IMCI 8-K
INFINITE GROUP INC (IMCI)
8-K
2021-11-08
For: 2021-11-02
View Original
Added on
April 06, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Date of
Report (Date of earliest event reported):
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November 2, 2021
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Infinite Group, Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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000-21816
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52-1490422
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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175 Sully’s Trail, Suite 202, Pittsford, New
York
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14534
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
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(585) 385-0610
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N/A
(Former
name or former address, if changed since last report)
Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
☐
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
☐
Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
☐
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
☐
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Trading
Symbol(s)
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Name of
each exchange on which registered
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N/A
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N/A
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N/A
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Indicate
by check mark whether the registrant is an emerging growth company
as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange
Act of 1934 (§240.12b-2 of this
chapter).
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Emerging
growth company ☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange
Act. ☐
Item
1.01
Entry into a Material Definitive Agreement.
Mast Hill Loan
On November 3, 2021, Infinite Group, Inc. (the
“Company”), as borrower, entered into a financing
arrangement (the “Loan”) with Mast Hill Fund, L.P. (the
“Lender”), a Delaware limited partnership.
In exchange for a promissory note,
Lender agreed to lend the Company $448,000.00, which bears
interest at a rate of eight percent (8%) per annum, less $44,800
original issue discount. Under the terms of the Loan, amortization
payments are due beginning March 3, 2022, and each month thereafter
with the final payment due on November 3, 2022. Additionally, in
the event of a default under the Loan or if the Company elects to
pre-pay the Loan, the Lender has the right to convert any portion
or all of the outstanding and unpaid principal and interest into
fully paid and non-assessable shares of the Company’s common
stock at a conversion price of $0.10 per share. The conversion
price is subject to adjustment under certain circumstances,
including issuances of Company common stock below the conversion
price. The Company is not required to
issue additional shares to Lender in the event an adjustment to the
conversion price occurs. Except for the option to convert the
note in the event of a pre-payment, there is no pre-payment penalty
associated with the promissory note. The Loan is subject to
customary events of default, including cross-defaults on the Loan
agreements and on other indebtedness of the Company, violations of
securities laws (including Regulation FD), and failure to issue
shares upon a conversion of the note. Amounts due under the Loan
are subject to a 15% penalty in the event of a default. As
additional consideration for the financing, the Company issued
Lender a 5-year warrant to purchase 1,400,000 shares of Company
common stock at a fixed price of $0.16 per share, subject to price
adjustments for certain actions, including dilutive issuances,
representing 50% warrant coverage on the principal amount of the
Loan. The Company has granted the Lender customary
“piggy-back” registration rights with respect to the
shares issuable upon conversion of the promissory note and exercise
of the warrant. No material relationship exists between the Company
or its affiliates and Lender, other than in respect of the
Loan.
J.H.
Darbie & Co., Inc. ( “Finder”), a registered
broker-dealer, acted as a finder in connection with the Loan, and
was paid a cash fee of $20,160 (5% of the gross proceeds of the
Loan) and issued a 5-year warrant to purchase 160,125 shares of
Company common stock at a fixed price of $0.192 per share (120% of
the exercise price of the warrant issued in connection with the
Loan), subject to price adjustments for certain actions, including
dilutive issuances, representing 7% warrant coverage on the gross
proceeds of the Loan. The Company has granted the Finder customary
“piggy-back” registration rights with respect to the
shares issuable upon exercise of the warrant.
Popper Subscription Agreement
On November 2, 2021, the Company entered into a
subscription agreement (the “Subscription Agreement”)
with its Vice President of Business Development, Richard Popper.
Pursuant to the Subscription Agreement, Mr. Popper agreed to
purchase an aggregate amount of 1,000,000 shares of the
Company’s common stock, par value $0.001 per share, at $0.10
per share, in exchange for the conversion and cancellation
of an aggregate of $100,000 principal amount of an existing
promissory note held by Mr. Popper.
The closing of the Subscription Agreement occurred concurrently
with the execution of the Subscription
Agreement.
Item 2.03
Creation of a Direct Financial Obligation or an Obligation under an
Off-balance Sheet Arrangement of a Registrant.
The
information set forth above under Item 1.01 relating to the Loan is
incorporated by reference into this Item 2.03.
Item
3.02
Unregistered
Sales of Equity Securities.
The information set forth above under Item 1.01
relating to the Subscription Agreement is incorporated by reference
into this Item 2.03. The shares of Common
Stock issued pursuant to the Subscription Agreement were not
registered under the Securities Act of 1933, as amended (the
“Securities Act”), and were issued in reliance on the
exemption from registration requirements thereof provided by
Section 4(a)(2) of the Securities Act.
Item
9.01
Financial
Statements and Exhibits.
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Exhibit
No.
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Description
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SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
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Infinite Group, Inc.
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Date: November
8, 2021
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By:
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/s/
James Villa
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James
Villa
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Chief
Executive Officer
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Exhibit
10.1
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES PURCHASE
AGREEMENT (the “Agreement”), dated as of
November 3, 2021, by and between INFINITE GROUP, INC., a Delaware
corporation, with headquarters located at 175 Sully’s Trail,
Suite 202, Pittsford, NY 14534 (the “Company”), and
MAST HILL FUND, L.P., a
Delaware limited partnership, with its address at 48 Parker Road,
Wellesley, MA 02482 (the “Buyer”).
WHEREAS:
A. The Company and the
Buyer are executing and delivering this Agreement in reliance upon
the exemption from securities registration afforded by Section
4(a)(2) of the Securities Act of 1933, as amended (the “1933
Act”) and Rule 506(b) promulgated by the United States
Securities and Exchange Commission (the “SEC”) under
the 1933 Act;
B. Buyer desires to
purchase from the Company, and the Company desires to issue and
sell to the Buyer, upon the terms and conditions set forth in this
Agreement, a promissory note of the Company, in the aggregate
principal amount of $448,000.00 (as the principal amount thereof
may be increased pursuant to the terms thereof, and together with
any note(s) issued in replacement thereof or as a dividend thereon
or otherwise with respect thereto in accordance with the terms
thereof, in the form attached hereto as Exhibit A, the
“Note”), convertible into shares of common stock,
$0.001 par value per share, of the Company (the “Common
Stock”), upon the terms and subject to the limitations and
conditions set forth in such Note;
C. The Buyer wishes to
purchase, upon the terms and conditions stated in this Agreement,
such principal amount of the Note as is set forth immediately below
its name on the signature pages hereto;
D. The Company wishes
to issue a common stock purchase warrant to purchase 1,400,000
shares of Common Stock (the “Warrant”) to the Buyer as
additional consideration for the purchase of the Note, which shall
be earned in full as of the Closing Date, as further provided
herein.
NOW THEREFORE, in consideration of the
foregoing and of the agreements and covenants herein contained, and
for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the
Buyer hereby agree as follows:
1.
Purchase and Sale of Note.
a. Purchase of Note. On the
Closing Date (as defined below), the Company shall issue and sell
to the Buyer, and the Buyer agrees to purchase from the Company,
the Note, as further provided herein. As used in this Agreement,
the term “business day” shall mean any day other than a
Saturday, Sunday, or a day on which commercial banks in the city of
New York, New York are authorized or required by law or executive
order to remain closed.
b.
Form of Payment. On the Closing
Date: (i) the Buyer shall pay the purchase price of
$403,200.00 (the
“Purchase Price”) for the Note, to be issued and sold
to it at the Closing (as defined below), by wire transfer of
immediately available funds to the Company, in accordance with the
Company’s written wiring instructions, against delivery of
the Note, and (ii) the Company shall deliver such duly executed
Note and Warrant on behalf of the Company, to the Buyer, against
delivery of such Purchase Price. On the Closing, the Buyer shall
withhold a non-accountable sum of $5,000.00 from the Purchase Price
to cover the Buyer’s legal fees in connection with the
transactions contemplated by this Agreement.
c. Closing Date. Subject to the
satisfaction (or written waiver) of the conditions thereto set
forth in Section 6 and Section 7 below, the date and time of the
issuance and sale of the Note pursuant to this Agreement (the
“Closing Date”) shall be on the date that the Purchase
Price for the Note is paid by Buyer pursuant to terms of this
Agreement.
d. Closing. The closing of the
transactions contemplated by this Agreement (the
“Closing”) shall occur on the Closing Date at such
location as may be agreed to by the parties (including via exchange
of electronic signatures).
e. Warrant. On the Closing Date,
the Company shall issue the Warrant to the Buyer pursuant to the
terms of contained
therein.
2. Buyer’s Representations and
Warranties. The Buyer represents and warrants to the Company
as of the Closing Date that:
a. Investment Purpose. As of the
Closing Date, the Buyer is purchasing the Note and Warrant (the
Note, Warrant, shares of Common Stock issuable upon conversion of
or otherwise pursuant to the Note (the “Conversion
Shares”), and shares of Common Stock issuable upon exercise
of or otherwise pursuant to the Warrant (the “Exercise
Shares”) shall collectively be referred to herein as the
“Securities”) for its own account and not with a
present view towards the public sale or distribution thereof,
except pursuant to sales registered or exempted from registration
under the 1933 Act; provided, however, that by making the
representations herein, the Buyer does not agree to hold any of the
Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the
1933 Act.
b. Accredited Investor Status. The
Buyer is an “accredited investor” as that term is
defined in Rule 501(a) of Regulation D (an “Accredited
Investor”).
c. Reliance on Exemptions. The
Buyer understands that the Securities are being offered and sold to
it in reliance upon specific exemptions from the registration
requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the
Buyer’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the
Securities.
d. Information. The Buyer and its
advisors, if any, have been, and for so long as the Note remains
outstanding will continue to be, furnished with all materials
relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer
and its advisors, if any, have been, and for so long as the Note
remains outstanding will continue to be, afforded the opportunity
to ask questions of the Company regarding its business and affairs.
Notwithstanding the foregoing, the Company has not disclosed to the
Buyer any material nonpublic information regarding the Company or
otherwise and will not disclose such information unless such
information is disclosed to the public prior to or promptly
following such disclosure to the Buyer. Neither such inquiries nor
any other due diligence investigation conducted by Buyer or any of
its advisors or representatives shall modify, amend or affect
Buyer’s right to rely on the Company’s representations
and warranties contained in Section 3 below.
e. Governmental Review. The Buyer
understands that no United States federal or state agency or any
other government or governmental agency has passed upon or made any
recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer
understands that (i) the sale or resale of the Securities has not
been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be
transferred unless (a) the Securities are sold pursuant to an
effective registration statement under the 1933 Act,
(b) the
Buyer shall have delivered to the Company an opinion of counsel
(which may be the Legal Counsel Opinion (as defined below)) that
shall be in form, substance and scope customary for opinions of
counsel in comparable transactions to the effect that the
Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration, (c) the Securities
are sold or transferred to an “affiliate” (as defined
in Rule 144 promulgated under the 1933 Act (or a successor rule)
(“Rule 144”)) of the Buyer who agrees to sell or
otherwise transfer the Securities only in accordance with this
Section 2(f) and who is an Accredited Investor, (d) the Securities
are sold pursuant to Rule 144 or other applicable exemption, or (e)
the Securities are sold pursuant to Regulation S under the 1933 Act
(or a successor rule) (“Regulation S”), and the Buyer
shall have delivered to the Company an opinion of counsel that
shall be in
form,
substance and scope customary for opinions of counsel in corporate
transactions; (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule
and further, if said Rule is not applicable, any re-sale of such
Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company
nor any other person is under any obligation to register such
Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder
(in each case). Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged in
connection with a bona
fide margin account or other lending arrangement secured by
the Securities, and such pledge of Securities shall not be deemed
to be a transfer, sale or assignment of the Securities hereunder,
and the Buyer in effecting such pledge of Securities shall be not
required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this
Agreement.
g. Legends. The Buyer understands
that until such time as the Note, Warrant, Conversion Shares,
and/or Exercise Shares, have been registered under the 1933 Act or
may be sold pursuant to Rule 144, Rule 144A under the 1933 Act,
Regulation S, or other applicable exemption without any restriction
as to the number of securities as of a particular date that can
then be immediately sold, the Securities may bear a restrictive
legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such
Securities):
“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[CONVERTIBLE/EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE
SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144, RULE 144A, REGULATION S, OR OTHER APPLICABLE
EXEMPTION UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.”
The
legend set forth above shall be removed and the Company shall issue
a certificate or book entry statement for the applicable shares of
Common Stock without such legend to the holder of any Security upon
which it is stamped or (as requested by such holder) issue the
applicable shares of Common Stock to such holder by electronic
delivery by crediting the account of such holder’s broker
with The Depository Trust Company (“DTC”), if, unless otherwise
required by applicable state securities laws, (a) such Security is
registered for sale under an effective registration statement filed
under the 1933 Act or otherwise may be sold pursuant to Rule 144,
Rule 144A, Regulation S, or other applicable exemption without any
restriction as to the number of securities as of a particular date
that can then be immediately sold, or (b) the Company or the Buyer
provides the Legal Counsel Opinion (as contemplated by and in
accordance with Section 4(m) hereof) to the effect that a public
sale or transfer of such Security may be made without registration
under the 1933 Act. The Buyer agrees to sell all Securities,
including those represented by a certificate(s) from which the
legend has been removed, in compliance with applicable prospectus
delivery requirements, if any.
h. Authorization; Enforcement.
This Agreement has been duly and validly authorized by the Buyer
and has been duly executed and delivered on behalf of the Buyer,
and this Agreement constitutes a valid
and
binding agreement of the Buyer enforceable in accordance with its
terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors’ rights generally and except as may be
limited by the exercise of judicial discretion in applying
principles of equity.
3. Representations and Warranties of the
Company. The Company represents and warrants to the Buyer as
of the Closing Date that:
a. Organization and Qualification.
The Company and each of its Subsidiaries (as defined below), if
any, is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is
incorporated, with full power and authority (corporate and other)
to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and
conducted. Schedule 3(a), if attached hereto, sets forth a list of
all of the Subsidiaries of the Company and the jurisdiction in
which each is incorporated. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its
ownership or use of property or the nature of the business
conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a
Material Adverse Effect. “Material Adverse Effect”
means any material adverse effect on the business, operations,
assets, financial condition or prospects of the Company or its
Subsidiaries, if any, taken as a whole. “Subsidiaries”
means any corporation or other organization, whether incorporated
or unincorporated, in which the Company owns, directly or
indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. The
Company has all requisite corporate power and authority to enter
into and perform this Agreement, the Note, and to consummate the
transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii)
the execution and delivery of this Agreement, the Warrant, the
Note, Conversion Shares, and the Exercise Shares by the Company and
the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Note,
Warrant, as well as the issuance and reservation for issuance of
the Conversion Shares and Exercise Shares issuable upon conversion
of the Note and/or exercise of the Warrant) have been duly
authorized by the Company’s Board of Directors and no further
consent or authorization of the Company, its Board of Directors,
its shareholders, or its debt holders is required, (iii) this
Agreement and the Note (together with any other instruments
executed in connection herewith or therewith) have been duly
executed and delivered by the Company by its authorized
representative, and such authorized representative is the true and
official representative with authority to sign this Agreement, the
Note and the other instruments documents executed in connection
herewith or therewith and bind the Company accordingly, and (iv)
this Agreement constitutes, and upon execution and delivery by the
Company of the Note, each of such instruments will constitute, a
legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with their terms.
c. Capitalization; Governing
Documents. As of November 3, 2021, the authorized capital
stock of the Company consists of: 60,000,000 authorized shares of
Common Stock, of which 31,580,883 shares were issued and
outstanding, and 1,000,000 authorized shares of preferred stock, of
which 0 shares were issued and outstanding. All of such outstanding
shares of capital stock of the Company, the Conversion Shares, and
Exercise Shares are, or upon issuance will be, duly authorized,
validly issued, fully paid and non-assessable. No shares of capital
stock of the Company are subject to preemptive rights or any other
similar rights of the shareholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the
Company. As of the effective date of this Agreement, other than as
publicly announced prior to such date and reflected in the SEC
Documents of the Company or as set forth in Schedule 3(c) , if
attached hereto (i) there are no outstanding options, warrants,
scrip, rights to subscribe for, puts, calls, rights of first
refusal, agreements, understandings, claims or other commitments or
rights of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital
stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound
to issue additional shares of capital stock of the Company or any
of its Subsidiaries, (ii) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933
Act and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in
any agreement providing rights to security holders) that will be
triggered by the issuance of any of the Securities. The Company has
furnished to the Buyer true and correct copies of the
Company’s Certificate of Incorporation as in effect on the
date hereof (“Certificate of Incorporation”), the
Company’s By-laws, as in effect on the date hereof (the
“By-laws”), and the terms of all securities convertible
into or exercisable for Common Stock of the Company and the
material rights of the holders thereof in respect
thereto.
d. Issuance of Conversion Shares and
Exercise Shares. The Conversion Shares and Exercise Shares
are duly authorized and reserved for issuance and, upon conversion
of the Note and/or exercise of the Warrant in accordance with its
terms, will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims and encumbrances with respect to
the issue thereof and shall not be subject to preemptive rights or
other similar rights of shareholders of the Company and will not
impose personal liability upon the holder thereof.
e. Issuance of Warrant. The
issuance of the Warrant is duly authorized and the Exercise Shares,
upon exercise and payment of the exercise price (in cash or in
shares upon a cashless exercise) in accordance with the Warrant,
will be validly issued, fully paid and non-assessable, and free
from all taxes, liens, claims and encumbrances with respect to the
issue thereof and shall not be subject to preemptive rights or
other similar rights of shareholders of the Company and will not
impose personal liability upon the holder thereof.
f. Acknowledgment of Dilution. The
Company understands and acknowledges the potentially dilutive
effect of the Conversion Shares and Exercise Shares to the Common
Stock upon the conversion of the Note and/or exercise of the
Warrant. The Company further acknowledges that its obligation to
issue, upon conversion of the Note and/or exercise of the Warrant,
the Conversion Shares and/or Exercise Shares, are absolute and
unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other shareholders of the
Company.
g. No Conflicts. The execution,
delivery and performance of this Agreement and the Note by the
Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance of the Conversion Shares and
Exercise Shares) will not (i) conflict with or result in a
violation of any provision of the Certificate of Incorporation or
By-laws, or (ii) violate or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which with
notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration
or cancellation of, any agreement, note, evidence of indebtedness,
indenture, patent, patent license or instrument to which the
Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and
regulations of any self-regulatory organizations to which the
Company or its securities is subject) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected, except for
such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect, or (iv) trigger any
anti-dilution and/or ratchet provision contained in any other
contract in which the Company is a party thereto or any security
issued by the Company. Neither the Company nor any of its
Subsidiaries is in violation of its Certificate of Incorporation,
By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has
occurred which with notice or lapse of time or both could put the
Company or any of its Subsidiaries in default) under, and neither
the Company nor any of its Subsidiaries has taken any action or
failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of
its Subsidiaries is a party or by which any property or assets of
the Company or any of its Subsidiaries is bound or affected, except
for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the
Company and its Subsidiaries, if any, are not being conducted, and
shall not be conducted so long as the Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for violations as would not,
individually or in the aggregate, have a Material Adverse Effect.
Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities
laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with,
any court, governmental agency, regulatory agency, self-regulatory
organization or stock market or any third party in order for it to
execute, deliver or perform any of its obligations under this
Agreement and the Note in accordance with the terms hereof or
thereof or to issue and sell the Note in accordance with the terms
hereof and, upon conversion of the Note and/or exercise of the
Warrant, issue Conversion Shares and/or Exercise Shares as
applicable. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior
to the date hereof. The Company is not in violation of the listing
requirements of the Principal Market (as defined herein) and does
not reasonably anticipate that the Common Stock will be delisted by
the Principal Market in the foreseeable future. The Company and its
Subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing. The “Principal
Market” shall mean the principal securities exchange or
trading market where such Common Stock is listed or traded,
including but not limited to any tier of the OTC Markets, any tier
of the NASDAQ Stock Market (including NASDAQ Capital Market), or
the NYSE American, or any successor to such markets.
h. SEC Documents; Financial
Statements. The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the “1934
Act”) (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein, being hereinafter
referred to herein as the “SEC Documents”). As of their
respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were
filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC Documents
is, or has been, required to be amended or updated under applicable
law (except for such statements as have been amended or updated in
subsequent filings prior the date hereof). As of their respective
dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with United States
generally accepted accounting principles, consistently applied,
during the periods involved and fairly present in all material
respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents,
the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business
subsequent to June 30, 2021, and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in
the aggregate, are not material to the financial condition or
operating results of the Company. The Company is subject to the
reporting requirements of the 1934 Act. The Company has never been
a “shell company” as described in Rule
144(i)(1)(i).
i. Absence of Certain Changes.
Since June 30, 2021, there has been no material adverse change and
no material adverse development in the assets, liabilities,
business, properties, operations, financial condition, results of
operations, prospects or 1934 Act reporting status of the Company
or any of its Subsidiaries.
j. Absence of Litigation. There is
no action, suit, claim, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or
any of its Subsidiaries, threatened against or affecting the
Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse
Effect. The SEC Documents contain a complete list and summary
description of any pending or, to the knowledge of the Company,
threatened proceeding against or affecting the Company or any of
its Subsidiaries, without regard to whether it would have a
Material Adverse Effect. The Company and its Subsidiaries are
unaware of any facts or circumstances which might give rise to any
of the foregoing.
k. Intellectual Property. The
Company and each of its Subsidiaries owns or possesses the
requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets,
trademarks, trademark applications, service marks, service names,
trade names and copyrights (“Intellectual Property”)
necessary to enable it to conduct its business as now operated
(and, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company’s knowledge threatened,
which challenges the right of the Company or of a Subsidiary with
respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, as presently
contemplated to be operated in the future); to the best of the
Company’s knowledge, the Company’s or its
Subsidiaries’ current and intended products, services and
processes do not infringe on any Intellectual Property or other
rights held by any person; and the Company is unaware of any facts
or circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of their
Intellectual Property.
l. No Materially Adverse Contracts,
Etc. Neither the Company nor any of its Subsidiaries is
subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the
judgment of the Company’s officers has or is expected in the
future to have a Material Adverse Effect. Neither the Company nor
any of its Subsidiaries is a party to any contract or agreement
which in the judgment of the Company’s officers has or is
expected to have a Material Adverse Effect.
m. Tax Status. The Company and
each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries
has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes
and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has
set aside on its books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, state or local
tax. None of the Company’s tax returns is presently being
audited by any taxing authority.
n. Transactions with Affiliates.
Except for arm’s length transactions pursuant to which the
Company or any of its Subsidiaries makes payments in the ordinary
course of business upon terms no less favorable than the Company or
any of its Subsidiaries could obtain from third parties and other
than the grant of stock options or loans described in the SEC
Documents or as set forth in Schedule 3(n), if attached hereto,
none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its
Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer,
director, trustee or partner.
o. Disclosure. All information
relating to or concerning the Company or any of its Subsidiaries
set forth in this Agreement and provided to the Buyer pursuant to
Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any
material fact necessary in order to make the statements made herein
or therein, in light of the circumstances under which they were
made, not misleading. Other than in connection with this Agreement
and the transactions contemplated hereby, no event or circumstance
has occurred or exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law,
rule or regulation, requires public disclosure or announcement by
the Company but which has not been so publicly announced or
disclosed.
p. Acknowledgment Regarding Buyer’s
Purchase of Securities. The Company acknowledges and agrees
that the Buyer is acting solely in the capacity of arm’s
length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges
that the Buyer is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any
statement made by the Buyer or any of its respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation
and is merely incidental to the Buyer’s purchase of the
Securities. The Company further represents to the Buyer that the
Company’s decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
q. No Integrated Offering. Neither
the Company, nor any of its affiliates, nor any person acting on
its or their behalf, has directly or indirectly made any offers or
sales in any security or solicited any offers to buy any security
under circumstances that would require registration under the 1933
Act of the issuance of the
Securities to the
Buyer. The issuance of the Securities to the Buyer will not be
integrated with any other issuance of the Company’s
securities (past, current or future) for purposes of any
shareholder approval provisions applicable to the Company or its
securities.
r. No Brokers; No Solicitation.
Except with respect to J. H. Darbie & Co., a registered
broker-dealer (CRD#: 43520), the Company has taken no action which
would give rise to any claim by any person for brokerage
commissions, transaction fees or similar payments relating to this
Agreement or the transactions contemplated hereby. The Company
acknowledges and agrees that neither the Buyer nor its employee(s),
member(s), beneficial owner(s), or partner(s) solicited the Company
to enter into this Agreement and consummate the transactions
described in this Agreement.
s. Permits; Compliance. The
Company and each of its Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on
its business as it is now being conducted (collectively, the
“Company Permits”), except where the failure to possess
such Company Permits would not have or reasonably be expected to
result in a Material Adverse Effect, and there is no action pending
or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. Neither
the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any
such conflicts, defaults or violations which, individually or in
the aggregate, would not reasonably be expected to have a Material
Adverse Effect. Since June 30, 2021, neither the Company nor any of
its Subsidiaries has received any notification with respect to
possible conflicts, defaults or violations of applicable laws,
except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have
a Material Adverse Effect.
t.
Environmental Matters.
(i) There are, to the
Company’s knowledge, with respect to the Company or any of
its Subsidiaries or any predecessor of the Company, no past or
present violations of Environmental Laws (as defined below),
releases of any material into the environment, actions, activities,
circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor
any of its Subsidiaries has received any notice with respect to any
of the foregoing, nor is any action pending or, to the
Company’s knowledge, threatened in connection with any of the
foregoing. The term ”Environmental Laws” means all
federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface
or subsurface strata), including, without limitation, laws relating
to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous
Materials”) into the environment, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as
all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated
or approved thereunder.
