
Statement for, the aforesaid Annual Meeting.
Dated:
-------------------------------
-------------------------------------
Signature of Stockholder
-------------------------------------
Signature of Stockholder
NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, or guardian, or in other representative capacity, sign
name and title.please give full title
as such. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in the
partnership name by
an authorized person.
If held jointly, both parties must
sign and date.IMPORTANT - PLEASE MARK,FILL IN, SIGN DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
Signature:____________________________________ Date:______________________
Signature:____________________________________ Date:______________________