(ii) Other
than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or
used by the Company or any of its Subsidiaries, and no Hazardous
Materials were released on or about any real property previously
owned, leased or used by the Company or any of its Subsidiaries
during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of
the Company’s or any of its Subsidiaries’
business.
(iii) There
are no underground storage tanks on or under any real property
owned, leased or used by the Company or any of its Subsidiaries
that are not in compliance with applicable law.
u. Title to Property. The Company
and its Subsidiaries have good and marketable title in fee simple
to all real property and good and marketable title to all personal
property owned by them which is material to the business of the
Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in
Schedule 3(u), if attached hereto, or such as would not have a
Material Adverse Effect. Any real property and facilities held
under lease by the Company and its Subsidiaries are held
by
them
under valid, subsisting and enforceable leases with such exceptions
as would not have a Material Adverse Effect.
v. Insurance. The Company and each
of its Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in
the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason
to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
Upon written request the Company will provide to the Buyer true and
correct copies of all policies relating to directors’ and
officers’ liability coverage, errors and omissions coverage,
and commercial general liability coverage.
w. Internal Accounting Controls.
The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient, in the judgment of the
Company’s board of directors, to provide reasonable assurance
that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with
management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
x. Foreign Corrupt Practices.
Neither the Company, nor any of its Subsidiaries, nor any director,
officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of his actions for, or
on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended, or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
y. [Intentionally
omitted].
z. No Investment Company. The
Company is not, and upon the issuance and sale of the Securities as
contemplated by this Agreement will not be an “investment
company” required to be registered under the Investment
Company Act of 1940 (an “Investment Company”). The
Company is not controlled by an Investment Company.
aa.
No Off Balance Sheet
Arrangements. There is no transaction, arrangement, or other
relationship between the Company or any of its Subsidiaries and an
unconsolidated or other off balance sheet entity that is required
to be disclosed by the Company in its 1934 Act filings and is not
so disclosed or that otherwise could be reasonably likely to have a
Material Adverse Effect.
bb.
No Disqualification
Events. None of the Company, any of its predecessors, any
affiliated issuer, any director, executive officer, other officer
of the Company participating in the offering hereunder, any
beneficial owner of 20% or more of the Company’s outstanding
voting equity securities, calculated on the basis of voting power,
nor any promoter (as that term is defined in Rule 405 under the
1933 Act) connected with the Company in any capacity at the time of
sale (each, an “Issuer Covered Person”) is subject to
any of the “Bad Actor” disqualifications described in
Rule 506(d)(1)(i) to (viii) under the 1933 Act (a
“Disqualification Event”), except for
a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Company has exercised reasonable care to determine whether any
Issuer Covered Person is subject to a Disqualification
Event.
cc.
Manipulation of
Price. The Company has not, and to its knowledge no one
acting on its behalf has: (i) taken, directly or indirectly, any
action designed to cause or to result, or that could reasonably be
expected to cause or result, in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale
or resale of any of the Securities, (ii) sold, bid for, purchased,
or paid any compensation for soliciting purchases of, any of the
Securities, or (iii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other
securities of the Company.
dd.
Bank Holding Company
Act. Neither the Company nor any of its Subsidiaries is
subject to the Bank Holding Company Act of 1956, as amended (the
“BHCA”) and to regulation by the Board of Governors of
the Federal Reserve System (the “Federal Reserve”).
Neither the Company nor any of its Subsidiaries or affiliates owns
or controls, directly or indirectly, five percent (5%) or more of
the outstanding shares of any class of voting securities or
twenty-five percent (25%) or more of the total equity of a bank or
any entity that is subject to the BHCA and to regulation by the
Federal Reserve. Neither the Company nor any of its Subsidiaries or
affiliates exercises a controlling influence over the management or
policies of a bank or any entity that is subject to the BHCA and to
regulation by the Federal Reserve.
ee.
Illegal or Unauthorized
Payments; Political Contributions. Neither the Company nor
any of its Subsidiaries nor, to the Company’s knowledge, any
of the officers, directors, employees, agents or other
representatives of the Company or any of its Subsidiaries or any
other business entity or enterprise with which the Company or any
Subsidiary is or has been affiliated or associated, has, directly
or indirectly, made or authorized any payment, contribution or gift
of money, property, or services, whether or not in contravention of
applicable law, (i) as a kickback or bribe to any person or (ii) to
any political organization, or the holder of or any aspirant to any
elective or appointive public office except for personal political
contributions not involving the direct or indirect use of funds of
the Company or any of its Subsidiaries.
ff.
Breach of Representations
and Warranties by the Company. The Company agrees that if
the Company breaches any of the representations or warranties set
forth in this Section 3 and in addition to any other remedies
available to the Buyer pursuant to this Agreement, it will be
considered an Event of Default under Section 3.4 of the
Note.
4.
ADDITIONAL COVENANTS, AGREEMENTS AND
ACKNOWLEDGEMENTS.
a. Best Efforts. The parties shall
use their best efforts to satisfy timely each of the conditions
described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The
Company agrees to file a Form D with respect to the Securities if
required under Regulation D and to provide a copy thereof to the
Buyer promptly after such filing. The Company shall, on or before
the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the
Buyer at the applicable closing pursuant to this Agreement under
applicable securities or “blue sky” laws of the states
of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so
taken to the Buyer on or prior to the Closing Date.
c. Use of Proceeds. The Company
shall use the proceeds for business development, and not for (i)
the repayment of any indebtedness owed to officers, directors or
employees of the Company or their affiliates, (ii) the repayment of
any debt issued in corporate finance transactions, (iii) any loan
to or investment in any other corporation, partnership, enterprise
or other person (except in connection with the Company’s
currently existing operations), (iv) any loan, credit, or advance
to any officers, directors, employees, or affiliates of the
Company, or (v) in violation or contravention of any applicable
law, rule or regulation.
d.
[Reserved].
e. Usury. To the extent it may
lawfully do so, the Company hereby agrees not to insist upon or
plead or in any manner whatsoever claim, and will resist any and
all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force,
in connection with any action or proceeding that may be brought by
the Buyer in order to enforce any right or remedy under this
Agreement, the Note and any document, agreement or instrument
contemplated thereby. Notwithstanding any provision to the contrary
contained in this Agreement, the Note and any document, agreement
or instrument contemplated thereby, it is expressly agreed and
provided that the total liability of the Company under this
Agreement, the Note or any document, agreement or instrument
contemplated thereby for payments which under applicable law are in
the nature of interest shall not exceed the maximum lawful rate
authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with
any other sums which under applicable law in the nature of interest
that the Company may be obligated to pay under this Agreement, the
Note and any document, agreement or instrument contemplated thereby
exceed such Maximum Rate. It is agreed that if the maximum contract
rate of interest allowed by law applicable to this Agreement, the
Note and any document, agreement or instrument contemplated thereby
is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to
this Agreement, the Note and any document, agreement or instrument
contemplated thereby from the effective date thereof forward,
unless such application is precluded by applicable law. If under
any circumstances whatsoever, interest in excess of the Maximum
Rate is paid by the Company to the Buyer with respect to
indebtedness evidenced by this Agreement, the Note and any
document, agreement or instrument contemplated thereby, such excess
shall be applied by the Buyer to the unpaid principal balance of
any such indebtedness or be refunded to the Company, the manner of
handling such excess to be at the Buyer’s
election.
f. Restriction on Activities.
Commencing as of the date first above written, and until the
earlier of payment of the Note in full or full conversion of the
Note, the Company shall not, directly or indirectly, without the
Buyer’s prior written consent, which consent shall not be
unreasonably withheld: (a) change the nature of its business; or
(b) sell, divest, acquire, change the structure of any material
assets other than in the ordinary course of business.
g. Listing. The Company will, so
long as the Buyer owns any of the Securities, maintain the listing
and trading of its Common Stock on the Principal Market or any
equivalent replacement exchange or electronic quotation system
(including but not limited to the Pink Sheets electronic quotation
system) and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules
of the Financial Industry Regulatory Authority
(“FINRA”) and such exchanges, as applicable. The
Company shall promptly provide to the Buyer copies of any notices
it receives from the Principal Market and any other exchanges or
electronic quotation systems on which the Common Stock is then
traded regarding the continued eligibility of the Common Stock for
listing on such exchanges and quotation systems.
h. Corporate Existence. The
Company will, beginning on the date of this Agreement and
continuing until six (6) months after the date that the Note is
extinguished in the entirety, maintain its corporate existence and
shall not sell all or substantially all of the Company’s
assets, except in the event of a merger or consolidation or sale of
all or substantially all of the Company’s assets, where the
surviving or successor entity in such transaction (i) assumes the
Company’s obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for
trading or quotation on the Principal Market, any tier of the
NASDAQ Stock Market, the New York Stock Exchange or the NYSE
MKT.
i. No Integration. The Company
shall not make any offers or sales of any security (other than the
Securities) under circumstances that would require registration of
the Securities being offered or sold hereunder under the 1933 Act
or cause the offering of the Securities to be integrated with any
other offering of securities by the Company for the purpose of any
stockholder approval provision applicable to the Company or its
securities.
j. Breach of Covenants. The
Company acknowledges and agrees that if the Company breaches any of
the covenants set forth in this Section 4, in addition to any other
remedies available to the Buyer pursuant to this Agreement, it will
be considered an Event of Default under Section 3.3 of the
Note.
k. [Intentionally
Omitted].
l. Acknowledgement Regarding
Buyer’s Trading Activity. Until the Note is fully
repaid or fully converted, the Buyer shall not effect any
“short sale” (as such term is defined in Rule 200 of
Regulation SHO of the 1934 Act) of the Common Stock which
establishes a net short position with respect to the Common
Stock.
m. [Intentionally
Omitted].
n. [Intentionally
Omitted].
o. Registration Rights. The
Company has granted the Buyer the piggy-back registration rights
set forth on Exhibit
B hereto.
p. [Intentionally
Omitted].
q. Subsequent Variable Rate
Transactions. From the date hereof until such time as the
Note is fully converted or fully repaid, the Company shall be
prohibited from effecting or entering into an agreement involving a
Variable Rate Transaction. “Variable Rate Transaction”
means a transaction in which the Company (i) issues or sells any
debt or equity securities that are convertible into, exchangeable
or exercisable for, or include the right to receive, additional
shares of Common Stock either (A) at a conversion price, exercise
price or exchange rate or other price that is based upon, and/or
varies with, the trading prices of or quotations for the shares of
Common Stock at any time after the initial issuance of such debt or
equity securities or (B) with a conversion, exercise or exchange
price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common
Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may issue
securities at a future determined price. The Buyer shall be
entitled to obtain injunctive relief against the Company to
preclude any such issuance, which remedy shall be in addition to
any right to collect damages.
r.
[Intentionally
Omitted].
s. Non-Public Information. The
Company covenants and agrees that neither it, nor any other person
acting on its behalf will provide the Buyer or its agents or
counsel with any information that constitutes, or the Company
reasonably believes constitutes, material non-public information,
unless prior thereto the Buyer shall have consented to the receipt
of such information and agreed with the Company to keep such
information confidential. The Company understands and confirms that
the Buyer shall be relying on the foregoing covenant in effecting
transactions in securities of the Company. To the extent that the
Company delivers any material, non-public information to the Buyer
without such Buyer’s consent, the Company hereby covenants
and agrees that such Buyer shall not have any duty of
confidentiality to the Company, any of its Subsidiaries, or any of
their respective officers, directors, agents, employees or
affiliates, not to trade on the basis of, such material, non-
public information, provided that the Buyer shall remain subject to
applicable law. To the extent that any notice provided, information
provided, or any other communications made by the Company, to the
Buyer, constitutes or contains material non-public information
regarding the Company or any Subsidiaries, the Company shall
simultaneously file such notice or other material information with
the SEC pursuant to a Current Report on Form 8-K. In addition to
any other remedies provided by this Agreement or the related
transaction documents, if the Company provides any material
non-public information to the Buyer without their prior written
consent, and it fails to immediately (no later than that business
day) file a Form 8-K disclosing this material non-public
information, it shall pay the Buyer as partial liquidated damages
and not as a penalty a sum equal to $3,000 per day beginning with
the day the information is disclosed to the Buyer and ending and
including the day the Form 8-K disclosing this information is
filed.
t. [Intentionally
Omitted].
5. Transfer Agent Instructions.
The Company shall issue irrevocable instructions to the
Company’s transfer agent to issue certificates and/or issue
shares electronically at the Buyer’s option, registered in
the name of the Buyer or its nominee, upon conversion of the Note
and/or exercise of the Warrant, the Conversion Shares and Exercise
Shares, in such amounts as specified from time to time by the Buyer
to the Company in accordance with the terms thereof (the
“Irrevocable Transfer Agent Instructions”). In the
event that the Company proposes to replace its transfer agent, the
Company shall provide, prior to the effective date of such
replacement, a fully executed Irrevocable Transfer Agent
Instructions in a form as initially delivered pursuant to this
Agreement (including but not limited to the provision to
irrevocably reserved shares of Common Stock in the Reserved Amount
(as defined in the Note)) signed by the successor transfer agent to
the Company and the Company. Prior to registration of the
Conversion Shares and/or Exercise Shares under the 1933 Act or the
date on which the Conversion Shares and/or Exercise Shares may be
sold pursuant to Rule 144, Rule 144A, Regulation S, or other
applicable exemption without any restriction as to the number of
Securities as of a particular date that can then be immediately
sold, all such certificates or book entry shares shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that: (i) no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section
5 will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this
Agreement and the Note; (ii) it will not direct its transfer agent
not to transfer or delay, impair, and/or hinder its transfer agent
in transferring (or issuing)(electronically or in certificated
form) any certificate for Securities to be issued to the Buyer upon
conversion of or otherwise pursuant to the Note and/or upon
exercise of or otherwise pursuant to the Warrant as and when
required by the Note and this Agreement; (iii) it will not fail to
remove (or directs its transfer agent not to remove or impairs,
delays, and/or hinders its transfer agent from removing) any
restrictive legend (or to withdraw any stop transfer instructions
in respect thereof) on any certificate for any Securities issued to
the Buyer upon conversion of or otherwise pursuant to the Note
and/or upon exercise of or otherwise pursuant to the Warrant as and
when required by the Note, Warrant, and/or this Agreement and (iv)
it will provide any required corporate resolutions and issuance
approvals to its transfer agent within 6 hours of each conversion
of the Note and/or exercise of the Warrant. Nothing in this Section
shall affect in any way the Buyer’s obligations and agreement
set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the
Securities. If the Buyer provides the Company with an opinion of
counsel in form, substance and scope customary for opinions in
comparable transactions, to the effect that a public sale or
transfer of such Securities may be made without registration under
the 1933 Act and such sale or transfer is effected, the Company
shall permit the transfer, and, in the case of the Securities,
promptly instruct its transfer agent to issue one or more
certificates, free from restrictive legend, in such name and in
such denominations as specified by the Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyer, by vitiating the intent and
purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 may be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the
provisions of this Section, that the Buyer shall be entitled, in
addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without
the necessity of showing economic loss and without any bond or
other security being required.
6. Conditions to the Company’s
Obligation to Sell. The obligation of the Company hereunder
to issue and sell the Note to the Buyer at the Closing is subject
to the satisfaction, at or before the Closing Date, of each of the
following conditions thereto, provided that these conditions are
for the Company’s sole benefit and may be waived by the
Company at any time in its sole discretion:
a.
The Buyer shall
have executed this Agreement and delivered the same to the
Company.
b.
The Buyer shall
have delivered the Purchase Price in accordance with Section
1(b)
above.
c. The representations
and warranties of the Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing
Date, as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer shall
have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Buyer
at or prior to the Closing Date.
d. No litigation,
statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.
7. Conditions to The Buyer’s
Obligation to Purchase. The obligation of the Buyer
hereunder to purchase the Note, on the Closing Date, is subject to
the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the
Buyer’s sole benefit and may be waived by the Buyer at any
time in its sole discretion:
a.
The Company shall
have executed this Agreement and delivered the same to the
Buyer.
b. The Company shall
have delivered to the Buyer the duly executed Note in such
denominations as the Buyer shall request and in accordance with
Section 1(b) above.
c.
The Company shall
have delivered to the Buyer the Warrant.
d. The Irrevocable
Transfer Agent Instructions, in form and substance satisfactory to
the Buyer, shall have been delivered to and acknowledged in writing
by the Company’s Transfer Agent.
e. The representations
and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of Closing Date,
as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall
have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date.
f. No litigation,
statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.
g. No event shall have
occurred which could reasonably be expected to have a Material
Adverse Effect on the Company including but not limited to a change
in the 1934 Act reporting status of the Company or the failure of
the Company to be timely in its 1934 Act reporting
obligations.
h. Trading in the
Common Stock on the Principal Market shall not have been suspended
by the SEC, FINRA or the Principal Market.
i. The Company shall
have delivered to the Buyer (i) a certificate evidencing the
formation and good standing of the Company and each of its
Subsidiaries in such entity’s jurisdiction of formation
issued by the Secretary of State (or comparable office) of such
jurisdiction, as of a date within ten (10) days of the Closing Date
and (ii) resolutions adopted by the Company’s Board of
Directors at a duly called meeting or by unanimous written consent
authorizing this Agreement and all other documents, instruments and
transactions contemplated hereby.
8.
Governing Law; Miscellaneous.
a. Governing Law; Venue. This
Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to principles of
conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement,
the Note, or any other agreement, certificate, instrument or
document contemplated hereby shall be brought only in the state
courts located in the State of Delaware or in the federal courts
located in the State of Delaware. The parties to this Agreement
hereby irrevocably waive any objection to jurisdiction and venue of
any action instituted hereunder and shall not assert any defense
based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED
HEREBY. The prevailing party shall be entitled to recover
from the other party its reasonable attorney’s fees and
costs. Each party hereby irrevocably waives personal service of
process and consents to process being served in any suit, action or
proceeding in connection with this Agreement, the Note, or any
other agreement, certificate, instrument or document contemplated
hereby or thereby by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by law.
b. Counterparts. This Agreement
may be executed in one or more counterparts, each of which shall be
deemed an original but all of which shall constitute one and the
same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party. A
facsimile or .pdf signature shall be considered due execution and
shall be binding upon the signatory thereto with the same force and
effect as if the signature were an original, not a facsimile or
..pdf signature. Delivery of a counterpart signature hereto by
facsimile or email/.pdf transmission shall be deemed validly
delivery thereof.
c. Construction; Headings. This
Agreement shall be deemed to be jointly drafted by the Company and
the Buyer and shall not be construed against any person as the
drafter hereof. The headings of this Agreement are for convenience
of reference only and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. In the event that
any provision of this Agreement, the Note, or any other agreement
or instrument delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any such provision which may prove
invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision of this
Agreement, the Note, or any other agreement, certificate,
instrument or document contemplated hereby or thereby.
e. Entire Agreement; Amendments.
This Agreement, the Note, and the instruments referenced herein
contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set
forth herein or therein, neither the Company nor the Buyer makes
any representation, warranty, covenant or undertaking with respect
to such matters. No provision of this Agreement or any agreement or
instrument contemplated hereby may be waived or amended other than
by an instrument in writing signed by the Buyer.
f. Notices. All notices, demands,
requests, consents, approvals, and other communications required or
permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be
(i)
personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram, e-mail or facsimile,
addressed as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder
shall be deemed effective (a) upon hand delivery or delivery by
e-mail or facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated
below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
If to
the Company, to:
INFINITE
GROUP, INC.
175
Sully’s Trail, Suite 202
Pittsford, NY
14534
Attention: James
Villa
e-mail:
[email protected]
If to
the Buyer:
MAST
HILL FUND, L.P.
48
Parker Road
Wellesley, MA
02482
e-mail:
[email protected]
g. Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns. The Company shall not
assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Buyer. The Buyer may
assign its rights hereunder to any “accredited
investor” (as defined in Rule 501(a) of the 1933 Act) in a
private transaction from the Buyer or to any of its
“affiliates,” as that term is defined under the 1934
Act, without the consent of the Company.
h. Third Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns, and is not for
the benefit of, nor may any provision hereof be enforced by, any
other person.
i. Survival. The representations
and warranties of the Company and the agreements and covenants set
forth in this Agreement shall survive the closing hereunder
notwithstanding any due diligence investigation conducted by or on
behalf of the Buyer. The Company agrees to indemnify and hold
harmless the Buyer and all their officers, directors, employees and
agents for loss or damage arising as a result of or related to any
breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in this
Agreement or any of its covenants and obligations under this
Agreement, including advancement of expenses as they are
incurred.
j. Publicity. The Company, and the
Buyer shall have the right to review a reasonable period of time
before issuance of any press releases, SEC, Principal Market or
FINRA filings, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of the Buyer, to make any
press release or SEC, Principal Market (or other applicable trading
market) or FINRA filings with respect to such transactions as is
required by applicable law and regulations (although the Buyer
shall be consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy
thereof and be given an opportunity to comment
thereon).
k. Further Assurances. Each party
shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such
other agreements, certificates, instruments and documents, as the
other party may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.
l. No Strict Construction. The
language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any
party.
m. Indemnification. In
consideration of the Buyer’s execution and delivery of this
Agreement and acquiring the Securities hereunder, and in addition
to all of the Company’s other obligations under this
Agreement or the Note, the Company shall defend, protect, indemnify
and hold harmless the Buyer and its stockholders, partners,
members, officers, directors, employees and direct or indirect
investors and any of the foregoing persons’ agents or other
representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against any
and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee
is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and
disbursements (the “Indemnified Liabilities”), incurred
by any Indemnitee as a result of, or arising out of, or relating to
(a) any misrepresentation or breach of any representation or
warranty made by the Company in this Agreement, the Note or any
other agreement, certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, the Note or
any other agreement, certificate, instrument or document
contemplated hereby or thereby or (c) any cause of action, suit or
claim brought or made against such Indemnitee by a third party
(including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the
execution, delivery, performance or enforcement of this Agreement,
the Note or any other agreement, certificate, instrument or
document contemplated hereby or thereby, (ii) any transaction
financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or
(iii) the status of the Buyer or holder of the Securities as an
investor in the Company pursuant to the transactions contemplated
by this Agreement. To the extent that the foregoing undertaking by
the Company may be unenforceable for any reason, the Company shall
make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities that is permissible under
applicable law.
n. Remedies. The Company
acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyer by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its
obligations under this Agreement, the Note, the Warrant, or any
other agreement, certificate, instrument or document contemplated
hereby or thereby will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of
this Agreement, the Note, the Warrant, or any other agreement,
certificate, instrument or document contemplated hereby or thereby,
that the Buyer shall be entitled, in addition to all other
available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions
restraining, preventing or curing any breach of this Agreement, the
Note, the Warrant, or any other agreement, certificate, instrument
or document contemplated hereby or thereby, and to enforce
specifically the terms and provisions hereof and thereof, without
the necessity of showing economic loss and without any bond or
other security being required.
o. Payment Set Aside. To the
extent that the (i) Company makes a payment or payments to the
Buyer hereunder, pursuant to the Note, pursuant to the Warrant, or
pursuant to any other agreement, certificate, instrument or
document contemplated hereby or thereby, or (ii) the Buyer enforces
or exercises its rights hereunder, pursuant to the Note, pursuant
to the Warrant, or pursuant to any other agreement, certificate,
instrument or document contemplated hereby or thereby, and such
payment or payments or the proceeds of such enforcement or exercise
or any part thereof (including but not limited to the sale of the
Securities) are for any reason (i) subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered
from, or disgorged by the Buyer, or (ii) are required to be
refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person or entity under any law (including,
without limitation, any bankruptcy law, foreign, state or federal
law, common law or equitable cause of action), then (i) to the
extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred and (ii) the Company
shall immediately pay to the Buyer a dollar amount equal to the
amount that was for any reason (i) subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered
from, or disgorged by the Buyer, or (ii) required to be refunded,
repaid or otherwise restored to the Company, a trustee, receiver or
any other person or entity under any law (including, without
limitation, any bankruptcy law, foreign, state or federal law,
common law or equitable cause of action).
p. Failure or Indulgence Not
Waiver. No failure or delay on the part of the Buyer in the
exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privileges. All
rights and remedies of the Buyer existing hereunder are cumulative
to, and not exclusive of, any rights or remedies otherwise
available.
[Signature Page
Follows]
IN
WITNESS WHEREOF, the undersigned Buyer and the Company have caused
this Agreement to be duly executed as of the date first above
written.
INFINITE
GROUP, INC.
/s/
James Villa
|
By:
|
|
Name:
JAMES VILLA
|
|
Title:
CHIEF EXECUTIVE OFFICER
|
MAST
HILL FUND, L.P.
/s/
Patrick Hassani
|
By:
|
|
Name:
PATRICK HASSANI
|
|
Title:
CHIEF INVESTMENT OFFICER
|
SUBSCRIPTION
AMOUNT:
|
Principal
Amount of Note: $448,000.00
|
|
Actual
Amount of Purchase Price of Note: $403,200.00
|
EXHIBIT
A FORM OF NOTE
[attached
hereto]
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS
DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER
SAID ACT OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
|
Principal
Amount: $448,000.00
|
Issue
Date: November 3, 2021
|
|
Actual
Amount of Purchase Price: $403,200.00
|
|
PROMISSORY
NOTE
FOR VALUE RECEIVED, INFINITE GROUP, INC., a Delaware
corporation (hereinafter called the “Borrower” or the
“Company”) (Trading Symbol: IMCI), hereby promises to
pay to the order of MAST HILL FUND,
L.P., a Delaware limited partnership, or registered assigns
(the “Holder”), in the form of lawful money of the
United States of America, the principal sum of $448,000.00, which
amount is the $403,200.00 actual amount of the purchase price (the
“Consideration”) hereof plus an original issue discount
in the amount of $44,800.00 (the “OID”) (subject to
adjustment herein) (the “Principal Amount”) and to pay
interest on the unpaid Principal Amount hereof at the rate of eight
percent (8%) (the “Interest Rate”) per annum from the
date hereof (the “Issue Date”) until the same becomes
due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise, as further provided herein. The maturity
date shall be twelve (12) months from the Issue Date (the
“Maturity Date”), and is the date upon which the
Principal Amount, the OID, as well as any accrued and unpaid
interest and other fees, shall be due and payable.
This
Note may be prepaid or repaid in whole or in part at any time or
from time to time in accordance with the provisions set forth in
Section 1.9.
Any
Principal Amount or interest on this Note which is not paid when
due shall bear interest at the rate of the lesser of (i) sixteen
percent (12%) per annum and (ii) the maximum amount permitted by
law from the due date thereof until the same is paid
(“Default Interest”). Interest and Default Interest
shall be computed on the basis of a 365-day year and the actual
number of days elapsed.
All
payments due hereunder (to the extent not converted into shares of
common stock, $0.001 par value per share, of the Borrower (the
“Common Stock”) in accordance with the terms hereof)
shall be made in lawful money of the United States of America. All
payments shall be made at such address as the Holder shall
hereafter give to the Borrower by written notice made in accordance
with the provisions of this Note. Whenever any amount expressed to
be due by the terms of this Note is due on any day which is not a
business day, the same shall instead be due on the next succeeding
day which is a business day.
Each
capitalized term used herein, and not otherwise defined, shall have
the meaning ascribed thereto in that certain Securities Purchase
Agreement, dated as of the Issue Date, pursuant to which this Note
was originally issued (the “Purchase Agreement”). As
used in this Note, the term “business day” shall mean
any day other than a Saturday, Sunday or a day on which commercial
banks in the city of New York, New York are authorized or required
by law or executive order to remain closed. As used herein, the
term “Trading Day” means any day that shares of Common
Stock are listed for trading or quotation on the Principal Market
(as defined in the Purchase Agreement), provided, however, that if
the Common Stock is not then listed or quoted on any Principal
Market, then any business day.
This
Note is free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive
rights or other similar rights of shareholders of the Borrower and
will not impose personal liability upon the holder
thereof.
The
following terms shall also apply to this Note:
ARTICLE
I. CONVERSION RIGHTS
1.1
Conversion Right.
The Holder shall have the right, on any calendar day, at any time
on or following the date that an Event of Default (as defined in
this Note) occurs under this Note as well as during the Prepayment
Conversion Period (as defined in this Note) (even if such
Prepayment Conversion Period is prior to the date that an Event of
Default occurs under this Note), to convert all or any portion of
the then outstanding and unpaid Principal Amount and interest
(including any Default Interest) into fully paid and non-assessable
shares of Common Stock, as such Common Stock exists on the Issue
Date, or any shares of capital stock or other securities of the
Borrower into which such Common Stock shall hereafter be changed or
reclassified, at the Conversion Price (as defined below) determined
as provided herein (a “Conversion”); provided, however, that notwithstanding
anything to the contrary contained herein, the a Holder shall not
have the right to convert any portion of this Note, pursuant to
Section 1 or otherwise, to the extent that after giving effect to
such issuance after conversion as set forth on the applicable
Notice of Conversion, the Holder (together with the Holder’s
affiliates (the “Affiliates”), and any other Persons
(as defined below) acting as a group together with the Holder or
any of the Holder’s Affiliates (such Persons,
“Attribution Parties”)), would beneficially own in
excess of the Beneficial Ownership Limitation (as defined below).
For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and Attribution
Parties shall include the number of shares of Common Stock issuable
upon conversion of this Note with respect to which such
determination is being made, but shall exclude the number of shares
of Common Stock which would be issuable upon (i) conversion of the
remaining, nonconverted portion of this Note beneficially owned by
the Holder or any of its Affiliates or Attribution Parties and (ii)
exercise or conversion of the unexercised or nonconverted portion
of any other securities of the Company subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its Affiliates or
Attribution Parties. Except as set forth in the preceding sentence,
for purposes of this Section 1.1, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder, it being
acknowledged by the Holder that the Holder is solely responsible
for any schedules required to be filed in accordance therewith. In
addition, a determination as to any group status as contemplated
above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 1.1, in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number
of outstanding shares of Common Stock as reflected in (A) the
Company’s most recent periodic or annual report filed with
the Commission, as the case may be, (B) a more recent public
announcement by the Company or (C) a more recent written notice by
the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding. Upon the written or oral
request of a Holder, the Company shall within two Trading Days
confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Note, by the Holder or its Affiliates or Attribution
Parties since the date as of which such number of outstanding
shares of Common Stock was reported. The “Beneficial
Ownership Limitation” shall be 4.99% of the number of shares
of the Common Stock outstanding at the time of the respective
calculation hereunder. “Person” and
“Persons” means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and any governmental
entity or any department or agency thereof. The limitations
contained in this paragraph shall apply to a successor holder of
this Note. The number of Conversion Shares to be issued upon each
conversion of this Note shall be determined by dividing the
Conversion Amount (as defined below) by the applicable Conversion
Price then in effect on the date specified in the notice of
conversion, in the form attached hereto as Exhibit A (the “Notice of
Conversion”), delivered to the Borrower or Borrower’s
transfer agent by the Holder in accordance with Section 1.4 below;
provided that the Notice of Conversion is submitted by facsimile or
e-mail (or by other means resulting in, or reasonably expected to
result in, notice) to the Borrower or Borrower’s transfer
agent before 11:59 p.m., New York, New York time on such conversion
date (the “Conversion Date”). The term
“Conversion Amount” means, with respect to any
conversion of this Note, the sum of (1) the Principal Amount of
this Note to be converted in such conversion plus (2) at the Holder’s
option, accrued and unpaid interest, if any, on such Principal
Amount at the Interest Rate to the Conversion Date, plus (3) at the Holder’s
option, Default Interest, if any, on the amounts referred to in the
immediately preceding clauses (1) and/or (2).
1.2
Conversion Price.
(a) Calculation of Conversion
Price. The per share conversion price into which Principal
Amount and interest (including any Default Interest) under this
Note shall be convertible into shares of Common Stock hereunder
(the “Conversion Price”) shall equal $0.10. If at any
time the Conversion Price as determined hereunder for any
conversion would be less than the par value of the Common Stock,
then at the sole discretion of the Holder, the Conversion Price
hereunder may equal such par value for such conversion and the
Conversion Amount for such conversion may be increased to include
Additional Principal, where “Additional Principal”
means such additional amount to be added to the Conversion Amount
to the extent necessary to cause the number of conversion shares
issuable upon such conversion to equal the same number of
conversion shares as would have been issued had the Conversion
Price not been adjusted by the Holder to the par value price. All
such Conversion Price determinations are to be appropriately
adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction that proportionately
decreases or increases the Common Stock. If the Company, at any
time while this Note is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions payable in shares
of Common Stock on shares of Common Stock or any Common Stock
Equivalents, (ii) subdivides outstanding shares of Common Stock
into a larger number of shares, (iii) combines (including by way of
a reverse stock split) outstanding shares of Common Stock into a
smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of
capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number
of shares of Common Stock (excluding any treasury shares of the
Company) outstanding immediately before such event, and of which
the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made
pursuant to the immediately preceding sentence shall become
effective immediately after the record date for the determination
of shareholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
“Common Stock Equivalents” means any securities of the
Company or the Company’s subsidiaries which would entitle the
holder thereof to acquire at any time Common Stock, including,
without limitation, any debt, preferred stock, right, option,
warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
1.3 Authorized and Reserved Shares.
The Borrower covenants that at all times until the Note is
satisfied in full, the Borrower will reserve from its authorized
and unissued Common Stock a sufficient number of shares, free from
preemptive rights, to provide for the issuance of a number of
Conversion Shares equal to the greater of: (a) 4,480,000 shares of
Common Stock or (b) the sum of (i) the number of Conversion Shares
issuable upon the full conversion of this Note (assuming no payment
of Principal Amount or interest) at the time of such calculation
(taking into consideration any adjustments to the Conversion Price
as provided in this Note) multiplied by (ii) one (1) (the
“Reserved Amount”). The Borrower represents that upon
issuance, the Conversion Shares will be duly and validly issued,
fully paid and non-assessable. The Borrower (i) acknowledges that
it has irrevocably instructed its transfer agent to issue
certificates for the Conversion Shares or instructions to have the
Conversion Shares issued as contemplated by Section 1.4(f) hereof,
and (ii) agrees that its issuance of this Note shall constitute
full authority to its officers and agents who are charged with the
duty of executing stock certificates or cause the Company to
electronically issue shares of Common Stock to execute and issue
the necessary certificates for the Conversion Shares or cause the
Conversion Shares to be issued as contemplated by Section 1.4(f)
hereof in accordance with the terms and conditions of this
Note.
If, at
any time, the Borrower does not maintain the Reserved Amount, it
will be considered an Event of Default (as defined in this Note)
under this Note.
1.4
Method of Conversion.
(a) Mechanics of Conversion. This
Note may be converted by the Holder in whole or in part, on any
calendar day, at any time on or following the date that an Event of
Default (as defined in this Note) occurs under this Note as well as
during the Prepayment Conversion Period (as defined in this Note)
(even if such Prepayment Conversion Period is prior to the date
that an Event of Default occurs under this Note), by submitting to
the Borrower or Borrower’s transfer agent a Notice of
Conversion (by facsimile, e-mail or other reasonable means of
communication dispatched on the Conversion Date prior to 11:59
p.m., New York, New York time). Any Notice of Conversion submitted
after 11:59 p.m., New York, New York time, shall be deemed to have
been delivered and received on the next Trading Day.
(b) Surrender of Note Upon
Conversion. Notwithstanding anything to the contrary set
forth herein, upon conversion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Note to the Borrower unless the entire unpaid
Principal Amount is so converted. The Holder and the Borrower shall
maintain records showing the Principal Amount so converted and the
dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Borrower, so as not
to require physical surrender of this Note upon each such
conversion. In the event of any dispute or discrepancy, such
records of the Holder shall, prima
facie, be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if any portion of
this Note is converted as aforesaid, the Holder may not transfer
this Note unless the Holder first physically surrenders this Note
to the Borrower, whereupon the Borrower will forthwith issue and
deliver upon the order of the Holder a new Note of like tenor,
registered as the Holder (upon payment by the Holder of any
applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid Principal Amount of this Note. The
Holder and any assignee, by acceptance of this Note, acknowledge
and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Note, the unpaid and
unconverted Principal Amount of this Note represented by this Note
may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower
shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of
shares of Common Stock or other securities or property on
conversion of this Note in a name other than that of the Holder (or
in street name), and the Borrower shall not be required to issue or
deliver any such shares or other securities or property unless and
until the person or persons (other than the Holder or the custodian
in whose street name such shares are to be held for the
Holder’s account) requesting the issuance thereof shall have
paid to the Borrower the amount of any such tax or shall have
established to the satisfaction of the Borrower that such tax has
been paid.
(d) Delivery of Common Stock Upon
Conversion. Upon receipt by the Borrower or Borrower’s
transfer agent from the Holder of a facsimile transmission or
e-mail (or other reasonable means of communication) of a Notice of
Conversion meeting the requirements for conversion as provided in
this Section 1.4, the Borrower shall issue and deliver or cause to
be issued and delivered to or upon the order of the Holder
certificates for the Conversion Shares (or cause the electronic
delivery of the Conversion Shares as contemplated by Section 1.4(f)
hereof) within three (3) Trading Days after such receipt (the
“Deadline”) (and, solely in the case of conversion of
the entire unpaid Principal Amount and interest (including any
Default Interest) under this Note, surrender of this Note). If the
Company shall fail for any reason or for no reason to issue to the
Holder on or prior to the Deadline a certificate for the number of
Conversion Shares or to which the Holder is entitled hereunder and
register such Conversion Shares on the Company’s share
register or to credit the Holder’s balance account with DTC
(as defined below) for such number of Conversion Shares to which
the Holder is entitled upon the Holder’s conversion of this
Note (a “Conversion Failure”), then, in addition to all
other remedies available to the Holder, (i) the Company shall pay
in cash to the Holder on each day after the Deadline and during
such Conversion Failure an amount equal to 1.0% of the product of
(A) the sum of the number of Conversion Shares not issued to the
Holder on or prior to the Deadline and to which the Holder is
entitled and (B) the closing sale price of the Common Stock on the
Trading Day immediately preceding the last possible date which the
Company could have issued such Conversion Shares to the Holder
without violating this Section 1.4(d); and (ii) the Holder, upon
written notice to the Company, may void all or any portion of such
Notice of Conversion; provided that the voiding of all or any
portion of a Notice of Conversion shall not affect the
Company’s obligations to make any payments which have accrued
prior to the date of such notice. In addition to the foregoing, if
on or prior to the Deadline the Company shall fail to issue and
deliver a certificate to the Holder and register such Conversion
Shares on the Company’s share register or credit the
Holder’s balance account with DTC for the number of
Conversion Shares to which the Holder is entitled upon the
Holder’s exercise hereunder or pursuant to the
Company’s obligation pursuant to clause (ii) below, and if on
or after such Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving
from the Company, then the Company shall, within two (2) Trading
Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to
the Holder’s total purchase price (including brokerage
commissions and other reasonable and customary out-of-pocket
expenses, if any) for the shares of Common Stock so purchased (the
“Buy-In Price”), at which point the Company’s
obligation to deliver such certificate (and to issue such
Conversion Shares) or credit such Holder’s balance account
with DTC for such Conversion Shares shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Conversion Shares or
credit such Holder’s balance account with DTC and pay cash to
the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common
Stock, times (B) the closing sales price of the Common Stock on the
date of exercise. Nothing shall limit the Holder’s right to
pursue any other remedies available to it hereunder, at law or in
equity, including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing
the Conversion Shares (or to electronically deliver such Conversion
Shares) upon the conversion of this Note as required pursuant to
the terms hereof.
(e) Obligation of Borrower to Deliver
Common Stock. At the time that the Holder submits the Notice
of Conversion to the Borrower or Borrower’s transfer agent,
the Holder shall be deemed to be the holder of record of the
Conversion Shares issuable upon such conversion, the outstanding
Principal Amount and the amount of accrued and unpaid interest
(including any Default Interest) under this Note shall be reduced
to reflect such conversion, and, unless the Borrower defaults on
its obligations under this Article I, all rights with respect to
the portion of this Note being so converted shall forthwith
terminate except the right to receive the Common Stock or other
securities, cash or other assets, as herein provided, on such
conversion. If the Holder shall have given a Notice of Conversion
as provided herein, the Borrower’s obligation to issue and
deliver the certificates for the Conversion Shares (or cause the
electronic delivery of the Conversion Shares as contemplated by
Section 1.4(f) hereof) shall be absolute and unconditional,
irrespective of the absence of any action by the Holder to enforce
the same, any waiver or consent with respect to any provision
thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement
of any other obligation of the Borrower to the holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder of any obligation to the
Borrower, and irrespective of any other circumstance which might
otherwise limit such obligation of the Borrower to the Holder in
connection with such conversion. The Conversion Date specified in
the Notice of Conversion shall be the Conversion Date so long as
the Notice of Conversion is sent to the Borrower or
Borrower’s transfer agent before 11:59 p.m., New York, New
York time, on such date.
(f) Delivery of Conversion Shares by
Electronic Transfer. In lieu of delivering physical
certificates representing the Conversion Shares issuable upon
conversion hereof, provided the Borrower is participating in the
Depository Trust Company (“DTC”) Fast Automated
Securities Transfer or Deposit/Withdrawal at Custodian programs,
upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower
shall use its best efforts to cause its transfer agent to
electronically transmit the Conversion Shares issuable upon
conversion hereof to the Holder by crediting the account of
Holder’s Prime Broker with DTC through its Deposit Withdrawal
Agent Commission system.
1.5 Concerning the Shares. The
Conversion Shares issuable upon conversion of this Note may not be
sold or transferred unless (i) such shares are sold pursuant to an
effective registration statement under the 1933 Act or (ii) the
Borrower or its transfer agent shall have been furnished with an
opinion of counsel (which opinion shall be the Legal Counsel
Opinion (as defined in the Purchase Agreement)) to the effect that
the shares to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration or (iii) such
shares are sold or transferred pursuant to Rule 144, Rule 144A,
Regulation S, or other applicable exemption, or (iv) such shares
are transferred to an “affiliate” (as defined in Rule
144) of the Borrower who agrees to sell or otherwise transfer the
shares only in accordance with this Section 1.5 and who is an
Accredited Investor (as defined in the Purchase Agreement). Except
as otherwise provided in the Purchase Agreement (and subject to the
removal provisions set forth below), until such time as the
Conversion Shares have been registered under the 1933 Act or
otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation
S, or other applicable exemption without any restriction as to the
number of securities as of a particular date that can then be
immediately sold, each certificate for the Conversion Shares that
has not been so included in an effective registration statement or
that has not been sold pursuant to an effective registration
statement or an exemption that permits removal of the legend, shall
bear a legend substantially in the following form, as
appropriate:
“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS
DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144, RULE 144A, REGULATION S UNDER
SAID ACT, OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.”
The
legend set forth above shall be removed and the Company shall issue
to the Holder a certificate for the applicable Conversion Shares
without such legend upon which it is stamped or (as requested by
the Holder) issue the applicable Conversion Shares by electronic
delivery by crediting the account of such holder’s broker
with DTC, if, unless otherwise required by applicable state
securities laws: (a) such Conversion Shares are registered for sale
under an effective registration statement filed under the 1933 Act
or otherwise may be sold pursuant to Rule 144, Rule 144A,
Regulation S, or other applicable exemption without any restriction
as to the number of securities as of a particular date that can
then be immediately sold, or (b) the Company or the Holder provides
the Legal Counsel Opinion (as contemplated by and in accordance
with Section 4(m) of the Purchase Agreement) to the effect that a
public sale or transfer of such Conversion Shares may be made
without registration under the 1933 Act. The Company shall be
responsible for the fees of its transfer agent and all DTC fees
associated with any such issuance. The Holder agrees to sell all
Conversion Shares, including those represented by a certificate(s)
from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
1.6
Effect of Certain Events.
(a) Effect of Merger, Consolidation,
Etc. Upon the sale, conveyance or disposition of all or
substantially all of the assets of the Borrower, or the
consolidation, merger or other business combination of the Borrower
with or into any other Person (as defined below) or Persons when
the Borrower is not the survivor shall either: (i) be deemed to be
an Event of Default pursuant to which the Borrower shall be
required to pay to the Holder upon the consummation of and as a
condition to such transaction an amount equal to the Default Amount
(as defined in this Note) or (ii) be treated pursuant to Section
1.6(b) hereof. “Person” shall mean any individual,
corporation, limited liability company, partnership, association,
trust or other entity or organization.
(b) Adjustment Due to Merger,
Consolidation, Etc. If, at any time when this Note is issued
and outstanding and prior to conversion of all of this Note, there
shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a
result of which shares of Common Stock of the Borrower shall be
changed into the same or a different number of shares of another
class or classes of stock or securities of the Borrower or another
entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower other than in
connection with a plan of complete liquidation of the Borrower,
then the Holder of this Note shall thereafter have the right to
receive upon conversion of this Note, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such
stock, securities or assets which the Holder would have been
entitled to receive in such transaction had this Note been
converted in full immediately prior to such transaction (without
regard to any limitations on conversion set forth herein), and in
any such case appropriate provisions shall be made with respect to
the rights and interests of the Holder of this Note to the end that
the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares
issuable upon conversion of the Note) shall thereafter be
applicable, as nearly as may be practicable in relation to any
securities or assets thereafter deliverable upon the conversion
hereof. The Borrower shall not effectuate any transaction described
in this Section 1.6(b) unless (a) it first gives, to the extent
practicable, at least thirty (30) days prior written notice (but in
any event at least fifteen (15) days prior written notice) of the
record date of the special meeting of shareholders to approve, or
if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization
or other similar event or sale of assets (during which time the
Holder shall be entitled to convert this Note) and (b) the
resulting successor or acquiring entity (if not the Borrower)
assumes by written instrument the obligations of this Section
1.6(b). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges. For
the avoidance of doubt, (i) no adjustment pursuant to this Section
1.6(b) shall be made if prepayment in full of this Note occurs
prior to, or upon consummation of, any transaction that would
require adjustment pursuant to this Section 1.6(b), and (ii) the
provisions of this Section 1.6(b) shall not impact the
Company’s right to prepay the Note at any time and from time
to time, including prior to, or upon consummation of, any
transaction that would require adjustment pursuant to this Section
1.6(b), in each case subject to the Holders right to convert this
Note.
(c) Adjustment Due to Distribution.
If the Borrower shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock
as a dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to the
Borrower’s shareholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e., a
spin-off)) (a “Distribution”), then the Holder of this
Note shall be entitled, upon any conversion of this Note after the
date of record for determining shareholders entitled to such
Distribution, to receive the amount of such assets which would have
been payable to the Holder with respect to the shares of Common
Stock issuable upon such conversion had such Holder been the holder
of such shares of Common Stock on the record date for the
determination of shareholders entitled to such
Distribution.
(d) Purchase Rights. If, at any
time when all or any portion of this Note is issued and
outstanding, the Borrower issues any convertible securities or
rights to purchase stock, warrants, securities or other property
(the “Purchase Rights”) pro rata to the record holders
of any class of Common Stock, then the Holder of this Note will be
entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without
regard to any limitations on conversion contained herein)
immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(e) Dilutive Issuance. If the
Borrower, at any time while this Note or any amounts due hereunder
are outstanding, issues, sells or grants (or has issued, sold or
granted as of the Issue Date, as the case may be) any option to
purchase, or sells or grants any right to reprice, or otherwise
disposes of, or issues (or has sold or issued, as the case may be,
or announces any sale, grant or any option to purchase or other
disposition), any Common Stock or other securities convertible
into, exercisable for, or otherwise entitle any person or entity
the right to acquire, shares of Common Stock (including, without
limitation, upon conversion of this Note, Common Stock Equivalents,
and any convertible notes or warrants outstanding as of or
following the Issue Date), in each or any case at an effective
price per share that is lower than the then Conversion Price (such
lower price, the “Base Conversion Price” and such
issuances, collectively, a “Dilutive Issuance”) (it
being agreed that if the holder of the Common Stock or other
securities so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an
effective price per share that is lower than the Conversion Price,
such issuance shall be deemed to have occurred for less than the
Conversion Price on such date of the Dilutive Issuance), then the
Conversion Price shall be reduced, at the option of the Holder, to
a price equal to the Base Conversion Price. Such adjustment shall
be made whenever such Common Stock or other securities are issued.
By way of example, and for the avoidance of doubt, if the Company
issues a convertible promissory note (including but not limited to
a Variable Rate Transaction), and the holder of such convertible
promissory note has the right to convert it into Common Stock at an
effective price per share that is lower than the then Conversion
Price (including but not limited to a conversion price with a
discount that varies with the trading prices of or quotations for
the Common Stock), then the Holder has the right to reduce the
Conversion Price to such Base Conversion Price (including but not
limited to a conversion price with a discount that varies with the
trading prices of or quotations for the Common Stock) in perpetuity
regardless of whether the holder of such convertible promissory
note ever effectuated a conversion at the Base Conversion Price. In
the event of an issuance of securities involving multiple tranches
or closings, any adjustment pursuant to this Section 1.6(e) shall
be calculated as if all such securities were issued at the initial
closing. For the avoidance of doubt, the Holder shall be entitled
to utilize the Base Conversion Price with respect to a Dilutive
Issuance, even if the Dilutive Issuance occurs prior to the date
that the Holder is entitled to convert this Note. Notwithstanding the foregoing, no
adjustment will be made under this Section 1.6(e) with respect to
an Exempt Issuance (as defined below). An “Exempt
Issuance” shall mean (i) the issuance of shares of Common
Stock pursuant to the conversion or exercise of Common Stock
Equivalents issued prior to the Issue Date, so long as the
respective Common Stock Equivalents are not amended on or after
Issue Date of this Note, and (ii) grants or issuances to officers,
directors or employees or other service providers of Common Stock
or Common Stock Equivalents (and the conversion or exercise
thereof) in connection with stockholder approved stock option,
stock, incentive or similar plans.
(f) Notice of Adjustments. Upon the
occurrence of each adjustment or readjustment of the Conversion
Price as a result of the events described in Section 1.6 of this
Note, the Borrower shall, at its expense and within four (4)
business days after the occurrence of each respective adjustment or
readjustment of the Conversion Price, compute such adjustment or
readjustment and prepare and furnish to the Holder a certificate
setting forth (i) the Conversion Price in effect at such time based
upon the Dilutive Issuance, (ii) the number of shares of Common
Stock and the amount, if any, of other securities or property which
at the time would be received upon conversion of the Note, (iii)
the detailed facts upon which such adjustment or readjustment is
based, and (iv) copies of the documentation (including but not
limited to relevant transaction documents) that evidences the
adjustment or readjustment. In addition, the Borrower shall, within
four (4) business days after each written request from the Holder,
furnish to such Holder a like certificate setting forth (i) the
Conversion Price in effect at such time based upon the Dilutive
Issuance, (ii) the number of shares of Common Stock and the amount,
if any, of other securities or property which at the time would be
received upon conversion of the Note, (iii) the detailed facts upon
which such adjustment or readjustment is based, and (iv) copies of
the documentation (including but not limited to relevant
transaction documents) that evidences the adjustment or
readjustment. For the avoidance of doubt, each adjustment or
readjustment of the Conversion Price as a result of the events
described in Section 1.6 of this Note shall occur without any
action by the Holder and regardless of whether the Borrower
complied with the notification provisions in Section 1.6 of this
Note.
1.7 [Intentionally
Omitted].
1.8 Status as Shareholder. Upon
submission of a Notice of Conversion by a Holder, (i) the
Conversion Shares covered thereby (other than the Conversion
Shares, if any, which cannot be issued because their issuance would
exceed such Holder’s allocated portion of the Reserved Amount
or Maximum Share Amount) shall be deemed converted into shares of
Common Stock and (ii) the Holder’s rights as a Holder of such
converted portion of this Note shall cease and terminate, excepting
only the right to receive certificates for such shares of Common
Stock and to any remedies provided herein or otherwise available at
law or in equity to such Holder because of a failure by the
Borrower to comply with the terms of this Note. Notwithstanding the
foregoing, if a Holder has not received certificates for all shares
of Common Stock prior to the tenth (10th) business day after the
expiration of the Deadline with respect to a conversion of any
portion of this Note for any reason, then (unless the Holder
otherwise elects to retain its status as a holder of Common Stock
by so notifying the Borrower) the Holder shall regain the rights of
a Holder of this Note with respect to such unconverted portions of
this Note and the Borrower shall, as soon as practicable, return
such unconverted Note to the Holder or, if the Note has not been
surrendered, adjust its records to reflect that such portion of
this Note has not been converted. In all cases, the Holder shall
retain all of its rights and remedies for the Borrower’s
failure to convert this Note.
1.9 Prepayment. At any time prior
to the date that an Event of Default occurs under this Note (the
“Prepayment Period”), the Borrower shall have the
right, exercisable on three (3) Trading Days prior written notice
to the Holder of the Note, to prepay the outstanding Principal
Amount and interest then due under this Note in accordance with
this Section 1.9. Any notice of prepayment hereunder (an
“Optional Prepayment Notice”) shall be delivered to the
Holder of the Note at its registered addresses and shall state: (1)
that the Borrower is exercising its right to prepay the Note, and
(2) the date of prepayment which shall be three (3) Trading Days
from the date of the Optional Prepayment Notice (the
“Optional Prepayment Date”). The Holder shall have the
right, during the period beginning on the date of Holder’s
receipt of the Optional Prepayment Notice and until the
Holder’s actual receipt of the full prepayment amount on the
Optional Prepayment Date (the “Prepayment Conversion
Period”), to instead convert all or any portion of the Note
pursuant to the terms of this Note, including the amount of this
Note to be prepaid by the Borrower in accordance with this Section
1.9. On the Optional Prepayment Date, the Borrower shall make
payment of the amounts designated below to or upon the order of the
Holder as specified by the Holder in writing to the Borrower. If
the Borrower exercises its right to prepay the Note in accordance
with this Section 1.9, the Borrower shall make payment to the
Holder of an amount in cash equal to the sum of: (w) 100%
multiplied by the Principal Amount then outstanding plus (x) accrued and unpaid
interest on the Principal Amount to the Optional Prepayment Date
plus (y) $750.00 to
reimburse Holder for administrative fees.
If the
Borrower delivers an Optional Prepayment Notice and fails to pay
the applicable prepayment amount due to the Holder of the Note as
provided in this Section 1.9, then the Borrower shall forever
forfeit its right to prepay any part of the Note pursuant to this
Section 1.9.
1.10 Repayment
from Proceeds. If, at any time prior to the full repayment
or full conversion of all amounts owed under this Note, the Company
receives cash proceeds of more than $2,000,000.00 (the
“Minimum Threshold”) in the aggregate (for the
avoidance of doubt, each time that the Company receives cash
proceeds on or after the Issue Date (except with respect to this
Note), such amount shall be aggregated together for purposes of
calculating the Minimum Threshold), from the issuance of equity
(excluding the issuance of equity pursuant to an Equity Line of
Credit (as defined in this Note)) or debt, the conversion of
outstanding warrants of the Borrower, or the sale of assets, the
Borrower shall, within one (1) business day of Borrower’s
receipt of such proceeds, inform the Holder of or publicly disclose
such receipt, following which the Holder shall have the right in
its sole discretion to require the Borrower to immediately apply up
to 50% of such proceeds after the Minimum Threshold to repay all or
any portion of the outstanding Principal Amount and interest
(including any Default Interest) then due under this Note. Failure
of the Borrower to comply with this provision shall constitute an
Event of Default. “Equity Line of Credit” shall include
any transaction involving a written agreement between the Company
and an investor or underwriter whereby the Company has the right to
“put” its securities to the investor or underwriter,
after such securities have been registered for resale by such
investor or underwriter pursuant to an effective registration
statement, over an agreed period of time and at an agreed price or
price formula (other than customary “preemptive” or
“participation” rights or “weighted
average” or “full-ratchet” anti-dilution
provisions or in connection with fixed-price rights offerings and
similar transactions).
ARTICLE
II. RANKING AND CERTAIN COVENANTS
2.1 Ranking and Security. This Note
shall rank pari passu with all unsecured indebtedness of the
Borrower.
2.2 [Intentionally
Omitted].
2.3 Distributions on Capital Stock.
So long as the Borrower shall have any obligation under this Note,
the Borrower shall not without the Holder’s written consent
(a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities)
on shares of capital stock other than dividends on shares of Common
Stock solely in the form of additional shares of Common Stock or
(b) directly or indirectly or through any subsidiary make any other
payment or distribution in respect of its capital stock except for
distributions pursuant to any shareholders’ rights plan which
is approved by a majority of the Borrower’s disinterested
directors.
2.4 Restriction on Stock Repurchases and
Debt Repayments. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the
Holder’s written consent redeem, repurchase or otherwise
acquire (whether for cash or in exchange for property or other
securities or otherwise) in any one transaction or series of
related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such
shares, or repay any pari passu or subordinated indebtedness of
Borrower.
2.5 Sale of Assets. So long as the
Borrower shall have any obligation under this Note, the Borrower
shall not, without the Holder’s written consent, sell, lease
or otherwise dispose of any significant portion of its assets
outside the ordinary course of business. Any consent by the Holder
to the disposition of any assets may be conditioned on a specified
use of the proceeds of disposition.
2.6 Advances and Loans; Affiliate
Transactions. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the
Holder’s written consent, lend money, give credit, make
advances to or enter into any transaction with any person, firm,
joint venture or corporation, including, without limitation,
officers, directors, employees, subsidiaries and affiliates of the
Borrower, except loans, credits or advances (a) in existence or
committed on the Issue Date and which the Borrower has informed
Holder in writing prior to the Issue Date, (b) in regard to
transactions with unaffiliated third parties, made in the ordinary
course of business or (c) in regard to transactions with
unaffiliated third parties, not in excess of $100,000. Other than
as set forth on Schedule
2.6 to this Note, so long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the
Holder’s written consent, repay any affiliate (as defined in
Rule 144) of the Borrower in connection with any indebtedness or
accrued amounts owed to any such party.
2.7 3(a)(10) Transaction. So long
as this Note is outstanding, the Borrower shall not enter into any
transaction or arrangement structured in accordance with, based
upon, or related or pursuant to, in whole or in part, Section
3(a)(10) of the Securities Act (a “3(a)(10)
Transaction”). In the event that the Borrower does enter
into, or makes any issuance of Common Stock related to a 3(a)(10)
Transaction while this note is outstanding, a liquidated damages
charge of 25% of the outstanding principal balance of this Note,
but not less than $25,000, will be assessed and will become
immediately due and payable to the Holder at its election in the
form of a cash payment or added to the balance of this Note (under
Holder's and Borrower's expectation that this amount will tack back
to the Issue Date).
2.8 Preservation of Business and
Existence, etc. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the
Holder’s written consent, (a) change the nature of its
business;
(b)
sell, divest, change the structure of any material assets other
than in the ordinary course of business; or (c) enter into a
Variable Rate Transaction. In addition, so long as the Borrower
shall have any obligation under this Note, the Borrower shall
maintain and preserve, and cause each of its Subsidiaries to
maintain and preserve, its existence, rights and privileges, and
become or remain, and cause each of its Subsidiaries (other than
dormant Subsidiaries that have no or minimum assets) to become or
remain, duly qualified and in good standing in each jurisdiction in
which the character of the properties owned or leased by it or in
which the transaction of its business makes such qualification
necessary.
2.9 Noncircumvention. The Company
hereby covenants and agrees that the Company will not, by amendment
of its Certificate or Articles of Incorporation or Bylaws, or
through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Note, and
will at all times in good faith carry out all the provisions of
this Note and take all action as may be required to protect the
rights of the Holder.
2.10
Lost,
Stolen or Mutilated Note. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss,
theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new
Note.
ARTICLE
III. EVENTS OF DEFAULT
It
shall be considered an event of default if any of the following
events listed in this Article III (each, an “Event of
Default”) shall occur:
3.1 Failure to Pay Principal or
Interest. The Borrower fails to pay the Principal Amount
hereof or interest thereon when due on this Note, whether at
maturity, upon acceleration or otherwise, or fails to fully comply
with Section 1.10 of this Note.
3.2 Conversion and the Shares. The
Borrower (i) fails to issue Conversion Shares to the Holder (or
announces or threatens in writing that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion
rights of the Holder in accordance with the terms of this Note,
(ii) fails to transfer or cause its transfer agent to transfer
(issue) (electronically or in certificated form) any certificate
for the Conversion Shares issuable to the Holder upon conversion of
or otherwise pursuant to this Note as and when required by this
Note, (iii) fails to reserve the Reserved Amount at all times, (iv)
the Borrower directs its transfer agent not to transfer or delays,
impairs, and/or hinders its transfer agent in transferring (or
issuing) (electronically or in certificated form) any certificate
for the Conversion Shares issuable to the Holder upon conversion of
or otherwise pursuant to this Note as and when required by this
Note, or fails to remove (or directs its transfer agent not to
remove or impairs, delays, and/or hinders its transfer agent from
removing) any restrictive legend (or to withdraw any stop transfer
instructions in respect thereof) on any certificate for any
Conversion Shares issued to the Holder upon conversion of or
otherwise pursuant to this Note as and when required by this Note
(or makes any written announcement, statement or threat that it
does not intend to honor the obligations described in this
paragraph) and any such failure shall continue uncured (or any
written announcement, statement or threat not to honor its
obligations shall not be rescinded in writing) for two (2) Trading
Days after the Holder shall have delivered a Notice of Conversion,
and/or (v) fails to remain current in its obligations to its
transfer agent (including but not limited to payment obligations to
its transfer agent). It shall be an Event of Default of this Note,
if a conversion of this Note is delayed, hindered or frustrated due
to a balance owed by the Borrower to its transfer agent. If at the
option of the Holder, the Holder advances any funds to the
Borrower’s transfer agent in order to process a conversion,
such advanced funds shall be added to the principal balance of the
Note.
3.3 Breach of Agreements and
Covenants. The Borrower breaches any covenant, agreement, or
other term or condition contained in the Purchase Agreement, this
Note, Irrevocable Transfer Agent Instructions, Warrant (as defined
in the Purchase Agreement) (the “Warrant”), or in any
agreement, statement or certificate given in writing pursuant
hereto or in connection herewith or therewith.
3.4 Breach of Representations and
Warranties. Any representation or warranty of the Borrower
made in the Purchase Agreement, this Note, Irrevocable Transfer
Agent Instructions, Warrant, or in any agreement, statement or
certificate given in writing pursuant hereto or in connection
herewith or therewith shall be false or misleading in any material
respect when made.
3.5 Receiver or Trustee. The
Borrower or any subsidiary of the Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee
shall otherwise be appointed.
3.6 Judgments. Any money judgment,
writ or similar process shall be entered or filed against the
Borrower or any subsidiary of the Borrower or any of its property
or other assets for more than $200,000, and shall remain unvacated,
unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be
unreasonably withheld.
3.7 Bankruptcy. Bankruptcy,
insolvency, reorganization or liquidation proceedings or other
proceedings, voluntary or involuntary, for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Borrower or any subsidiary of the
Borrower.
3.8 Failure to Comply with the 1934
Act. At any time after the Issue Date, the Borrower shall
fail to comply with the reporting requirements of the 1934 Act
and/or the Borrower shall cease to be subject to the reporting
requirements of the 1934 Act.
3.9 Liquidation. Any dissolution,
liquidation, or winding up of Borrower or any substantial portion
of its business.
3.10 Cessation
of Operations. Any cessation of operations by Borrower or
Borrower admits it is otherwise generally unable to pay its debts
as such debts become due, provided, however, that any disclosure of
the Borrower’s ability to continue as a “going
concern” shall not be an admission that the Borrower cannot
pay its debts as they become due.
3.11 Maintenance
of Assets. The failure by Borrower to maintain any material
intellectual property rights, personal, real property or other
assets which are necessary to conduct its business (whether now or
in the future).
3.12 [Intentionally
Omitted].
3.13 Replacement
of Transfer Agent. In the event that the Borrower proposes
to replace its transfer agent, the Borrower fails to provide, prior
to the effective date of such replacement, a fully executed
Irrevocable Transfer Agent Instructions in a form as initially
delivered pursuant to the Purchase Agreement (including but not
limited to the provision to irrevocably reserve shares of Common
Stock in the Reserved Amount) signed by the successor transfer
agent to Borrower and the Borrower.
3.14 Cross-Default.
The declaration of an event of default by any lender or other
extender of credit to the Company under any notes, loans,
agreements or other instruments of the Company evidencing any
indebtedness of the Company (including those filed as exhibits to
or described in the Company’s filings with the SEC), after
the passage of all applicable notice and cure or grace
periods.
3.15 Variable
Rate Transactions. The Borrower consummates a Variable Rate
Transaction at any time on or after the Issue Date.
3.16 Inside
Information. Any attempt by the Borrower or its officers,
directors, and/or affiliates to transmit, convey, disclose, or any
actual transmittal, conveyance, or disclosure by the Borrower or
its officers, directors, and/or affiliates of, material non-public
information concerning the Borrower, to the Holder or its
successors and assigns, which is not immediately cured by
Borrower’s filing of a Form 8-K pursuant to Regulation FD on
that same date.
3.17 [Intentionally
Omitted].
3.18 [Intentionally
Omitted].
3.19 Delisting,
Suspension, or Quotation of Trading of Common Stock. If, at
any time on or after the Issue Date, the Borrower’s Common
Stock (i) is suspended from trading, (ii) halted from trading for
more than three (3) Trading Days, and/or (iii) fails to be quoted
or listed (as applicable) on a Principal Market.
3.19 [Intentionally
Omitted].
3.20 Failure
to Pay an Amortization Payment. The Borrower fails to pay an
Amortization Payment (as defined in this Note) when due as provided
in Section 4.17 of this Note.
3.21 Rights
and Remedies Upon an Event of Default. Upon the occurrence
of any Event of Default specified in this Article III, this Note
shall become immediately due and payable, and the Borrower shall
pay to the Holder, in full satisfaction of its obligations
hereunder, an amount equal to the Principal Amount then outstanding
plus accrued interest (including any Default Interest) through the
date of full repayment multiplied by 115% (collectively the
“Default Amount”), as well as all costs, including,
without limitation, legal fees and expenses, of collection, all
without demand, presentment or notice, all of which hereby are
expressly waived by the Borrower. Holder may, in its sole
discretion, determine to accept payment part in Common Stock and
part in cash. For purposes of payments in Common Stock, the
conversion formula set forth in Section 1.2 shall apply as well as
all other provisions of this Note. The Holder shall be entitled to
exercise all other rights and remedies available at law or in
equity.
ARTICLE
IV. MISCELLANEOUS
4.1 Failure or Indulgence Not
Waiver. No failure or delay on the part of the Holder in the
exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privileges. All
rights and remedies of the Holder existing hereunder are cumulative
to, and not exclusive of, any rights or remedies otherwise
available.
4.2 Notices. All notices, demands,
requests, consents, approvals, and other communications required or
permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service
with charges prepaid, or (iv) transmitted by hand delivery,
telegram, e-mail or facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by e-mail or facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at
the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be
received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business
day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be:
If to
the Borrower, to:
INFINITE
GROUP, INC.
175
Sully’s Trail, Suite 202
Pittsford, NY
14534
Attention: James
Villa
e-mail:
[email protected]
If to
the Holder:
MAST
HILL FUND, L.P.
48
Parker Road
Wellesley, MA
02482
e-mail:
[email protected]
4.3 Amendments. This Note and any
provision hereof may only be amended by an instrument in writing
signed by the Borrower and the Holder. The term “Note”
and all reference thereto, as used throughout this instrument,
shall mean this instrument as originally executed, or if later
amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall
be binding upon the Borrower and its successors and assigns, and
shall inure to be the benefit of the Holder and its successors and
assigns. The Borrower shall not assign this Note or any rights or
obligations hereunder without the prior written consent of the
Holder. The Holder may assign its rights hereunder to any
“accredited investor” (as defined in Rule 501(a) of the
1933 Act) in a private transaction from the Holder or to any of its
“affiliates”, as that term is defined under the 1934
Act, without the consent of the Borrower. Notwithstanding anything
in this Note to the contrary, this Note may be pledged as
collateral in connection with a bona fide margin account or other
lending arrangement. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that following conversion of a
portion of this Note, the unpaid and unconverted principal amount
of this Note represented by this Note may be less than the amount
stated on the face hereof.
4.5 Cost of Collection. If default
is made in the payment of this Note, the Borrower shall pay the
Holder hereof costs of collection, including reasonable
attorneys’ fees.
4.6 Governing Law; Venue; Attorney’s
Fees. This Note shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to
principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this
Note or any other agreement, certificate, instrument or document
contemplated hereby shall be brought only in the state courts
located in the State of Delaware or federal courts located in the
State of Delaware. The Borrower hereby irrevocably waives any
objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTIONS CONTEMPLATED
HEREBY. Each party hereby irrevocably waives personal
service of process and consents to process being served in any
suit, action or proceeding in connection with this Note or any
other agreement, certificate, instrument or document contemplated
hereby or thereby by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this
Note and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by law. The prevailing party
in any action or dispute brought in connection with this the Note
or any other agreement, certificate, instrument or document
contemplated hereby or thereby shall be entitled to recover from
the other party its reasonable attorney’s fees and
costs.
4.7 Certain Amounts. Whenever
pursuant to this Note the Borrower is required to pay an amount in
excess of the outstanding Principal Amount (or the portion thereof
required to be paid at that time) plus accrued and unpaid interest
plus Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of
cash payment on this Note may be difficult to determine and the
amount to be so paid by the Borrower represents stipulated damages
and not a penalty and is intended to compensate the Holder in part
for loss of the opportunity to convert this Note and to earn a
return from the sale of shares of Common Stock acquired upon
conversion of this Note at a price in excess of the price paid for
such shares pursuant to this Note. The Borrower and the Holder
hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the
receipt of a cash payment without the opportunity to convert this
Note into shares of Common Stock.
4.8 Purchase Agreement. The Company
and the Holder shall be bound by the applicable terms of the
Purchase Agreement and the documents entered into in connection
herewith and therewith.
4.9 [Intentionally
Omitted].
4.10 Remedies.
The Borrower acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby.
Accordingly, the Borrower acknowledges that the remedy at law for a
breach of its obligations under this Note will be inadequate and
agrees, in the event of a breach or threatened breach by the
Borrower of the provisions of this Note, that the Holder shall be
entitled, in addition to all other available remedies at law or in
equity, and in addition to the penalties assessable herein, to an
injunction or injunctions restraining, preventing or curing any
breach of this Note and to enforce specifically the terms and
provisions thereof, without the necessity of showing economic loss
and without any bond or other security being required.
4.11 Construction;
Headings. This Note shall be deemed to be jointly drafted by
the Company and all the Holder and shall not be construed against
any person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.
4.12 Usury.
To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or
advantage of, usury laws wherever enacted, now or at any time
hereafter in force, in connection with any action or proceeding
that may be brought by the Holder in order to enforce any right or
remedy under this Note. Notwithstanding any provision to the
contrary contained in this Note, it is expressly agreed and
provided that the total liability of the Company under this Note
for payments which under the applicable law are in the nature of
interest shall not exceed the maximum lawful rate authorized under
applicable law (the “Maximum Rate”), and, without
limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other
sums which under the applicable law in the nature of interest that
the Company may be obligated to pay under this Note exceed such
Maximum Rate. It is agreed that if the maximum contract rate of
interest allowed by applicable law and applicable to this Note is
increased or decreased by statute or any official governmental
action subsequent to the Issue Date, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to
this Note from the effective date thereof forward, unless such
application is precluded by applicable law. If under any
circumstances whatsoever, interest in excess of the Maximum Rate is
paid by the Company to the Holder with respect to indebtedness
evidenced by this the Note, such excess shall be applied by the
Holder to the unpaid principal balance of any such indebtedness or
be refunded to the Company, the manner of handling such excess to
be at the Holder’s election.
4.13 Severability.
In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law
(including any judicial ruling), then such provision shall be
deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of
any other provision of this Note.
4.14 Terms
of Future Financings. So long as this Note is outstanding,
upon any issuance by the Borrower or any of its subsidiaries of any
security, or amendment to a security that was originally issued
before the Issue Date, with any term that the Holder reasonably
believes is more favorable to the holder of such security or with a
term in favor of the holder of such security that the Holder
reasonably believes was not similarly provided to the Holder in
this Note, then (i) the Borrower shall notify the Holder of such
additional or more favorable term within one (1) business day of
the issuance and/or amendment (as applicable) of the respective
security, and (ii) such term, at Holder’s option, shall
become a part of the transaction documents with the Holder
(regardless of whether the Borrower complied with the notification
provision of this Section 4.14). The types of terms contained in
another security that may be more favorable to the holder of such
security include, but are not limited to, terms addressing
prepayment rate, interest rates, and original issue
discounts.
4.15 Dispute
Resolution. In the case of a dispute as to the determination
of the Conversion Price, Conversion Amount, any prepayment amount
or Default Amount, Issue, Closing or Maturity Date, the closing bid
price, or fair market value (as the case may be) or the arithmetic
calculation of the Conversion Price or the applicable prepayment
amount(s) (as the case may be), the Borrower or the Holder shall
submit the disputed determinations or arithmetic calculations via
facsimile (i) within one (1) Trading Day after receipt of the
applicable notice giving rise to such dispute to the Borrower or
the Holder or (ii) if no notice gave rise to such dispute, at any
time after the Holder learned of the circumstances giving rise to
such dispute. If the Holder and the Borrower are unable to agree
upon such determination or calculation within one (1) Trading Day
of such disputed determination or arithmetic calculation (as the
case may be) being submitted to the Borrower or the Holder, then
the Borrower shall, within one (1) Trading Day, submit (a) the
disputed determination of the Conversion Price, the closing bid
price, the or fair market value (as the case may be) to an
independent, reputable investment bank selected by the Borrower and
approved by the Holder or (b) the disputed arithmetic calculation
of the Conversion Price, Conversion Amount, any prepayment amount
or Default Amount, to an independent, outside accountant selected
by the Holder that is reasonably acceptable to the Borrower. The
Borrower shall cause at its expense the investment bank or the
accountant to perform the determinations or calculations and notify
the Borrower and the Holder of the results no later than one (1)
Trading Day from the time it receives such disputed determinations
or calculations. Such investment bank’s or accountant’s
determination or calculation shall be binding upon all parties
absent demonstrable error.
4.16 [Intentionally
Omitted].
4.17 Amortization
Payments. In addition to all other obligations under this
Note, the Borrower shall make the following amortization payments
(each an “Amortization Payment”) in cash to the Holder
towards the repayment of this Note, as provided in the following
table:
|
|
|
|
Payment
Date:
3/3/2022
|
|
|
Payment
Amount:
$53,760.00
|
|
|
|
|
|
4/1/2022
|
|
|
$53,760.00
|
|
|
|
|
|
5/3/2022
|
|
|
$53,760.00
|
|
|
|
|
|
6/3/2022
|
|
|
$53,760.00
|
|
|
|
|
|
7/1/2022
|
|
|
$53,760.00
|
|
|
|
|
|
8/3/2022
|
|
|
$53,760.00
|
|
|
|
|
|
9/2/2022
|
|
|
$53,760.00
|
|
|
|
|
|
10/3/2022
|
|
|
$53,760.00
|
|
|
|
|
|
11/3/2022
|
|
|
$53,760.00
|
|
(a) With respect to the
first Amortization Payment originally due on March 3, 2022 (the
“First Amortization Payment”), the Company may notify
the Holder on or before March 3, 2022, that the Company is electing
to extend the due date of the First Amortization Payment to April
1, 2022 (the “First Amortization Payment Extension”) as
further provided herein. If the Company exercises the First
Amortization Payment Extension, then the First Amortization Payment
shall be due on April 1, 2022 and the Company shall pay $5,376.00
(the “First Amortization Payment Extension Fee”) to the
Holder on or before March 3, 2022. For the avoidance of doubt, the
First Amortization Payment Extension shall not affect the due date
of any other Amortization Payment and the First Amortization
Payment Extension Fee shall not reduce the amounts owed under the
Note. The Company shall not be permitted to exercise the First
Amortization Payment Extension if an Event of Default occurs under
the Note.
(b) With respect to the
second Amortization Payment originally due on April 1, 2022 (the
“Second Amortization Payment”), the Company may notify
the Holder on or before April 1, 2022, that the Company is electing
to extend the due date of the Second Amortization Payment to May 3,
2022 (the “Second Amortization Payment Extension”) as
further provided herein. If the Company exercises the Second
Amortization Payment Extension, then the Second Amortization
Payment shall be due on May 3, 2022 and the Company shall pay
$5,376.00 (the “Second Amortization Payment Extension
Fee”) to the Holder on or before April 1, 2022. For the
avoidance of doubt, the Second Amortization Payment Extension shall
not affect the due date of any other Amortization Payment and the
Second Amortization Payment Extension Fee shall not reduce the
amounts owed under the Note. The Company shall not be permitted to
exercise the Second Amortization Payment Extension if an Event of
Default occurs under the Note.
(c) With respect to the
third Amortization Payment originally due on May 3, 2022 (the
“Third Amortization Payment”), the Company may notify
the Holder on or before May 3, 2022, that the Company is electing
to extend the due date of the Third Amortization Payment to June 3,
2022 (the “Third Amortization Payment Extension”) as
further provided herein. If the Company exercises the Third
Amortization Payment Extension, then the Third Amortization Payment
shall be due on June 3, 2022 and the Company shall pay $5,376.00
(the “Third Amortization Payment Extension Fee”) to the
Holder on or before May 3, 2022. For the avoidance of doubt, the
Third Amortization Payment Extension shall not affect the due date
of any other Amortization Payment and the Third Amortization
Payment Extension Fee shall not reduce the amounts owed under the
Note. The Company shall not be permitted to exercise the Third
Amortization Payment Extension if an Event of Default occurs under
the Note
[signature page
follows]
IN WITNESS WHEREOF, Borrower has caused
this Note to be signed in its name by its duly authorized officer
on November 3, 2021.
INFINITE
GROUP, INC.
|
By:
|
|
Name:
James Villa
|
|
Title:
Chief Executive Officer
|
EXHIBIT
A -- NOTICE OF CONVERSION
The
undersigned hereby elects to convert
$ principal
amount of the Note (defined below) into that number of shares of
Common Stock to be issued pursuant to the conversion of the Note
(“Common Stock”) as set forth below, of INFINITE GROUP, INC., a Delaware
corporation (the “Borrower”), according to the
conditions of the promissory note of the Borrower dated as of
November 3, 2021 (the “Note”), as of the date written
below. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any.
Box
Checked as to applicable instructions:
|
☐
|
The
Borrower shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the
undersigned or its nominee with DTC through its Deposit Withdrawal
Agent Commission system (“DWAC Transfer”).
|
|
|
Name of
DTC Prime Broker:
|
|
|
Account
Number:
|
|
☐
|
The
undersigned hereby requests that the Borrower issue a certificate
or certificates for the number of shares of Common Stock set forth
below (which numbers are based on the Holder’s
calculation
attached hereto) in
the name(s) specified immediately below or, if additional space is
necessary, on an attachment hereto:
|
|
Date of
Conversion:
|
|
|
Applicable
Conversion Price:
|
$
|
|
Number
of Shares of Common Stock to be
Issued
Pursuant to Conversion of the Note:
|
|
|
Amount
of Principal Balance Due remaining Under the Note after this
conversion:
|
|
|
By:
|
|
Name:
|
|
Title:
|
|
Date:
|
Schedule 2.6
(see
attached)
|
Date
|
Lender
|
Amount
|
|
9/16/2021
|
Don Reeve
|
$ 30,000.00
|
|
9/16/2021
|
Andrew Hoyen
|
$ 25,000.00
|
|
10/14/2021
|
Jim Villa
|
$ 12,000.00
|
|
10/14/2021
|
Andrew Hoyen
|
$ 12,000.00
|
|
10/15/2021
|
Don Reeve
|
$ 12,000.00
|
|
|
|
$ 91,000.00
|
EXHIBIT
B REGISTRATION RIGHTS
All of
the Conversion Shares and Exercise Shares shall be deemed
“Registrable Securities” subject to the provisions of
this Exhibit B. All capitalized terms used but not defined in this
Exhibit B shall have the meanings ascribed to such terms in the
Securities Purchase Agreement to which this Exhibit is
attached.
1.
Piggy-Back Registrations. If,
at any time during after the date of the Closing, there is not an
effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and file with
the SEC a registration statement relating to an offering for its
own account or the account of others under the 1933 Act of any of
its equity securities, other than in connection with its listing on
a national securities exchange, or on Form S-4 or Form S-8 (each as
promulgated under the 1933 Act) or their then-equivalents relating
to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable
in connection with the Company’s employee benefit plans, then
the Company shall deliver to each Holder a written notice of such
determination and, if within 15 days after the date of the delivery
of such notice, any such Holder shall so request in writing, the
Company shall include in such registration statement all or any
part of such Registrable Securities such Holder requests to be
registered; provided, however, that the Company shall not be
required to provide notice or otherwise register any Registrable
Securities pursuant to this Note that are eligible for resale
pursuant to Rule 144 (without volume restrictions or current public
information requirements) or that are the subject of a
then-effective Registration Statement that is available for resales
or other dispositions by such Holder; and provided, further, that
if the Company intends to file a registration statement in
connection with an underwritten public offering (an
“Underwritten Offering”), and the managing underwriter
has advised the Company in good faith that the inclusion of all of
the Registrable Securities requested to be included by the Holders
participating in such Underwritten Offering (including pursuant to
this Note) shall be limited due to market conditions, the order of
priority of the securities to be included in such offering shall
be: (i) first, the primary securities to be included in such
Underwritten Offering; (ii) second, any securities that the Holders
request to include in such Registration Statement, on a pro rata
basis, based on the number of requested securities; and (iii) any
other securities that are requested to be included in such
Registration Statement on a pro rata basis, based on the number of
requested securities; and provided, further, that, by written
notice delivered to the Company, any Holder (an “Opting-Out
Holder”) may elect to waive its right to participate in
registration statements pursuant to this Note (“Registration
Opt-Out”), until such time as such written notice is
rescinded in writing. During such time as a Registration Opt-Out is
in effect: (x) the Opting-Out Holder shall not receive notices of
any proposed registration statements pursuant to this Note and (y)
shall not be entitled to participate in any registration statements
pursuant to this Note.
[End
of Exhibit B]
SCHEDULE 3(a)
List of Subsidiaries of the Company
IGI
CyberLabs, LLC (incorporated in Delaware) - 175 Sully’s
Trail, Suite 202, Pittsford, NY 14534
SCHEDULE 3(c)
Capitalization and Governing Documents
In
addition to all reports, schedules, forms, statements, and other
documents filed by the Company with the SEC, please see, generally,
all reports, schedules, forms, statements, and other documents
filed by the Company’s insiders, affiliates, and/or
beneficial owners of 5% or more of Company Common Stock. This
includes, but is not limited to, all reports, schedules, forms,
statements, and other documents required by Section 13 of the 1934
Act and Section 16 of the 1934 Act.
SCHEDULE 3(n)
Transactions with Affiliates
1.
In addition to all
reports, schedules, forms, statements, and other documents filed by
the Company with the SEC, please see, generally, all reports,
schedules, forms, statements, and other documents filed by the
Company’s insiders, affiliates, and/or beneficial owners of
5% or more of Company Common Stock. This includes, but is not
limited to, all reports, schedules, forms, statements, and other
documents required by Section 13 of the 1934 Act and Section 16 of
the 1934 Act.
2.
Loan to Company
from Donald W. Reeve dated on or about September 16, 2021, in the
amount of $30,000
3.
Loan to Company
from Andrew Hoyen dated on or about September 16, 2021, in the
amount of $25,000
4.
Loan to Company
from James Villa on or about October 14, 2021, in the amount of
$12,000
5.
Loan to Company
from Andrew Hoyen dated on or about October 14, 2021, in the amount
of $12,000
6.
Loan to Company
from Donald W. Reeve dated on or about October 15, 2021, in the
amount of $12,000
Exhibit
10.2
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS
DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER
SAID ACT OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.
|
Principal
Amount: $448,000.00
|
Issue
Date: November 3, 2021
|
|
Actual
Amount of Purchase Price: $403,200.00
|
|
PROMISSORY
NOTE
FOR VALUE RECEIVED, INFINITE GROUP, INC., a Delaware
corporation (hereinafter called the “Borrower” or the
“Company”) (Trading Symbol: IMCI), hereby promises to
pay to the order of MAST HILL FUND,
L.P., a Delaware limited partnership, or registered assigns
(the “Holder”), in the form of lawful money of the
United States of America, the principal sum of $448,000.00, which
amount is the $403,200.00 actual amount of the purchase price (the
“Consideration”) hereof plus an original issue discount
in the amount of $44,800.00 (the “OID”) (subject to
adjustment herein) (the “Principal Amount”) and to pay
interest on the unpaid Principal Amount hereof at the rate of eight
percent (8%) (the “Interest Rate”) per annum from the
date hereof (the “Issue Date”) until the same becomes
due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise, as further provided herein. The maturity
date shall be twelve (12) months from the Issue Date (the
“Maturity Date”), and is the date upon which the
Principal Amount, the OID, as well as any accrued and unpaid
interest and other fees, shall be due and payable.
This
Note may be prepaid or repaid in whole or in part at any time or
from time to time in accordance with the provisions set forth in
Section 1.9.
Any
Principal Amount or interest on this Note which is not paid when
due shall bear interest at the rate of the lesser of (i) sixteen
percent (12%) per annum and (ii) the maximum amount permitted by
law from the due date thereof until the same is paid
(“Default Interest”). Interest and Default Interest
shall be computed on the basis of a 365-day year and the actual
number of days elapsed.
All
payments due hereunder (to the extent not converted into shares of
common stock, $0.001 par value per share, of the Borrower (the
“Common Stock”) in accordance with the terms hereof)
shall be made in lawful money of the United States of America. All
payments shall be made at such address as the Holder shall
hereafter give to the Borrower by written notice made in accordance
with the provisions of this Note. Whenever any amount expressed to
be due by the terms of this Note is due on any day which is not a
business day, the same shall instead be due on the next succeeding
day which is a business day.
Each
capitalized term used herein, and not otherwise defined, shall have
the meaning ascribed thereto in that certain Securities Purchase
Agreement, dated as of the Issue Date, pursuant to which this Note
was originally issued (the “Purchase Agreement”). As
used in this Note, the term “business day” shall mean
any day other than a Saturday, Sunday or a day on which commercial
banks in the city of New York, New York are authorized or required
by law or executive order to remain closed. As used herein, the
term “Trading Day” means any day that shares of Common
Stock are listed for trading or quotation on the Principal Market
(as defined in the Purchase Agreement), provided, however, that if
the Common Stock is not then listed or quoted on any Principal
Market, then any business day.
This
Note is free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive
rights or other similar rights of shareholders of the Borrower and
will not impose personal liability upon the holder
thereof.
The
following terms shall also apply to this Note:
ARTICLE
I. CONVERSION RIGHTS
1.1
Conversion Right.
The Holder shall have the right, on any calendar day, at any time
on or following the date that an Event of Default (as defined in
this Note) occurs under this Note as well as during the Prepayment
Conversion Period (as defined in this Note) (even if such
Prepayment Conversion Period is prior to the date that an Event of
Default occurs under this Note), to convert all or any portion of
the then outstanding and unpaid Principal Amount and interest
(including any Default Interest) into fully paid and non-assessable
shares of Common Stock, as such Common Stock exists on the Issue
Date, or any shares of capital stock or other securities of the
Borrower into which such Common Stock shall hereafter be changed or
reclassified, at the Conversion Price (as defined below) determined
as provided herein (a “Conversion”); provided, however, that notwithstanding
anything to the contrary contained herein, the a Holder shall not
have the right to convert any portion of this Note, pursuant to
Section 1 or otherwise, to the extent that after giving effect to
such issuance after conversion as set forth on the applicable
Notice of Conversion, the Holder (together with the Holder’s
affiliates (the “Affiliates”), and any other Persons
(as defined below) acting as a group together with the Holder or
any of the Holder’s Affiliates (such Persons,
“Attribution Parties”)), would beneficially own in
excess of the Beneficial Ownership Limitation (as defined below).
For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and Attribution
Parties shall include the number of shares of Common Stock issuable
upon conversion of this Note with respect to which such
determination is being made, but shall exclude the number of shares
of Common Stock which would be issuable upon (i) conversion of the
remaining, nonconverted portion of this Note beneficially owned by
the Holder or any of its Affiliates or Attribution Parties and (ii)
exercise or conversion of the unexercised or nonconverted portion
of any other securities of the Company subject to a limitation on
conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its Affiliates or
Attribution Parties. Except as set forth in the preceding sentence,
for purposes of this Section 1.1, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder, it being
acknowledged by the Holder that the Holder is solely responsible
for any schedules required to be filed in accordance therewith. In
addition, a determination as to any group status as contemplated
above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 1.1, in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number
of outstanding shares of Common Stock as reflected in (A) the
Company’s most recent periodic or annual report filed with
the Commission, as the case may be, (B) a more recent public
announcement by the Company or (C) a more recent written notice by
the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding. Upon the written or oral
request of a Holder, the Company shall within two Trading Days
confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Note, by the Holder or its Affiliates or Attribution
Parties since the date as of which such number of outstanding
shares of Common Stock was reported. The “Beneficial
Ownership Limitation” shall be 4.99% of the number of shares
of the Common Stock outstanding at the time of the respective
calculation hereunder. “Person” and
“Persons” means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and any governmental
entity or any department or agency thereof. The limitations
contained in this paragraph shall apply to a successor holder of
this Note. The number of Conversion Shares to be issued upon each
conversion of this Note shall be determined by dividing the
Conversion Amount (as defined below) by the applicable Conversion
Price then in effect on the date specified in the notice of
conversion, in the form attached hereto as Exhibit A (the “Notice of
Conversion”), delivered to the Borrower or Borrower’s
transfer agent by the Holder in accordance with Section 1.4 below;
provided that the Notice of Conversion is submitted by facsimile or
e-mail (or by other means resulting in, or reasonably expected to
result in, notice) to the Borrower or Borrower’s transfer
agent before 11:59 p.m., New York, New York time on such conversion
date (the “Conversion Date”). The term
“Conversion Amount” means, with respect to any
conversion of this Note, the sum of (1) the Principal Amount of
this Note to be converted in such conversion plus (2) at the Holder’s
option, accrued and unpaid interest, if any, on such Principal
Amount at the Interest Rate to the Conversion Date, plus (3) at the Holder’s
option, Default Interest, if any, on the amounts referred to in the
immediately preceding clauses (1) and/or (2).
1.2
Conversion Price.
(a) Calculation of Conversion
Price. The per share conversion price into which Principal
Amount and interest (including any Default Interest) under this
Note shall be convertible into shares of Common Stock hereunder
(the “Conversion Price”) shall equal $0.10. If at any
time the Conversion Price as determined hereunder for any
conversion would be less than the par value of the Common Stock,
then at the sole discretion of the Holder, the Conversion Price
hereunder may equal such par value for such conversion and the
Conversion Amount for such conversion may be increased to include
Additional Principal, where “Additional Principal”
means such additional amount to be added to the Conversion Amount
to the extent necessary to cause the number of conversion shares
issuable upon such conversion to equal the same number of
conversion shares as would have been issued had the Conversion
Price not been adjusted by the Holder to the par value price. All
such Conversion Price determinations are to be appropriately
adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction that proportionately
decreases or increases the Common Stock. If the Company, at any
time while this Note is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions payable in shares
of Common Stock on shares of Common Stock or any Common Stock
Equivalents, (ii) subdivides outstanding shares of Common Stock
into a larger number of shares, (iii) combines (including by way of
a reverse stock split) outstanding shares of Common Stock into a
smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of
capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number
of shares of Common Stock (excluding any treasury shares of the
Company) outstanding immediately before such event, and of which
the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made
pursuant to the immediately preceding sentence shall become
effective immediately after the record date for the determination
of shareholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
“Common Stock Equivalents” means any securities of the
Company or the Company’s subsidiaries which would entitle the
holder thereof to acquire at any time Common Stock, including,
without limitation, any debt, preferred stock, right, option,
warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
1.3 Authorized and Reserved Shares.
The Borrower covenants that at all times until the Note is
satisfied in full, the Borrower will reserve from its authorized
and unissued Common Stock a sufficient number of shares, free from
preemptive rights, to provide for the issuance of a number of
Conversion Shares equal to the greater of: (a) 4,480,000 shares of
Common Stock or (b) the sum of (i) the number of Conversion Shares
issuable upon the full conversion of this Note (assuming no payment
of Principal Amount or interest) at the time of such calculation
(taking into consideration any adjustments to the Conversion Price
as provided in this Note) multiplied by (ii) one (1) (the
“Reserved Amount”). The Borrower represents that upon
issuance, the Conversion Shares will be duly and validly issued,
fully paid and non-assessable. The Borrower (i) acknowledges that
it has irrevocably instructed its transfer agent to issue
certificates for the Conversion Shares or instructions to have the
Conversion Shares issued as contemplated by Section 1.4(f) hereof,
and (ii) agrees that its issuance of this Note shall constitute
full authority to its officers and agents who are charged with the
duty of executing stock certificates or cause the Company to
electronically issue shares of Common Stock to execute and issue
the necessary certificates for the Conversion Shares or cause the
Conversion Shares to be issued as contemplated by Section 1.4(f)
hereof in accordance with the terms and conditions of this
Note.
If, at
any time, the Borrower does not maintain the Reserved Amount, it
will be considered an Event of Default (as defined in this Note)
under this Note.
1.4
Method of Conversion.
(a) Mechanics of Conversion. This
Note may be converted by the Holder in whole or in part, on any
calendar day, at any time on or following the date that an Event of
Default (as defined in this Note) occurs under this Note as well as
during the Prepayment Conversion Period (as defined in this Note)
(even if such Prepayment Conversion Period is prior to the date
that an Event of Default occurs under this Note), by submitting to
the Borrower or Borrower’s transfer agent a Notice of
Conversion (by facsimile, e-mail or other reasonable means of
communication dispatched on the Conversion Date prior to 11:59
p.m., New York, New York time). Any Notice of Conversion submitted
after 11:59 p.m., New York, New York time, shall be deemed to have
been delivered and received on the next Trading Day.
(b) Surrender of Note Upon
Conversion. Notwithstanding anything to the contrary set
forth herein, upon conversion of this Note in accordance with the
terms hereof, the Holder shall not be required to physically
surrender this Note to the Borrower unless the entire unpaid
Principal Amount is so converted. The Holder and the Borrower shall
maintain records showing the Principal Amount so converted and the
dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder and the Borrower, so as not
to require physical surrender of this Note upon each such
conversion. In the event of any dispute or discrepancy, such
records of the Holder shall, prima
facie, be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if any portion of
this Note is converted as aforesaid, the Holder may not transfer
this Note unless the Holder first physically surrenders this Note
to the Borrower, whereupon the Borrower will forthwith issue and
deliver upon the order of the Holder a new Note of like tenor,
registered as the Holder (upon payment by the Holder of any
applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid Principal Amount of this Note. The
Holder and any assignee, by acceptance of this Note, acknowledge
and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Note, the unpaid and
unconverted Principal Amount of this Note represented by this Note
may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower
shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of
shares of Common Stock or other securities or property on
conversion of this Note in a name other than that of the Holder (or
in street name), and the Borrower shall not be required to issue or
deliver any such shares or other securities or property unless and
until the person or persons (other than the Holder or the custodian
in whose street name such shares are to be held for the
Holder’s account) requesting the issuance thereof shall have
paid to the Borrower the amount of any such tax or shall have
established to the satisfaction of the Borrower that such tax has
been paid.
(d) Delivery of Common Stock Upon
Conversion. Upon receipt by the Borrower or Borrower’s
transfer agent from the Holder of a facsimile transmission or
e-mail (or other reasonable means of communication) of a Notice of
Conversion meeting the requirements for conversion as provided in
this Section 1.4, the Borrower shall issue and deliver or cause to
be issued and delivered to or upon the order of the Holder
certificates for the Conversion Shares (or cause the electronic
delivery of the Conversion Shares as contemplated by Section 1.4(f)
hereof) within three (3) Trading Days after such receipt (the
“Deadline”) (and, solely in the case of conversion of
the entire unpaid Principal Amount and interest (including any
Default Interest) under this Note, surrender of this Note). If the
Company shall fail for any reason or for no reason to issue to the
Holder on or prior to the Deadline a certificate for the number of
Conversion Shares or to which the Holder is entitled hereunder and
register such Conversion Shares on the Company’s share
register or to credit the Holder’s balance account with DTC
(as defined below) for such number of Conversion Shares to which
the Holder is entitled upon the Holder’s conversion of this
Note (a “Conversion Failure”), then, in addition to all
other remedies available to the Holder, (i) the Company shall pay
in cash to the Holder on each day after the Deadline and during
such Conversion Failure an amount equal to 1.0% of the product of
(A) the sum of the number of Conversion Shares not issued to the
Holder on or prior to the Deadline and to which the Holder is
entitled and (B) the closing sale price of the Common Stock on the
Trading Day immediately preceding the last possible date which the
Company could have issued such Conversion Shares to the Holder
without violating this Section 1.4(d); and (ii) the Holder, upon
written notice to the Company, may void all or any portion of such
Notice of Conversion; provided that the voiding of all or any
portion of a Notice of Conversion shall not affect the
Company’s obligations to make any payments which have accrued
prior to the date of such notice. In addition to the foregoing, if
on or prior to the Deadline the Company shall fail to issue and
deliver a certificate to the Holder and register such Conversion
Shares on the Company’s share register or credit the
Holder’s balance account with DTC for the number of
Conversion Shares to which the Holder is entitled upon the
Holder’s exercise hereunder or pursuant to the
Company’s obligation pursuant to clause (ii) below, and if on
or after such Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving
from the Company, then the Company shall, within two (2) Trading
Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to
the Holder’s total purchase price (including brokerage
commissions and other reasonable and customary out-of-pocket
expenses, if any) for the shares of Common Stock so purchased (the
“Buy-In Price”), at which point the Company’s
obligation to deliver such certificate (and to issue such
Conversion Shares) or credit such Holder’s balance account
with DTC for such Conversion Shares shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Conversion Shares or
credit such Holder’s balance account with DTC and pay cash to
the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common
Stock, times (B) the closing sales price of the Common Stock on the
date of exercise. Nothing shall limit the Holder’s right to
pursue any other remedies available to it hereunder, at law or in
equity, including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing
the Conversion Shares (or to electronically deliver such Conversion
Shares) upon the conversion of this Note as required pursuant to
the terms hereof.
(e) Obligation of Borrower to Deliver
Common Stock. At the time that the Holder submits the Notice
of Conversion to the Borrower or Borrower’s transfer agent,
the Holder shall be deemed to be the holder of record of the
Conversion Shares issuable upon such conversion, the outstanding
Principal Amount and the amount of accrued and unpaid interest
(including any Default Interest) under this Note shall be reduced
to reflect such conversion, and, unless the Borrower defaults on
its obligations under this Article I, all rights with respect to
the portion of this Note being so converted shall forthwith
terminate except the right to receive the Common Stock or other
securities, cash or other assets, as herein provided, on such
conversion. If the Holder shall have given a Notice of Conversion
as provided herein, the Borrower’s obligation to issue and
deliver the certificates for the Conversion Shares (or cause the
electronic delivery of the Conversion Shares as contemplated by
Section 1.4(f) hereof) shall be absolute and unconditional,
irrespective of the absence of any action by the Holder to enforce
the same, any waiver or consent with respect to any provision
thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement
of any other obligation of the Borrower to the holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder of any obligation to the
Borrower, and irrespective of any other circumstance which might
otherwise limit such obligation of the Borrower to the Holder in
connection with such conversion. The Conversion Date specified in
the Notice of Conversion shall be the Conversion Date so long as
the Notice of Conversion is sent to the Borrower or
Borrower’s transfer agent before 11:59 p.m., New York, New
York time, on such date.
(f) Delivery of Conversion Shares by
Electronic Transfer. In lieu of delivering physical
certificates representing the Conversion Shares issuable upon
conversion hereof, provided the Borrower is participating in the
Depository Trust Company (“DTC”) Fast Automated
Securities Transfer or Deposit/Withdrawal at Custodian programs,
upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower
shall use its best efforts to cause its transfer agent to
electronically transmit the Conversion Shares issuable upon
conversion hereof to the Holder by crediting the account of
Holder’s Prime Broker with DTC through its Deposit Withdrawal
Agent Commission system.
1.5 Concerning the Shares. The
Conversion Shares issuable upon conversion of this Note may not be
sold or transferred unless (i) such shares are sold pursuant to an
effective registration statement under the 1933 Act or (ii) the
Borrower or its transfer agent shall have been furnished with an
opinion of counsel (which opinion shall be the Legal Counsel
Opinion (as defined in the Purchase Agreement)) to the effect that
the shares to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration or (iii) such
shares are sold or transferred pursuant to Rule 144, Rule 144A,
Regulation S, or other applicable exemption, or (iv) such shares
are transferred to an “affiliate” (as defined in Rule
144) of the Borrower who agrees to sell or otherwise transfer the
shares only in accordance with this Section 1.5 and who is an
Accredited Investor (as defined in the Purchase Agreement). Except
as otherwise provided in the Purchase Agreement (and subject to the
removal provisions set forth below), until such time as the
Conversion Shares have been registered under the 1933 Act or
otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation
S, or other applicable exemption without any restriction as to the
number of securities as of a particular date that can then be
immediately sold, each certificate for the Conversion Shares that
has not been so included in an effective registration statement or
that has not been sold pursuant to an effective registration
statement or an exemption that permits removal of the legend, shall
bear a legend substantially in the following form, as
appropriate:
“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS
DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144, RULE 144A, REGULATION S UNDER
SAID ACT, OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.”
The
legend set forth above shall be removed and the Company shall issue
to the Holder a certificate for the applicable Conversion Shares
without such legend upon which it is stamped or (as requested by
the Holder) issue the applicable Conversion Shares by electronic
delivery by crediting the account of such holder’s broker
with DTC, if, unless otherwise required by applicable state
securities laws: (a) such Conversion Shares are registered for sale
under an effective registration statement filed under the 1933 Act
or otherwise may be sold pursuant to Rule 144, Rule 144A,
Regulation S, or other applicable exemption without any restriction
as to the number of securities as of a particular date that can
then be immediately sold, or (b) the Company or the Holder provides
the Legal Counsel Opinion (as contemplated by and in accordance
with Section 4(m) of the Purchase Agreement) to the effect that a
public sale or transfer of such Conversion Shares may be made
without registration under the 1933 Act. The Company shall be
responsible for the fees of its transfer agent and all DTC fees
associated with any such issuance. The Holder agrees to sell all
Conversion Shares, including those represented by a certificate(s)
from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
1.6
Effect of Certain Events.
(a) Effect of Merger, Consolidation,
Etc. Upon the sale, conveyance or disposition of all or
substantially all of the assets of the Borrower, or the
consolidation, merger or other business combination of the Borrower
with or into any other Person (as defined below) or Persons when
the Borrower is not the survivor shall either: (i) be deemed to be
an Event of Default pursuant to which the Borrower shall be
required to pay to the Holder upon the consummation of and as a
condition to such transaction an amount equal to the Default Amount
(as defined in this Note) or (ii) be treated pursuant to Section
1.6(b) hereof. “Person” shall mean any individual,
corporation, limited liability company, partnership, association,
trust or other entity or organization.
(b) Adjustment Due to Merger,
Consolidation, Etc. If, at any time when this Note is issued
and outstanding and prior to conversion of all of this Note, there
shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a
result of which shares of Common Stock of the Borrower shall be
changed into the same or a different number of shares of another
class or classes of stock or securities of the Borrower or another
entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower other than in
connection with a plan of complete liquidation of the Borrower,
then the Holder of this Note shall thereafter have the right to
receive upon conversion of this Note, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such
stock, securities or assets which the Holder would have been
entitled to receive in such transaction had this Note been
converted in full immediately prior to such transaction (without
regard to any limitations on conversion set forth herein), and in
any such case appropriate provisions shall be made with respect to
the rights and interests of the Holder of this Note to the end that
the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Price and of the number of shares
issuable upon conversion of the Note) shall thereafter be
applicable, as nearly as may be practicable in relation to any
securities or assets thereafter deliverable upon the conversion
hereof. The Borrower shall not effectuate any transaction described
in this Section 1.6(b) unless (a) it first gives, to the extent
practicable, at least thirty (30) days prior written notice (but in
any event at least fifteen (15) days prior written notice) of the
record date of the special meeting of shareholders to approve, or
if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization
or other similar event or sale of assets (during which time the
Holder shall be entitled to convert this Note) and (b) the
resulting successor or acquiring entity (if not the Borrower)
assumes by written instrument the obligations of this Section
1.6(b). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges. For
the avoidance of doubt, (i) no adjustment pursuant to this Section
1.6(b) shall be made if prepayment in full of this Note occurs
prior to, or upon consummation of, any transaction that would
require adjustment pursuant to this Section 1.6(b), and (ii) the
provisions of this Section 1.6(b) shall not impact the
Company’s right to prepay the Note at any time and from time
to time, including prior to, or upon consummation of, any
transaction that would require adjustment pursuant to this Section
1.6(b), in each case subject to the Holders right to convert this
Note.
(c) Adjustment Due to Distribution.
If the Borrower shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock
as a dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to the
Borrower’s shareholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e., a
spin-off)) (a “Distribution”), then the Holder of this
Note shall be entitled, upon any conversion of this Note after the
date of record for determining shareholders entitled to such
Distribution, to receive the amount of such assets which would have
been payable to the Holder with respect to the shares of Common
Stock issuable upon such conversion had such Holder been the holder
of such shares of Common Stock on the record date for the
determination of shareholders entitled to such
Distribution.
(d) Purchase Rights. If, at any
time when all or any portion of this Note is issued and
outstanding, the Borrower issues any convertible securities or
rights to purchase stock, warrants, securities or other property
(the “Purchase Rights”) pro rata to the record holders
of any class of Common Stock, then the Holder of this Note will be
entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without
regard to any limitations on conversion contained herein)
immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
(e) Dilutive Issuance. If the
Borrower, at any time while this Note or any amounts due hereunder
are outstanding, issues, sells or grants (or has issued, sold or
granted as of the Issue Date, as the case may be) any option to
purchase, or sells or grants any right to reprice, or otherwise
disposes of, or issues (or has sold or issued, as the case may be,
or announces any sale, grant or any option to purchase or other
disposition), any Common Stock or other securities convertible
into, exercisable for, or otherwise entitle any person or entity
the right to acquire, shares of Common Stock (including, without
limitation, upon conversion of this Note, Common Stock Equivalents,
and any convertible notes or warrants outstanding as of or
following the Issue Date), in each or any case at an effective
price per share that is lower than the then Conversion Price (such
lower price, the “Base Conversion Price” and such
issuances, collectively, a “Dilutive Issuance”) (it
being agreed that if the holder of the Common Stock or other
securities so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an
effective price per share that is lower than the Conversion Price,
such issuance shall be deemed to have occurred for less than the
Conversion Price on such date of the Dilutive Issuance), then the
Conversion Price shall be reduced, at the option of the Holder, to
a price equal to the Base Conversion Price. Such adjustment shall
be made whenever such Common Stock or other securities are issued.
By way of example, and for the avoidance of doubt, if the Company
issues a convertible promissory note (including but not limited to
a Variable Rate Transaction), and the holder of such convertible
promissory note has the right to convert it into Common Stock at an
effective price per share that is lower than the then Conversion
Price (including but not limited to a conversion price with a
discount that varies with the trading prices of or quotations for
the Common Stock), then the Holder has the right to reduce the
Conversion Price to such Base Conversion Price (including but not
limited to a conversion price with a discount that varies with the
trading prices of or quotations for the Common Stock) in perpetuity
regardless of whether the holder of such convertible promissory
note ever effectuated a conversion at the Base Conversion Price. In
the event of an issuance of securities involving multiple tranches
or closings, any adjustment pursuant to this Section 1.6(e) shall
be calculated as if all such securities were issued at the initial
closing. For the avoidance of doubt, the Holder shall be entitled
to utilize the Base Conversion Price with respect to a Dilutive
Issuance, even if the Dilutive Issuance occurs prior to the date
that the Holder is entitled to convert this Note. Notwithstanding the foregoing, no
adjustment will be made under this Section 1.6(e) with respect to
an Exempt Issuance (as defined below). An “Exempt
Issuance” shall mean (i) the issuance of shares of Common
Stock pursuant to the conversion or exercise of Common Stock
Equivalents issued prior to the Issue Date, so long as the
respective Common Stock Equivalents are not amended on or after
Issue Date of this Note, and (ii) grants or issuances to officers,
directors or employees or other service providers of Common Stock
or Common Stock Equivalents (and the conversion or exercise
thereof) in connection with stockholder approved stock option,
stock, incentive or similar plans.
(f) Notice of Adjustments. Upon the
occurrence of each adjustment or readjustment of the Conversion
Price as a result of the events described in Section 1.6 of this
Note, the Borrower shall, at its expense and within four (4)
business days after the occurrence of each respective adjustment or
readjustment of the Conversion Price, compute such adjustment or
readjustment and prepare and furnish to the Holder a certificate
setting forth (i) the Conversion Price in effect at such time based
upon the Dilutive Issuance, (ii) the number of shares of Common
Stock and the amount, if any, of other securities or property which
at the time would be received upon conversion of the Note, (iii)
the detailed facts upon which such adjustment or readjustment is
based, and (iv) copies of the documentation (including but not
limited to relevant transaction documents) that evidences the
adjustment or readjustment. In addition, the Borrower shall, within
four (4) business days after each written request from the Holder,
furnish to such Holder a like certificate setting forth (i) the
Conversion Price in effect at such time based upon the Dilutive
Issuance, (ii) the number of shares of Common Stock and the amount,
if any, of other securities or property which at the time would be
received upon conversion of the Note, (iii) the detailed facts upon
which such adjustment or readjustment is based, and (iv) copies of
the documentation (including but not limited to relevant
transaction documents) that evidences the adjustment or
readjustment. For the avoidance of doubt, each adjustment or
readjustment of the Conversion Price as a result of the events
described in Section 1.6 of this Note shall occur without any
action by the Holder and regardless of whether the Borrower
complied with the notification provisions in Section 1.6 of this
Note.
1.7 [Intentionally
Omitted].
1.8 Status as Shareholder. Upon
submission of a Notice of Conversion by a Holder, (i) the
Conversion Shares covered thereby (other than the Conversion
Shares, if any, which cannot be issued because their issuance would
exceed such Holder’s allocated portion of the Reserved Amount
or Maximum Share Amount) shall be deemed converted into shares of
Common Stock and (ii) the Holder’s rights as a Holder of such
converted portion of this Note shall cease and terminate, excepting
only the right to receive certificates for such shares of Common
Stock and to any remedies provided herein or otherwise available at
law or in equity to such Holder because of a failure by the
Borrower to comply with the terms of this Note. Notwithstanding the
foregoing, if a Holder has not received certificates for all shares
of Common Stock prior to the tenth (10th) business day after the
expiration of the Deadline with respect to a conversion of any
portion of this Note for any reason, then (unless the Holder
otherwise elects to retain its status as a holder of Common Stock
by so notifying the Borrower) the Holder shall regain the rights of
a Holder of this Note with respect to such unconverted portions of
this Note and the Borrower shall, as soon as practicable, return
such unconverted Note to the Holder or, if the Note has not been
surrendered, adjust its records to reflect that such portion of
this Note has not been converted. In all cases, the Holder shall
retain all of its rights and remedies for the Borrower’s
failure to convert this Note.
1.9 Prepayment. At any time prior
to the date that an Event of Default occurs under this Note (the
“Prepayment Period”), the Borrower shall have the
right, exercisable on three (3) Trading Days prior written notice
to the Holder of the Note, to prepay the outstanding Principal
Amount and interest then due under this Note in accordance with
this Section 1.9. Any notice of prepayment hereunder (an
“Optional Prepayment Notice”) shall be delivered to the
Holder of the Note at its registered addresses and shall state: (1)
that the Borrower is exercising its right to prepay the Note, and
(2) the date of prepayment which shall be three (3) Trading Days
from the date of the Optional Prepayment Notice (the
“Optional Prepayment Date”). The Holder shall have the
right, during the period beginning on the date of Holder’s
receipt of the Optional Prepayment Notice and until the
Holder’s actual receipt of the full prepayment amount on the
Optional Prepayment Date (the “Prepayment Conversion
Period”), to instead convert all or any portion of the Note
pursuant to the terms of this Note, including the amount of this
Note to be prepaid by the Borrower in accordance with this Section
1.9. On the Optional Prepayment Date, the Borrower shall make
payment of the amounts designated below to or upon the order of the
Holder as specified by the Holder in writing to the Borrower. If
the Borrower exercises its right to prepay the Note in accordance
with this Section 1.9, the Borrower shall make payment to the
Holder of an amount in cash equal to the sum of: (w) 100%
multiplied by the Principal Amount then outstanding plus (x) accrued and unpaid
interest on the Principal Amount to the Optional Prepayment Date
plus (y) $750.00 to
reimburse Holder for administrative fees.
If the
Borrower delivers an Optional Prepayment Notice and fails to pay
the applicable prepayment amount due to the Holder of the Note as
provided in this Section 1.9, then the Borrower shall forever
forfeit its right to prepay any part of the Note pursuant to this
Section 1.9.
1.10 Repayment
from Proceeds. If, at any time prior to the full repayment
or full conversion of all amounts owed under this Note, the Company
receives cash proceeds of more than $2,000,000.00 (the
“Minimum Threshold”) in the aggregate (for the
avoidance of doubt, each time that the Company receives cash
proceeds on or after the Issue Date (except with respect to this
Note), such amount shall be aggregated together for purposes of
calculating the Minimum Threshold), from the issuance of equity
(excluding the issuance of equity pursuant to an Equity Line of
Credit (as defined in this Note)) or debt, the conversion of
outstanding warrants of the Borrower, or the sale of assets, the
Borrower shall, within one (1) business day of Borrower’s
receipt of such proceeds, inform the Holder of or publicly disclose
such receipt, following which the Holder shall have the right in
its sole discretion to require the Borrower to immediately apply up
to 50% of such proceeds after the Minimum Threshold to repay all or
any portion of the outstanding Principal Amount and interest
(including any Default Interest) then due under this Note. Failure
of the Borrower to comply with this provision shall constitute an
Event of Default. “Equity Line of Credit” shall include
any transaction involving a written agreement between the Company
and an investor or underwriter whereby the Company has the right to
“put” its securities to the investor or underwriter,
after such securities have been registered for resale by such
investor or underwriter pursuant to an effective registration
statement, over an agreed period of time and at an agreed price or
price formula (other than customary “preemptive” or
“participation” rights or “weighted
average” or “full-ratchet” anti-dilution
provisions or in connection with fixed-price rights offerings and
similar transactions).
ARTICLE
II. RANKING AND CERTAIN COVENANTS
2.1 Ranking and Security. This Note
shall rank pari passu with all unsecured indebtedness of the
Borrower.
2.2 [Intentionally
Omitted].
2.3 Distributions on Capital Stock.
So long as the Borrower shall have any obligation under this Note,
the Borrower shall not without the Holder’s written consent
(a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities)
on shares of capital stock other than dividends on shares of Common
Stock solely in the form of additional shares of Common Stock or
(b) directly or indirectly or through any subsidiary make any other
payment or distribution in respect of its capital stock except for
distributions pursuant to any shareholders’ rights plan which
is approved by a majority of the Borrower’s disinterested
directors.
2.4 Restriction on Stock Repurchases and
Debt Repayments. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the
Holder’s written consent redeem, repurchase or otherwise
acquire (whether for cash or in exchange for property or other
securities or otherwise) in any one transaction or series of
related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such
shares, or repay any pari passu or subordinated indebtedness of
Borrower.
2.5 Sale of Assets. So long as the
Borrower shall have any obligation under this Note, the Borrower
shall not, without the Holder’s written consent, sell, lease
or otherwise dispose of any significant portion of its assets
outside the ordinary course of business. Any consent by the Holder
to the disposition of any assets may be conditioned on a specified
use of the proceeds of disposition.
2.6 Advances and Loans; Affiliate
Transactions. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the
Holder’s written consent, lend money, give credit, make
advances to or enter into any transaction with any person, firm,
joint venture or corporation, including, without limitation,
officers, directors, employees, subsidiaries and affiliates of the
Borrower, except loans, credits or advances (a) in existence or
committed on the Issue Date and which the Borrower has informed
Holder in writing prior to the Issue Date, (b) in regard to
transactions with unaffiliated third parties, made in the ordinary
course of business or (c) in regard to transactions with
unaffiliated third parties, not in excess of $100,000. Other than
as set forth on Schedule
2.6 to this Note, so long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the
Holder’s written consent, repay any affiliate (as defined in
Rule 144) of the Borrower in connection with any indebtedness or
accrued amounts owed to any such party.
2.7 3(a)(10) Transaction. So long
as this Note is outstanding, the Borrower shall not enter into any
transaction or arrangement structured in accordance with, based
upon, or related or pursuant to, in whole or in part, Section
3(a)(10) of the Securities Act (a “3(a)(10)
Transaction”). In the event that the Borrower does enter
into, or makes any issuance of Common Stock related to a 3(a)(10)
Transaction while this note is outstanding, a liquidated damages
charge of 25% of the outstanding principal balance of this Note,
but not less than $25,000, will be assessed and will become
immediately due and payable to the Holder at its election in the
form of a cash payment or added to the balance of this Note (under
Holder's and Borrower's expectation that this amount will tack back
to the Issue Date).
2.8 Preservation of Business and
Existence, etc. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the
Holder’s written consent, (a) change the nature of its
business;
(b)
sell, divest, change the structure of any material assets other
than in the ordinary course of business; or (c) enter into a
Variable Rate Transaction. In addition, so long as the Borrower
shall have any obligation under this Note, the Borrower shall
maintain and preserve, and cause each of its Subsidiaries to
maintain and preserve, its existence, rights and privileges, and
become or remain, and cause each of its Subsidiaries (other than
dormant Subsidiaries that have no or minimum assets) to become or
remain, duly qualified and in good standing in each jurisdiction in
which the character of the properties owned or leased by it or in
which the transaction of its business makes such qualification
necessary.
2.9 Noncircumvention. The Company
hereby covenants and agrees that the Company will not, by amendment
of its Certificate or Articles of Incorporation or Bylaws, or
through any reorganization, transfer of assets, consolidation,
merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Note, and
will at all times in good faith carry out all the provisions of
this Note and take all action as may be required to protect the
rights of the Holder.
2.10
Lost,
Stolen or Mutilated Note. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Note, and, in the case of loss,
theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new
Note.
ARTICLE
III. EVENTS OF DEFAULT
It
shall be considered an event of default if any of the following
events listed in this Article III (each, an “Event of
Default”) shall occur:
3.1 Failure to Pay Principal or
Interest. The Borrower fails to pay the Principal Amount
hereof or interest thereon when due on this Note, whether at
maturity, upon acceleration or otherwise, or fails to fully comply
with Section 1.10 of this Note.
3.2 Conversion and the Shares. The
Borrower (i) fails to issue Conversion Shares to the Holder (or
announces or threatens in writing that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion
rights of the Holder in accordance with the terms of this Note,
(ii) fails to transfer or cause its transfer agent to transfer
(issue) (electronically or in certificated form) any certificate
for the Conversion Shares issuable to the Holder upon conversion of
or otherwise pursuant to this Note as and when required by this
Note, (iii) fails to reserve the Reserved Amount at all times, (iv)
the Borrower directs its transfer agent not to transfer or delays,
impairs, and/or hinders its transfer agent in transferring (or
issuing) (electronically or in certificated form) any certificate
for the Conversion Shares issuable to the Holder upon conversion of
or otherwise pursuant to this Note as and when required by this
Note, or fails to remove (or directs its transfer agent not to
remove or impairs, delays, and/or hinders its transfer agent from
removing) any restrictive legend (or to withdraw any stop transfer
instructions in respect thereof) on any certificate for any
Conversion Shares issued to the Holder upon conversion of or
otherwise pursuant to this Note as and when required by this Note
(or makes any written announcement, statement or threat that it
does not intend to honor the obligations described in this
paragraph) and any such failure shall continue uncured (or any
written announcement, statement or threat not to honor its
obligations shall not be rescinded in writing) for two (2) Trading
Days after the Holder shall have delivered a Notice of Conversion,
and/or (v) fails to remain current in its obligations to its
transfer agent (including but not limited to payment obligations to
its transfer agent). It shall be an Event of Default of this Note,
if a conversion of this Note is delayed, hindered or frustrated due
to a balance owed by the Borrower to its transfer agent. If at the
option of the Holder, the Holder advances any funds to the
Borrower’s transfer agent in order to process a conversion,
such advanced funds shall be added to the principal balance of the
Note.
3.3 Breach of Agreements and
Covenants. The Borrower breaches any covenant, agreement, or
other term or condition contained in the Purchase Agreement, this
Note, Irrevocable Transfer Agent Instructions, Warrant (as defined
in the Purchase Agreement) (the “Warrant”), or in any
agreement, statement or certificate given in writing pursuant
hereto or in connection herewith or therewith.
3.4 Breach of Representations and
Warranties. Any representation or warranty of the Borrower
made in the Purchase Agreement, this Note, Irrevocable Transfer
Agent Instructions, Warrant, or in any agreement, statement or
certificate given in writing pursuant hereto or in connection
herewith or therewith shall be false or misleading in any material
respect when made.
3.5 Receiver or Trustee. The
Borrower or any subsidiary of the Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee
shall otherwise be appointed.
3.6 Judgments. Any money judgment,
writ or similar process shall be entered or filed against the
Borrower or any subsidiary of the Borrower or any of its property
or other assets for more than $200,000, and shall remain unvacated,
unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be
unreasonably withheld.
3.7 Bankruptcy. Bankruptcy,
insolvency, reorganization or liquidation proceedings or other
proceedings, voluntary or involuntary, for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Borrower or any subsidiary of the
Borrower.
3.8 Failure to Comply with the 1934
Act. At any time after the Issue Date, the Borrower shall
fail to comply with the reporting requirements of the 1934 Act
and/or the Borrower shall cease to be subject to the reporting
requirements of the 1934 Act.
3.9 Liquidation. Any dissolution,
liquidation, or winding up of Borrower or any substantial portion
of its business.
3.10 Cessation
of Operations. Any cessation of operations by Borrower or
Borrower admits it is otherwise generally unable to pay its debts
as such debts become due, provided, however, that any disclosure of
the Borrower’s ability to continue as a “going
concern” shall not be an admission that the Borrower cannot
pay its debts as they become due.
3.11 Maintenance
of Assets. The failure by Borrower to maintain any material
intellectual property rights, personal, real property or other
assets which are necessary to conduct its business (whether now or
in the future).
3.12 [Intentionally
Omitted].
3.13 Replacement
of Transfer Agent. In the event that the Borrower proposes
to replace its transfer agent, the Borrower fails to provide, prior
to the effective date of such replacement, a fully executed
Irrevocable Transfer Agent Instructions in a form as initially
delivered pursuant to the Purchase Agreement (including but not
limited to the provision to irrevocably reserve shares of Common
Stock in the Reserved Amount) signed by the successor transfer
agent to Borrower and the Borrower.
3.14 Cross-Default.
The declaration of an event of default by any lender or other
extender of credit to the Company under any notes, loans,
agreements or other instruments of the Company evidencing any
indebtedness of the Company (including those filed as exhibits to
or described in the Company’s filings with the SEC), after
the passage of all applicable notice and cure or grace
periods.
3.15 Variable
Rate Transactions. The Borrower consummates a Variable Rate
Transaction at any time on or after the Issue Date.
3.16 Inside
Information. Any attempt by the Borrower or its officers,
directors, and/or affiliates to transmit, convey, disclose, or any
actual transmittal, conveyance, or disclosure by the Borrower or
its officers, directors, and/or affiliates of, material non-public
information concerning the Borrower, to the Holder or its
successors and assigns, which is not immediately cured by
Borrower’s filing of a Form 8-K pursuant to Regulation FD on
that same date.
3.17 [Intentionally
Omitted].
3.18 [Intentionally
Omitted].
3.19 Delisting,
Suspension, or Quotation of Trading of Common Stock. If, at
any time on or after the Issue Date, the Borrower’s Common
Stock (i) is suspended from trading, (ii) halted from trading for
more than three (3) Trading Days, and/or (iii) fails to be quoted
or listed (as applicable) on a Principal Market.
3.19 [Intentionally
Omitted].
3.20 Failure
to Pay an Amortization Payment. The Borrower fails to pay an
Amortization Payment (as defined in this Note) when due as provided
in Section 4.17 of this Note.
3.21 Rights
and Remedies Upon an Event of Default. Upon the occurrence
of any Event of Default specified in this Article III, this Note
shall become immediately due and payable, and the Borrower shall
pay to the Holder, in full satisfaction of its obligations
hereunder, an amount equal to the Principal Amount then outstanding
plus accrued interest (including any Default Interest) through the
date of full repayment multiplied by 115% (collectively the
“Default Amount”), as well as all costs, including,
without limitation, legal fees and expenses, of collection, all
without demand, presentment or notice, all of which hereby are
expressly waived by the Borrower. Holder may, in its sole
discretion, determine to accept payment part in Common Stock and
part in cash. For purposes of payments in Common Stock, the
conversion formula set forth in Section 1.2 shall apply as well as
all other provisions of this Note. The Holder shall be entitled to
exercise all other rights and remedies available at law or in
equity.
ARTICLE
IV. MISCELLANEOUS
4.1 Failure or Indulgence Not
Waiver. No failure or delay on the part of the Holder in the
exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privileges. All
rights and remedies of the Holder existing hereunder are cumulative
to, and not exclusive of, any rights or remedies otherwise
available.
4.2 Notices. All notices, demands,
requests, consents, approvals, and other communications required or
permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service
with charges prepaid, or (iv) transmitted by hand delivery,
telegram, e-mail or facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by e-mail or facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at
the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be
received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business
day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be:
If to
the Borrower, to:
INFINITE
GROUP, INC.
175
Sully’s Trail, Suite 202
Pittsford, NY
14534
Attention: James
Villa
e-mail:
[email protected]
If to
the Holder:
MAST
HILL FUND, L.P.
48
Parker Road
Wellesley, MA
02482
e-mail:
[email protected]
4.3 Amendments. This Note and any
provision hereof may only be amended by an instrument in writing
signed by the Borrower and the Holder. The term “Note”
and all reference thereto, as used throughout this instrument,
shall mean this instrument as originally executed, or if later
amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall
be binding upon the Borrower and its successors and assigns, and
shall inure to be the benefit of the Holder and its successors and
assigns. The Borrower shall not assign this Note or any rights or
obligations hereunder without the prior written consent of the
Holder. The Holder may assign its rights hereunder to any
“accredited investor” (as defined in Rule 501(a) of the
1933 Act) in a private transaction from the Holder or to any of its
“affiliates”, as that term is defined under the 1934
Act, without the consent of the Borrower. Notwithstanding anything
in this Note to the contrary, this Note may be pledged as
collateral in connection with a bona fide margin account or other
lending arrangement. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that following conversion of a
portion of this Note, the unpaid and unconverted principal amount
of this Note represented by this Note may be less than the amount
stated on the face hereof.
4.5 Cost of Collection. If default
is made in the payment of this Note, the Borrower shall pay the
Holder hereof costs of collection, including reasonable
attorneys’ fees.
4.6 Governing Law; Venue; Attorney’s
Fees. This Note shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to
principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this
Note or any other agreement, certificate, instrument or document
contemplated hereby shall be brought only in the state courts
located in the State of Delaware or federal courts located in the
State of Delaware. The Borrower hereby irrevocably waives any
objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTIONS CONTEMPLATED
HEREBY. Each party hereby irrevocably waives personal
service of process and consents to process being served in any
suit, action or proceeding in connection with this Note or any
other agreement, certificate, instrument or document contemplated
hereby or thereby by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to
such party at the address in effect for notices to it under this
Note and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by law. The prevailing party
in any action or dispute brought in connection with this the Note
or any other agreement, certificate, instrument or document
contemplated hereby or thereby shall be entitled to recover from
the other party its reasonable attorney’s fees and
costs.
4.7 Certain Amounts. Whenever
pursuant to this Note the Borrower is required to pay an amount in
excess of the outstanding Principal Amount (or the portion thereof
required to be paid at that time) plus accrued and unpaid interest
plus Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of
cash payment on this Note may be difficult to determine and the
amount to be so paid by the Borrower represents stipulated damages
and not a penalty and is intended to compensate the Holder in part
for loss of the opportunity to convert this Note and to earn a
return from the sale of shares of Common Stock acquired upon
conversion of this Note at a price in excess of the price paid for
such shares pursuant to this Note. The Borrower and the Holder
hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the
receipt of a cash payment without the opportunity to convert this
Note into shares of Common Stock.
4.8 Purchase Agreement. The Company
and the Holder shall be bound by the applicable terms of the
Purchase Agreement and the documents entered into in connection
herewith and therewith.
4.9 [Intentionally
Omitted].
4.10 Remedies.
The Borrower acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby.
Accordingly, the Borrower acknowledges that the remedy at law for a
breach of its obligations under this Note will be inadequate and
agrees, in the event of a breach or threatened breach by the
Borrower of the provisions of this Note, that the Holder shall be
entitled, in addition to all other available remedies at law or in
equity, and in addition to the penalties assessable herein, to an
injunction or injunctions restraining, preventing or curing any
breach of this Note and to enforce specifically the terms and
provisions thereof, without the necessity of showing economic loss
and without any bond or other security being required.
4.11 Construction;
Headings. This Note shall be deemed to be jointly drafted by
the Company and all the Holder and shall not be construed against
any person as the drafter hereof. The headings of this Note are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Note.
4.12 Usury.
To the extent it may lawfully do so, the Company hereby agrees not
to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or
advantage of, usury laws wherever enacted, now or at any time
hereafter in force, in connection with any action or proceeding
that may be brought by the Holder in order to enforce any right or
remedy under this Note. Notwithstanding any provision to the
contrary contained in this Note, it is expressly agreed and
provided that the total liability of the Company under this Note
for payments which under the applicable law are in the nature of
interest shall not exceed the maximum lawful rate authorized under
applicable law (the “Maximum Rate”), and, without
limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other
sums which under the applicable law in the nature of interest that
the Company may be obligated to pay under this Note exceed such
Maximum Rate. It is agreed that if the maximum contract rate of
interest allowed by applicable law and applicable to this Note is
increased or decreased by statute or any official governmental
action subsequent to the Issue Date, the new maximum contract rate
of interest allowed by law will be the Maximum Rate applicable to
this Note from the effective date thereof forward, unless such
application is precluded by applicable law. If under any
circumstances whatsoever, interest in excess of the Maximum Rate is
paid by the Company to the Holder with respect to indebtedness
evidenced by this the Note, such excess shall be applied by the
Holder to the unpaid principal balance of any such indebtedness or
be refunded to the Company, the manner of handling such excess to
be at the Holder’s election.
4.13 Severability.
In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law
(including any judicial ruling), then such provision shall be
deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of
any other provision of this Note.
4.14 Terms
of Future Financings. So long as this Note is outstanding,
upon any issuance by the Borrower or any of its subsidiaries of any
security, or amendment to a security that was originally issued
before the Issue Date, with any term that the Holder reasonably
believes is more favorable to the holder of such security or with a
term in favor of the holder of such security that the Holder
reasonably believes was not similarly provided to the Holder in
this Note, then (i) the Borrower shall notify the Holder of such
additional or more favorable term within one (1) business day of
the issuance and/or amendment (as applicable) of the respective
security, and (ii) such term, at Holder’s option, shall
become a part of the transaction documents with the Holder
(regardless of whether the Borrower complied with the notification
provision of this Section 4.14). The types of terms contained in
another security that may be more favorable to the holder of such
security include, but are not limited to, terms addressing
prepayment rate, interest rates, and original issue
discounts.
4.15 Dispute
Resolution. In the case of a dispute as to the determination
of the Conversion Price, Conversion Amount, any prepayment amount
or Default Amount, Issue, Closing or Maturity Date, the closing bid
price, or fair market value (as the case may be) or the arithmetic
calculation of the Conversion Price or the applicable prepayment
amount(s) (as the case may be), the Borrower or the Holder shall
submit the disputed determinations or arithmetic calculations via
facsimile (i) within one (1) Trading Day after receipt of the
applicable notice giving rise to such dispute to the Borrower or
the Holder or (ii) if no notice gave rise to such dispute, at any
time after the Holder learned of the circumstances giving rise to
such dispute. If the Holder and the Borrower are unable to agree
upon such determination or calculation within one (1) Trading Day
of such disputed determination or arithmetic calculation (as the
case may be) being submitted to the Borrower or the Holder, then
the Borrower shall, within one (1) Trading Day, submit (a) the
disputed determination of the Conversion Price, the closing bid
price, the or fair market value (as the case may be) to an
independent, reputable investment bank selected by the Borrower and
approved by the Holder or (b) the disputed arithmetic calculation
of the Conversion Price, Conversion Amount, any prepayment amount
or Default Amount, to an independent, outside accountant selected
by the Holder that is reasonably acceptable to the Borrower. The
Borrower shall cause at its expense the investment bank or the
accountant to perform the determinations or calculations and notify
the Borrower and the Holder of the results no later than one (1)
Trading Day from the time it receives such disputed determinations
or calculations. Such investment bank’s or accountant’s
determination or calculation shall be binding upon all parties
absent demonstrable error.
4.16 [Intentionally
Omitted].
4.17 Amortization
Payments. In addition to all other obligations under this
Note, the Borrower shall make the following amortization payments
(each an “Amortization Payment”) in cash to the Holder
towards the repayment of this Note, as provided in the following
table:
|
|
|
|
Payment
Date:
3/3/2022
|
|
|
Payment
Amount:
$53,760.00
|
|
|
|
|
|
4/1/2022
|
|
|
$53,760.00
|
|
|
|
|
|
5/3/2022
|
|
|
$53,760.00
|
|
|
|
|
|
6/3/2022
|
|
|
$53,760.00
|
|
|
|
|
|
7/1/2022
|
|
|
$53,760.00
|
|
|
|
|
|
8/3/2022
|
|
|
$53,760.00
|
|
|
|
|
|
9/2/2022
|
|
|
$53,760.00
|
|
|
|
|
|
10/3/2022
|
|
|
$53,760.00
|
|
|
|
|
|
11/3/2022
|
|
|
$53,760.00
|
|
(a) With respect to the
first Amortization Payment originally due on March 3, 2022 (the
“First Amortization Payment”), the Company may notify
the Holder on or before March 3, 2022, that the Company is electing
to extend the due date of the First Amortization Payment to April
1, 2022 (the “First Amortization Payment Extension”) as
further provided herein. If the Company exercises the First
Amortization Payment Extension, then the First Amortization Payment
shall be due on April 1, 2022 and the Company shall pay $5,376.00
(the “First Amortization Payment Extension Fee”) to the
Holder on or before March 3, 2022. For the avoidance of doubt, the
First Amortization Payment Extension shall not affect the due date
of any other Amortization Payment and the First Amortization
Payment Extension Fee shall not reduce the amounts owed under the
Note. The Company shall not be permitted to exercise the First
Amortization Payment Extension if an Event of Default occurs under
the Note.
(b) With respect to the
second Amortization Payment originally due on April 1, 2022 (the
“Second Amortization Payment”), the Company may notify
the Holder on or before April 1, 2022, that the Company is electing
to extend the due date of the Second Amortization Payment to May 3,
2022 (the “Second Amortization Payment Extension”) as
further provided herein. If the Company exercises the Second
Amortization Payment Extension, then the Second Amortization
Payment shall be due on May 3, 2022 and the Company shall pay
$5,376.00 (the “Second Amortization Payment Extension
Fee”) to the Holder on or before April 1, 2022. For the
avoidance of doubt, the Second Amortization Payment Extension shall
not affect the due date of any other Amortization Payment and the
Second Amortization Payment Extension Fee shall not reduce the
amounts owed under the Note. The Company shall not be permitted to
exercise the Second Amortization Payment Extension if an Event of
Default occurs under the Note.
(c) With respect to the
third Amortization Payment originally due on May 3, 2022 (the
“Third Amortization Payment”), the Company may notify
the Holder on or before May 3, 2022, that the Company is electing
to extend the due date of the Third Amortization Payment to June 3,
2022 (the “Third Amortization Payment Extension”) as
further provided herein. If the Company exercises the Third
Amortization Payment Extension, then the Third Amortization Payment
shall be due on June 3, 2022 and the Company shall pay $5,376.00
(the “Third Amortization Payment Extension Fee”) to the
Holder on or before May 3, 2022. For the avoidance of doubt, the
Third Amortization Payment Extension shall not affect the due date
of any other Amortization Payment and the Third Amortization
Payment Extension Fee shall not reduce the amounts owed under the
Note. The Company shall not be permitted to exercise the Third
Amortization Payment Extension if an Event of Default occurs under
the Note
[signature page
follows]
IN WITNESS WHEREOF, Borrower has caused
this Note to be signed in its name by its duly authorized officer
on November 3, 2021.
INFINITE
GROUP, INC.
/s/
James Villa
|
By:
|
|
Name:
James Villa
|
|
Title:
Chief Executive Officer
|
EXHIBIT
A -- NOTICE OF CONVERSION
The
undersigned hereby elects to convert
$ principal
amount of the Note (defined below) into that number of shares of
Common Stock to be issued pursuant to the conversion of the Note
(“Common Stock”) as set forth below, of INFINITE GROUP, INC., a Delaware
corporation (the “Borrower”), according to the
conditions of the promissory note of the Borrower dated as of
November 3, 2021 (the “Note”), as of the date written
below. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any.
Box
Checked as to applicable instructions:
|
☐
|
The
Borrower shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the
undersigned or its nominee with DTC through its Deposit Withdrawal
Agent Commission system (“DWAC Transfer”).
|
|
|
Name of
DTC Prime Broker:
|
|
|
Account
Number:
|
|
☐
|
The
undersigned hereby requests that the Borrower issue a certificate
or certificates for the number of shares of Common Stock set forth
below (which numbers are based on the Holder’s
calculation
attached hereto) in
the name(s) specified immediately below or, if additional space is
necessary, on an attachment hereto:
|
|
Date of
Conversion:
|
|
|
Applicable
Conversion Price:
|
$
|
|
Number
of Shares of Common Stock to be
Issued
Pursuant to Conversion of the Note:
|
|
|
Amount
of Principal Balance Due remaining Under the Note after this
conversion:
|
|
|
By:
|
|
Name:
|
|
Title:
|
|
Date:
|
Schedule 2.6
(see
attached)
|
Date
|
Lender
|
Amount
|
|
9/16/2021
|
Don Reeve
|
$ 30,000.00
|
|
9/16/2021
|
Andrew Hoyen
|
$ 25,000.00
|
|
10/14/2021
|
Jim Villa
|
$ 12,000.00
|
|
10/14/2021
|
Andrew Hoyen
|
$ 12,000.00
|
|
10/15/2021
|
Don Reeve
|
$ 12,000.00
|
|
|
|
$ 91,000.00
|
Exhibit
10.3
NEITHER
THIS SECURITY NOR THE SECURITIES AS TO WHICH THIS SECURITY MAY BE
EXERCISED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY
A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT. THIS
SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON
STOCK PURCHASE WARRANT
INFINITE
GROUP, INC.
Warrant
Shares: 1,400,000
Date of
Issuance: November 3, 2021 (“Issuance
Date”)
This
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that,
for value received (in connection with the issuance of the
promissory note in the principal amount of $448,000.00 to the
Holder (as defined below) of even date) (the “Note”),
Mast Hill Fund, L.P., a Delaware limited partnership (including any
permitted and registered assigns, the “Holder”), is entitled,
upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the date
of issuance hereof, to purchase from INFINITE GROUP, INC., a
Delaware corporation (the “Company”), 1,400,000
shares of Common Stock (the “Warrant Shares”) (whereby
such number may be adjusted from time to time pursuant to the terms
and conditions of this Warrant) at the Exercise Price per share
then in effect. This Warrant is issued by the Company as of the
date hereof in connection with that certain securities purchase
agreement dated November 3, 2021, by and among the Company and the
Holder (the “Purchase
Agreement”).
Capitalized terms
used in this Warrant shall have the meanings set forth in the
Purchase Agreement unless otherwise defined in the body of this
Warrant or in Section 12 below. For purposes of this Warrant, the
term “Exercise Price” shall mean $0.16, subject to
adjustment as provided herein (including but not limited to
cashless exercise), and the term “Exercise Period”
shall mean the period commencing on the Issuance Date and ending on
5:00 p.m. eastern standard time on the five-year anniversary
thereof.
1.
EXERCISE OF
WARRANT.
(a) Mechanics of Exercise. Subject to the
terms and conditions hereof, the rights represented by this Warrant
may be exercised in whole or in part at any time or times during
the Exercise Period by delivery of a written notice, in the form
attached hereto as Exhibit
A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant. The Holder shall
not be required to deliver the original Warrant in order to effect
an exercise hereunder. Partial exercises of this Warrant resulting
in purchases of a portion of the total number of Warrant Shares
available hereunder shall have the effect of lowering the
outstanding number of Warrant Shares purchasable hereunder in an
amount equal to the applicable number of Warrant Shares purchased.
On or before the third Trading Day (the “Warrant Share Delivery
Date”) following the date on which the Holder sent the
Exercise Notice to the Company or the Company’s transfer
agent, and upon receipt by the Company of payment to the Company of
an amount equal to the applicable Exercise Price multiplied by the
number of Warrant Shares as to which all or a portion of this
Warrant is being exercised (the “Aggregate Exercise Price”
and together with the Exercise Notice, the “Exercise Delivery
Documents”) in cash or by wire transfer of immediately
available funds (or by cashless exercise, in which case there shall
be no Aggregate Exercise Price provided), the Company shall (or
direct its transfer agent to) issue and deliver by overnight
courier to the address as specified in the Exercise Notice, a
certificate, registered in the Company’s share register in
the name of the Holder or its designee, for the number of shares of
Common Stock to which the Holder is entitled pursuant to such
exercise (or deliver such shares of Common Stock in electronic
format if requested by the Holder). Upon delivery of the Exercise
Delivery Documents, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective
of the date of delivery of the certificates evidencing such Warrant
Shares. If this Warrant is submitted in connection with any
exercise and the number of Warrant Shares represented by this
Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company
shall as soon as practicable and in no event later than three
business days after any exercise and at its own expense, issue a
new Warrant (in accordance with Section 6) representing the right
to purchase the number of Warrant Shares purchasable immediately
prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is
exercised.
If the
Company fails to cause its transfer agent to issue to the Holder
the respective shares of Common Stock by the respective Warrant
Share Delivery Date, then the Holder will have the right to rescind
such exercise in Holder’s sole discretion in addition to all
other rights and remedies at law, under this Warrant, or otherwise,
and such failure shall also be deemed an event of default under the
Note, a material breach under this Warrant, and a material breach
under the Purchase Agreement.
If the
Market Price of one share of Common Stock is greater than the
Exercise Price, then the Holder may elect to receive Warrant Shares
pursuant to a cashless exercise, in lieu of a cash exercise, equal
to the value of this Warrant determined in the manner described
below (or of any portion thereof remaining unexercised) by
surrender of this Warrant and a Notice of Exercise, in which event
the Company shall issue to Holder a number of Common Stock computed
using the following formula:
X =
Y
(A-B)
A
Where X
=
the number of
Shares to be issued to Holder.
Y
=
the number of
Warrant Shares that the Holder elects to purchase under this
Warrant (at the date of such calculation).
A
=
the Market Price
(at the date of such calculation).
B
=
Exercise Price (as
adjusted to the date of such calculation).
(b) No Fractional Shares. No fractional
shares shall be issued upon the exercise of this Warrant as a
consequence of any adjustment pursuant hereto. All Warrant Shares
(including fractions) issuable upon exercise of this Warrant may be
aggregated for purposes of determining whether the exercise would
result in the issuance of any fractional share. If, after
aggregation, the exercise would result in the issuance of a
fractional share, the Company shall, in lieu of issuance of any
fractional share, pay the Holder otherwise entitled to such
fraction a sum in cash equal to the product resulting from
multiplying the then-current fair market value of a Warrant Share
by such fraction.
(c) Holder’s Exercise Limitations.
Notwithstanding anything to the contrary contained herein, the
Company shall not effect any exercise of this Warrant, and a Holder
shall not have the right to exercise any portion of this Warrant,
pursuant to Section 1 or otherwise, to the extent that after giving
effect to such issuance after exercise as set forth on the
applicable Notice of Exercise, the Holder (together with the
Holder’s affiliates (the “Affiliates”), and any
other Persons acting as a group together with the Holder or any of
the Holder’s Affiliates (such Persons, “Attribution
Parties”)), would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below). For purposes of
the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and Attribution Parties shall
include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which
would be issuable upon (i) exercise of the remaining, nonexercised
portion of this Warrant beneficially owned by the Holder or any of
its Affiliates or Attribution Parties and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other
Common Stock Equivalents) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its Affiliates or Attribution
Parties. Except as set forth in the preceding sentence, for
purposes of this Section 1(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder, it being
acknowledged by the Holder that the Holder is solely responsible
for any schedules required to be filed in accordance therewith. In
addition, a determination as to any group status as contemplated
above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 1(c), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number
of outstanding shares of Common Stock as reflected in (A) the
Company’s most recent periodic or annual report filed with
the Commission, as the case may be, (B) a more recent public
announcement by the Company or (C) a more recent written notice by
the Company or the Company’s transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the written or
oral request of a Holder, the Company shall within two Trading Days
confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder or its Affiliates or
Attribution Parties since the date as of which such number of
outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.99% of the
number of shares of the Common Stock outstanding at the time of the
respective calculation hereunder. The limitations contained in this
paragraph shall apply to a successor holder of this
Warrant.
(d) Compensation for Buy-In on Failure to Timely
Deliver Warrant Shares Upon Exercise. In addition to any
other rights available to the Holder, if the Company fails to cause
the Company’s transfer agent to transmit to the Holder the
Warrant Shares in accordance with the provisions of this Warrant
(including but not limited to Section 1(a) above pursuant to an
exercise on or before the respective Warrant Share Delivery Date,
and if after such date the Holder is required by its broker to
purchase (in an open market transaction or otherwise) or the
Holder’s brokerage firm otherwise purchases, shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Shares which the Holder anticipated receiving upon such
exercise (a “Buy-In”), then the Company shall (A) pay
in cash to the Holder, within one (1) business day of
Holder’s request, the amount, if any, by which (x) the
Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased
exceeds (y) the product of (1) the number of Warrant Shares that
the Company was required to deliver to the Holder in connection
with the exercise at issue times (2) the price at which the sell
order giving rise to such purchase obligation was executed, and (B)
at the option of the Holder, either reinstate the portion of the
Warrant and equivalent number of Warrant Shares for which such
exercise was not honored (in which case such exercise shall be
deemed rescinded) or deliver to the Holder within one (1) business
day of Holder’s request the number of shares of Common Stock
that would have been issued had the Company timely complied with
its exercise and delivery obligations hereunder. For example, if
the Holder purchases, or effectuates a cashless exercise hereunder
for, Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase
obligation of $10,000, under clause (A) of the immediately
preceding sentence, the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the
Buy-In and, upon request of the Company, evidence of the amount of
such loss. Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the
Company’s failure to timely deliver shares of Common Stock
upon exercise of the Warrant as required pursuant to the terms
hereof.
2. ADJUSTMENTS. The Exercise Price
and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Distribution of Assets. If the Company
shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of
Common Stock, by way of return of capital or otherwise (including
without limitation any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar
transaction) (a “Distribution”), at any
time after the issuance of this Warrant, then, in each such
case:
(i) any Exercise Price
in effect immediately prior to the close of business on the record
date fixed for the determination of holders of shares of Common
Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a
price determined by multiplying such Exercise Price by a fraction
(i) the numerator of which shall be the Closing Sale Price of the
shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined
in good faith by the Company’s Board of Directors) applicable
to one share of Common Stock, and (ii) the denominator of which
shall be the Closing Sale Price of the shares of Common Stock on
the Trading Day immediately preceding such record date;
and
(ii) the
number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed
for the determination of holders of shares of Common Stock entitled
to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i);
provided, however, that in the event that the Distribution is of
shares of common stock of a company (other than the Company) whose
common stock is traded on a national securities exchange or a
national automated quotation system (“Other Shares of Common
Stock”), then the Holder may elect to receive a
warrant to purchase Other Shares of Common Stock in lieu of an
increase in the number of Warrant Shares, the terms of which shall
be identical to those of this Warrant, except that such warrant
shall be exercisable into the number of shares of Other Shares of
Common Stock that would have been payable to the Holder pursuant to
the Distribution had the Holder exercised this Warrant immediately
prior to such record date and with an aggregate exercise price
equal to the product of the amount by which the exercise price of
this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding clause (i) and
the number of Warrant Shares calculated in accordance with the
first part of this clause (ii).
(b) Anti-Dilution Adjustments to Exercise
Price. If the Company or any Subsidiary thereof, as
applicable, at any time while this Warrant is outstanding, shall
sell or grant any option to purchase, or sell or grant any right to
reprice, or otherwise dispose of or issue (or announce any offer,
sale, grant or any option to purchase or other disposition) any
Common Stock or securities (including but not limited to Common
Stock Equivalents) entitling any person or entity (for purposes of
clarification, including but not limited to the Holder pursuant to
(i) any other security of the Company currently held by Holder,
(ii) any other security of the Company issued to Holder on or after
the Issuance Date (including but not limited to the Note), or (iii)
any other agreement entered into between the Company and Holder) to
acquire shares of Common Stock (upon conversion, exercise or
otherwise), at an effective price per share less than the then
Exercise Price (such lower price, the “Base Share
Price” and such issuances collectively, a “Dilutive
Issuance”) (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of
purchase price adjustments, elimination of an applicable floor
price for any reason in the future (including but not limited to
the passage of time or satisfaction of certain condition(s)), reset
provisions, floating conversion, exercise or exchange prices or
otherwise, or due to warrants, options or rights per share which
are issued in connection with such issuance, be entitled or
potentially entitled to receive shares of Common Stock at an
effective price per share which is less than the Exercise Price at
any time while such Common Stock or Common Stock Equivalents are in
existence, such issuance shall be deemed to have occurred for less
than the Exercise Price on such date of the Dilutive Issuance
(regardless of whether the Common Stock or Common Stock Equivalents
are (i) subsequently redeemed or retired by the Company after the
date of the Dilutive Issuance or (ii) actually converted or
exercised at such Base Share Price), then the Exercise Price shall
be reduced at the option of the Holder and only reduced to equal
the Base Share Price. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued, regardless of
whether the Common Stock or Common Stock Equivalents are (i)
subsequently redeemed or retired by the Company after the date of
the Dilutive Issuance or (ii) actually converted or exercised at
such Base Share Price by the holder thereof (for the avoidance of
doubt, the Holder may utilize the Base Share Price even if the
Company did not actually issue shares of its common stock at the
Base Share Price under the respective Common stock Equivalents).
The Company shall notify the Holder in writing, no later than the
Trading Day following the issuance of any Common Stock or Common
Stock Equivalents subject to this Section 2(b), indicating therein
the applicable issuance price, or applicable reset price, exchange
price, conversion price and other pricing terms (such notice the
“Dilutive Issuance Notice”). For purposes of
clarification, whether or not the Company provides a Dilutive
Issuance Notice pursuant to this Section 2(b), upon the occurrence
of any Dilutive Issuance, after the date of such Dilutive Issuance
the Holder is entitled to receive the Base Share Price regardless
of whether the Holder accurately refers to the Base Share Price in
the Notice of Exercise. Notwithstanding the foregoing, no
adjustment will be made under this Section 2(b) with respect to an
Exempt Issuance (as defined below). An “Exempt
Issuance” shall mean (i) the issuance of shares of Common
Stock pursuant to the conversion or exercise of Common Stock
Equivalents issued prior to the Issuance Date, so long as the
respective Common Stock Equivalents are not amended on or after
Issuance Date of this Warrant, and (ii) grants or issuances to
officers, directors or employees or other service providers of
Common Stock or Common Stock Equivalents (and the conversion or
exercise thereof) in connection with stockholder approved stock
option, stock, incentive or similar plans.
(c) Subdivision or Combination of Common
Stock. If the Company at any time on or after the Issuance
Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares,
the Exercise Price in effect immediately prior to such subdivision
will be proportionately reduced and the number of Warrant Shares
will be proportionately increased. If the Company at any time on or
after the Issuance Date combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price
in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be
proportionately decreased. Any adjustment under this Section 2(c)
shall become effective at the close of business on the date the
subdivision or combination becomes effective. Each such adjustment
of the Exercise Price shall be calculated to the nearest
one-hundredth of a cent. Such adjustment shall be made successively
whenever any event covered by this Section 2(c) shall
occur.
3. FUNDAMENTAL TRANSACTIONS. The
Company shall give the Holder written notice at least ten (10)
business days prior to the closing of a merger of the Company with
or into another entity and the Company is not the surviving entity
(such surviving entity, the “Successor Entity”), (ii)
the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (iii) any tender
offer or exchange offer (whether by the Company or by another
individual or entity, and approved by the Company) is completed
pursuant to which holders of Common Stock are permitted to tender
or exchange their shares of Common Stock for other securities, cash
or property and the holders of at least 50% of the Common Stock
accept such offer, or (iv) the Company effects any reclassification
of the Common Stock or any compulsory share exchange pursuant to
which the Common Stock is effectively converted into or exchanged
for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock) (in any such
case, a “Fundamental
Transaction”). In such event, notwithstanding any
other provision of this Warrant to the contrary, the Company may
terminate this Warrant in exchange for issuing to the Holder
substitute rights (which may be provided in the purchase or merger
agreement governing the Fundamental Transaction or in a separate
instrument) to receive the Net Economic Benefits (as defined in
this Warrant) of this Warrant. “Net Economic Benefits”
shall mean an amount calculated by deducting the aggregate exercise
price of this Warrant from the aggregate proceeds which would be
payable on account of the Warrant Shares, including any
post-closing payments or adjustments to the consideration received
by the Company or its stockholders, as if this Warrant had been
fully exercised by the Holder immediately before the Fundamental
Transaction (but without requiring such exercise). Such substitute
rights shall provide the Holder the right to receive such Net
Economic Benefits when and as the correlative proceeds in excess of
the aggregate exercise price would become payable on account of the
Warrant Shares. For the avoidance of doubt (i) to the extent the
consideration to be provided in the Fundamental Transaction is a
security that is not listed on a national securities exchange, the
Holder shall be entitled to elect to receive either (1) cash in an
amount equal to the fair market value of the Net Economic Benefits
of this Warrant or (2) an amount of such securities having deal
value equal to the Net Economic Benefits of this Warrant and (ii)
at any time prior to the Fundamental Transaction, the Holder may
exercise this Warrant in accordance with the terms hereof, in which
case such Holder shall be entitled to receive any consideration to
be received by stockholders of the Company in such Fundamental
Transaction.
4. NON-CIRCUMVENTION. The Company
covenants and agrees that it will not, by amendment of its
certificate of incorporation, bylaws or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement,
dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, and will at all times in good faith
carry out all the provisions of this Warrant and take all action as
may be required to protect the rights of the Holder. Without
limiting the generality of the foregoing, the Company (i) shall not
increase the par value of any shares of Common Stock receivable
upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock upon the
exercise of this Warrant, and (iii) shall, for so long as this
Warrant is outstanding, have authorized and reserved, free from
preemptive rights, one (1) times the number of shares of Common
Stock into which the Warrants are then exercisable into to provide
for the exercise of the rights represented by this Warrant (without
regard to any limitations on exercise).
5. WARRANT HOLDER NOT DEEMED A
STOCKHOLDER. Except as otherwise specifically provided
herein, this Warrant, in and of itself, shall not entitle the
Holder to any voting rights or other rights as a stockholder of the
Company. In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on the Holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted
by the Company or by creditors of the Company.
6.
REISSUANCE.
(a) Lost, Stolen or Mutilated Warrant. If
this Warrant is lost, stolen, mutilated or destroyed, the Company
will, on such terms as to indemnity or otherwise as it may
reasonably impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof), issue a new Warrant of like
denomination and tenor as this Warrant so lost, stolen, mutilated
or destroyed.
(b) Issuance of New Warrants. Whenever the
Company is required to issue a new Warrant pursuant to the terms of
this Warrant, such new Warrant shall be of like tenor with this
Warrant, and shall have an issuance date, as indicated on the face
of such new Warrant which is the same as the Issuance
Date.
7. TRANSFER. This Warrant shall be
binding upon the Company and its successors and assigns, and shall
inure to be the benefit of the Holder and its successors and
assigns. Notwithstanding anything to the contrary herein, the
rights, interests or obligations of the Company hereunder may not
be assigned, by operation of law or otherwise, in whole or in part,
by the Company without the prior signed written consent of the
Holder, which consent may be withheld at the sole discretion of the
Holder (any such assignment or transfer shall be null and void if
the Company does not obtain the prior signed written consent of the
Holder). This Warrant or any of the severable rights and
obligations inuring to the benefit of or to be performed by Holder
hereunder may be assigned by Holder to a third party, in whole or
in part, without the need to obtain the Company’s consent
thereto.
8. NOTICES. Whenever notice is
required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with the notice
provisions contained in the Purchase Agreement. The Company shall
provide the Holder with prompt written notice (i) immediately upon
any adjustment of the Exercise Price, setting forth in reasonable
detail, the calculation of such adjustment and (ii) at least 10
days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution
upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any stock or other securities directly or
indirectly convertible into or exercisable or exchangeable for
shares of Common Stock or other property, pro rata to the holders
of shares of Common Stock or (C) for determining rights to vote
with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such
notice being provided to the Holder.
9. AMENDMENT AND WAIVER. The terms
of this Warrant may be amended or waived (either generally or in a
particular instance and either retroactively or prospectively) only
with the written consent of the Company and the
Holder.
10. GOVERNING LAW AND VENUE. This
Warrant shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to principles of
conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Warrant
shall be brought only in the state courts located in the State of
Delaware or federal courts located in the State of Delaware. The
parties to this Warrant hereby irrevocably waive any objection to
jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or
based upon forum non
conveniens. EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT
TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT ENTERED INTO IN
CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION
CONTEMPLATED HEREBY OR THEREBY. The prevailing party shall
be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this
Warrant or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision of any
agreement. Each party hereby irrevocably waives personal service of
process and consents to process being served in any suit, action or
proceeding in connection with this Warrant or any other transaction
document entered into in connection with this Warrant by mailing a
copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect
for notices to it under the Purchase Agreement and agrees that such
service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any other manner permitted
by law.
11. ACCEPTANCE. Receipt
of this Warrant by the Holder shall constitute acceptance of and
agreement to all of the terms and conditions contained
herein.
12. CERTAIN DEFINITIONS. For
purposes of this Warrant, the following terms shall have the
following meanings:
(a)
[Intentionally
Omitted].
(b) “Closing Sale Price”
means, for any security as of any date, (i) the last closing trade
price for such security on the Principal Market, as reported by
Quotestream or other similar quotation service provider designated
by the Holder, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing trade
price, then the last trade price of such security prior to 4:00
p.m., New York time, as reported by Quotestream or other similar
quotation service provider designated by the Holder, or (ii) if the
foregoing does not apply, the last trade price of such security in
the over-the-counter market for such security as reported by
Quotestream or other similar quotation service provider designated
by the Holder, or (iii) if no last trade price is reported for such
security by Quotestream or other similar quotation service provider
designated by the Holder, the average of the bid and ask prices of
any market makers for such security as reported by Quotestream or
other similar quotation service provider designated by the Holder.
If the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Sale
Price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holder. All such
determinations to be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during
the applicable calculation period.
(c) “Common Stock” means the
Company’s common stock, par value $0.001, and any other class
of securities into which such securities may hereafter be
reclassified or changed.
(d) “Common Stock Equivalents”
means any securities of the Company that would entitle the holder
thereof to acquire at any time Common Stock, including without
limitation any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
(e)
[Intentionally
Omitted].
(f) “Person” and
“Persons” means an
individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization,
any other entity and any governmental entity or any department or
agency thereof.
(g) “Principal Market” means
the principal securities exchange or trading market where such
Common Stock is listed or quoted, including but not limited to any
tier of the OTC Markets, any tier of the NASDAQ Stock Market
(including NASDAQ Capital Market), or the NYSE American, or any
successor to such markets.
(h) “Market Price” means the
highest traded price of the Common Stock during the one hundred and
fifty Trading Days prior to the date of the respective Exercise
Notice.
(i) “Trading Day” means any
day on which the Common Stock is listed or quoted on its Principal
Market, provided, however, that if the Common Stock is not then
listed or quoted on any Principal Market, then any calendar
day.
* * * *
* * *
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the Issuance Date set forth above.
INFINITE
GROUP, INC.
/s/
James Villa
______________________________
Name: James
Villa
Title: Chief
Executive Officer
EXHIBIT A
EXERCISE
NOTICE
(To be
executed by the registered holder to exercise this Common Stock
Purchase Warrant)
THE UNDERSIGNED holder hereby exercises the
right to
purchase of
the shares of Common Stock (“Warrant Shares”) of
INFINITE GROUP, INC., a Delaware corporation (the
“Company”), evidenced by the attached copy of the
Common Stock Purchase Warrant (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.
1.
Form of Exercise Price. The
Holder intends that payment of the Exercise Price shall be made as
(check one):
a cash exercise
with respect
to Warrant
Shares; or
by cashless
exercise pursuant to the Warrant.
2.
Payment of Exercise Price. If
cash exercise is selected above, the holder shall pay the
applicable Aggregate Exercise Price in the sum of $ to the
Company in accordance with the terms of the Warrant.
3.
Delivery of Warrant Shares. The
Company shall deliver to the
holder Warrant
Shares in accordance with the terms of the Warrant.
Date:
(Print
Name of Registered Holder)
By:
Name:
Title:
EXHIBIT B
ASSIGNMENT
OF WARRANT
(To be
signed only upon authorized transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns, and transfers unto
the right to
purchase
shares of common
stock of INFINITE GROUP, INC., to which the within Common Stock
Purchase Warrant relates and appoints, as attorney-in-fact, to
transfer said right on the books of INFINITE GROUP, INC. with full
power of substitution and re-substitution in the premises. By
accepting such transfer, the transferee has agreed to be bound in
all respects by the terms and conditions of the within
Warrant.
Dated:
(Signature)
*
(Name)
(Address)
(Social
Security or Tax Identification No.)
* The
signature on this Assignment of Warrant must correspond to the name
as written upon the face of the Common Stock Purchase Warrant in
every particular without alteration or enlargement or any change
whatsoever. When signing on behalf of a corporation, partnership,
trust or other entity, please indicate your position(s) and
title(s) with such entity.
Exhibit
10.4
NEITHER
THIS SECURITY NOR THE SECURITIES AS TO WHICH THIS SECURITY MAY BE
EXERCISED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY
A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT. THIS
SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON
STOCK PURCHASE WARRANT
INFINITE
GROUP, INC.
Warrant
Shares: 160,125
Date of
Issuance: November 3, 2021 (“Issuance
Date”)
This
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that,
for value received (in connection with facilitating a financing
arrangement for the Company), J.H. Darbie & Co., Inc., a New
York corporation (including any permitted and registered assigns,
the “Holder”), is entitled,
upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the date
of issuance hereof, to purchase from INFINITE GROUP, INC., a
Delaware corporation (the “Company”), 160,125 shares
of Common Stock (the “Warrant Shares”) (whereby
such number may be adjusted from time to time pursuant to the terms
and conditions of this Warrant) at the Exercise Price per share
then in effect. This Warrant is issued by the Company as of the
date hereof in connection with that certain agreement dated October
14, 2021, by and among the Company and the Holder (the
“Finder’s Fee
Agreement”).
Capitalized terms
used in this Warrant shall have the meanings set forth in the
Finder’s Fee Agreement unless otherwise defined in the body
of this Warrant or in Section 12 below. For purposes of this
Warrant, the term “Exercise Price” shall mean $0.192,
subject to adjustment as provided herein (including but not limited
to cashless exercise), and the term “Exercise Period”
shall mean the period commencing on the Issuance Date and ending on
5:00 p.m. eastern standard time on the five-year anniversary
thereof.
1.
EXERCISE OF
WARRANT.
(a) Mechanics of Exercise. Subject to the
terms and conditions hereof, the rights represented by this Warrant
may be exercised in whole or in part at any time or times during
the Exercise Period by delivery of a written notice, in the form
attached hereto as Exhibit
A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant. The Holder shall
not be required to deliver the original Warrant in order to effect
an exercise hereunder. Partial exercises of this Warrant resulting
in purchases of a portion of the total number of Warrant Shares
available hereunder shall have the effect of lowering the
outstanding number of Warrant Shares purchasable hereunder in an
amount equal to the applicable number of Warrant Shares purchased.
On or before the third Trading Day (the “Warrant Share Delivery
Date”) following the date on which the Holder sent the
Exercise Notice to the Company or the Company’s transfer
agent, and upon receipt by the Company of payment to the Company of
an amount equal to the applicable Exercise Price multiplied by the
number of Warrant Shares as to which all or a portion of this
Warrant is being exercised (the “Aggregate Exercise Price”
and together with the Exercise Notice, the “Exercise Delivery
Documents”) in cash or by wire transfer of immediately
available funds (or by cashless exercise, in which case there shall
be no Aggregate Exercise Price provided), the Company shall (or
direct its transfer agent to) issue and deliver by overnight
courier to the address as specified in the Exercise Notice, a
certificate, registered in the Company’s share register in
the name of the Holder or its designee, for the number of shares of
Common Stock to which the Holder is entitled pursuant to such
exercise (or deliver such shares of Common Stock in electronic
format if requested by the Holder). Upon delivery of the Exercise
Delivery Documents, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective
of the date of delivery of the certificates evidencing such Warrant
Shares. If this Warrant is submitted in connection with any
exercise and the number of Warrant Shares represented by this
Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company
shall as soon as practicable and in no event later than three
business days after any exercise and at its own expense, issue a
new Warrant (in accordance with Section 6) representing the right
to purchase the number of Warrant Shares purchasable immediately
prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is
exercised.
If the
Company fails to cause its transfer agent to issue to the Holder
the respective shares of Common Stock by the respective Warrant
Share Delivery Date, then the Holder will have the right to rescind
such exercise in Holder’s sole discretion in addition to all
other rights and remedies at law, under this Warrant, or otherwise,
and such failure shall also be deemed a material breach under this
Warrant.
If the
Market Price of one share of Common Stock is greater than the
Exercise Price, then the Holder may elect to receive Warrant Shares
pursuant to a cashless exercise, in lieu of a cash exercise, equal
to the value of this Warrant determined in the manner described
below (or of any portion thereof remaining unexercised) by
surrender of this Warrant and a Notice of Exercise, in which event
the Company shall issue to Holder a number of Common Stock computed
using the following formula:
X =
Y
(A-B)
A
Where X
=
the number of
Shares to be issued to Holder.
Y
=
the number of
Warrant Shares that the Holder elects to purchase under this
Warrant (at the date of such calculation).
A
=
the Market Price
(at the date of such calculation).
B
=
Exercise Price (as
adjusted to the date of such calculation).
(b) No Fractional Shares. No fractional
shares shall be issued upon the exercise of this Warrant as a
consequence of any adjustment pursuant hereto. All Warrant Shares
(including fractions) issuable upon exercise of this Warrant may be
aggregated for purposes of determining whether the exercise would
result in the issuance of any fractional share. If, after
aggregation, the exercise would result in the issuance of a
fractional share, the Company shall, in lieu of issuance of any
fractional share, pay the Holder otherwise entitled to such
fraction a sum in cash equal to the product resulting from
multiplying the then-current fair market value of a Warrant Share
by such fraction.
(c) Holder’s Exercise Limitations.
Notwithstanding anything to the contrary contained herein, the
Company shall not effect any exercise of this Warrant, and a Holder
shall not have the right to exercise any portion of this Warrant,
pursuant to Section 1 or otherwise, to the extent that after giving
effect to such issuance after exercise as set forth on the
applicable Notice of Exercise, the Holder (together with the
Holder’s affiliates (the “Affiliates”), and any
other Persons acting as a group together with the Holder or any of
the Holder’s Affiliates (such Persons, “Attribution
Parties”)), would beneficially own in excess of the
Beneficial Ownership Limitation (as defined below). For purposes of
the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and Attribution Parties shall
include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which such determination is being
made, but shall exclude the number of shares of Common Stock which
would be issuable upon (i) exercise of the remaining, nonexercised
portion of this Warrant beneficially owned by the Holder or any of
its Affiliates or Attribution Parties and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other
Common Stock Equivalents) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its Affiliates or Attribution
Parties. Except as set forth in the preceding sentence, for
purposes of this Section 1(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder, it being
acknowledged by the Holder that the Holder is solely responsible
for any schedules required to be filed in accordance therewith. In
addition, a determination as to any group status as contemplated
above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.
For purposes of this Section 1(c), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number
of outstanding shares of Common Stock as reflected in (A) the
Company’s most recent periodic or annual report filed with
the Commission, as the case may be, (B) a more recent public
announcement by the Company or (C) a more recent written notice by
the Company or the Company’s transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the written or
oral request of a Holder, the Company shall within two Trading Days
confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder or its Affiliates or
Attribution Parties since the date as of which such number of
outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.99% of the
number of shares of the Common Stock outstanding at the time of the
respective calculation hereunder. The limitations contained in this
paragraph shall apply to a successor holder of this
Warrant.
(d) Compensation for Buy-In on Failure to Timely
Deliver Warrant Shares Upon Exercise. In addition to any
other rights available to the Holder, if the Company fails to cause
the Company’s transfer agent to transmit to the Holder the
Warrant Shares in accordance with the provisions of this Warrant
(including but not limited to Section 1(a) above pursuant to an
exercise on or before the respective Warrant Share Delivery Date,
and if after such date the Holder is required by its broker to
purchase (in an open market transaction or otherwise) or the
Holder’s brokerage firm otherwise purchases, shares of Common
Stock to deliver in satisfaction of a sale by the Holder of the
Warrant Shares which the Holder anticipated receiving upon such
exercise (a “Buy-In”), then the Company shall (A) pay
in cash to the Holder, within one (1) business day of
Holder’s request, the amount, if any, by which (x) the
Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased
exceeds (y) the product of (1) the number of Warrant Shares that
the Company was required to deliver to the Holder in connection
with the exercise at issue times (2) the price at which the sell
order giving rise to such purchase obligation was executed, and (B)
at the option of the Holder, either reinstate the portion of the
Warrant and equivalent number of Warrant Shares for which such
exercise was not honored (in which case such exercise shall be
deemed rescinded) or deliver to the Holder within one (1) business
day of Holder’s request the number of shares of Common Stock
that would have been issued had the Company timely complied with
its exercise and delivery obligations hereunder. For example, if
the Holder purchases, or effectuates a cashless exercise hereunder
for, Common Stock having a total purchase price of $11,000 to cover
a Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase
obligation of $10,000, under clause (A) of the immediately
preceding sentence, the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the
Buy-In and, upon request of the Company, evidence of the amount of
such loss. Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the
Company’s failure to timely deliver shares of Common Stock
upon exercise of the Warrant as required pursuant to the terms
hereof.
2. ADJUSTMENTS. The Exercise Price
and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Distribution of Assets. If the Company
shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of
Common Stock, by way of return of capital or otherwise (including
without limitation any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar
transaction) (a “Distribution”), at any
time after the issuance of this Warrant, then, in each such
case:
(i) any Exercise Price
in effect immediately prior to the close of business on the record
date fixed for the determination of holders of shares of Common
Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a
price determined by multiplying such Exercise Price by a fraction
(i) the numerator of which shall be the Closing Sale Price of the
shares of Common Stock on the Trading Day immediately preceding
such record date minus the value of the Distribution (as determined
in good faith by the Company’s Board of Directors) applicable
to one share of Common Stock, and (ii) the denominator of which
shall be the Closing Sale Price of the shares of Common Stock on
the Trading Day immediately preceding such record date;
and
(ii) the
number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed
for the determination of holders of shares of Common Stock entitled
to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i);
provided, however, that in the event that the Distribution is of
shares of common stock of a company (other than the Company) whose
common stock is traded on a national securities exchange or a
national automated quotation system (“Other Shares of Common
Stock”), then the Holder may elect to receive a
warrant to purchase Other Shares of Common Stock in lieu of an
increase in the number of Warrant Shares, the terms of which shall
be identical to those of this Warrant, except that such warrant
shall be exercisable into the number of shares of Other Shares of
Common Stock that would have been payable to the Holder pursuant to
the Distribution had the Holder exercised this Warrant immediately
prior to such record date and with an aggregate exercise price
equal to the product of the amount by which the exercise price of
this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding clause (i) and
the number of Warrant Shares calculated in accordance with the
first part of this clause (ii).
(b) Anti-Dilution Adjustments to Exercise
Price. If the Company or any Subsidiary thereof, as
applicable, at any time while this Warrant is outstanding, shall
sell or grant any option to purchase, or sell or grant any right to
reprice, or otherwise dispose of or issue (or announce any offer,
sale, grant or any option to purchase or other disposition) any
Common Stock or securities (including but not limited to Common
Stock Equivalents) entitling any person or entity (for purposes of
clarification, including but not limited to the Holder pursuant to
(i) any other security of the Company currently held by Holder,
(ii) any other security of the Company issued to Holder on or after
the Issuance Date, or (iii) any other agreement entered into
between the Company and Holder) to acquire shares of Common Stock
(upon conversion, exercise or otherwise), at an effective price per
share less than the then Exercise Price (such lower price, the
“Base Share Price” and such issuances collectively, a
“Dilutive Issuance”) (if the holder of the Common Stock
or Common Stock Equivalents so issued shall at any time, whether by
operation of purchase price adjustments, elimination of an
applicable floor price for any reason in the future (including but
not limited to the passage of time or satisfaction of certain
condition(s)), reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights
per share which are issued in connection with such issuance, be
entitled or potentially entitled to receive shares of Common Stock
at an effective price per share which is less than the Exercise
Price at any time while such Common Stock or Common Stock
Equivalents are in existence, such issuance shall be deemed to have
occurred for less than the Exercise Price on such date of the
Dilutive Issuance (regardless of whether the Common Stock or Common
Stock Equivalents are (i) subsequently redeemed or retired by the
Company after the date of the Dilutive Issuance or (ii) actually
converted or exercised at such Base Share Price), then the Exercise
Price shall be reduced at the option of the Holder and only reduced
to equal the Base Share Price. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued,
regardless of whether the Common Stock or Common Stock Equivalents
are (i) subsequently redeemed or retired by the Company after the
date of the Dilutive Issuance or (ii) actually converted or
exercised at such Base Share Price by the holder thereof (for the
avoidance of doubt, the Holder may utilize the Base Share Price
even if the Company did not actually issue shares of its common
stock at the Base Share Price under the respective Common stock
Equivalents). The Company shall notify the Holder in writing, no
later than the Trading Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this Section 2(b),
indicating therein the applicable issuance price, or applicable
reset price, exchange price, conversion price and other pricing
terms (such notice the “Dilutive Issuance Notice”). For
purposes of clarification, whether or not the Company provides a
Dilutive Issuance Notice pursuant to this Section 2(b), upon the
occurrence of any Dilutive Issuance, after the date of such
Dilutive Issuance the Holder is entitled to receive the Base Share
Price regardless of whether the Holder accurately refers to the
Base Share Price in the Notice of Exercise. Notwithstanding the
foregoing, no adjustment will be made under this Section 2(b) with
respect to an Exempt Issuance (as defined below). An “Exempt
Issuance” shall mean (i) the issuance of shares of Common
Stock pursuant to the conversion or exercise of Common Stock
Equivalents issued prior to the Issuance Date, so long as the
respective Common Stock Equivalents are not amended on or after
Issuance Date of this Warrant, and (ii) grants or issuances to
officers, directors or employees or other service providers of
Common Stock or Common Stock Equivalents (and the conversion or
exercise thereof) in connection with stockholder approved stock
option, stock, incentive or similar plans.
(c) Subdivision or Combination of Common
Stock. If the Company at any time on or after the Issuance
Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares,
the Exercise Price in effect immediately prior to such subdivision
will be proportionately reduced and the number of Warrant Shares
will be proportionately increased. If the Company at any time on or
after the Issuance Date combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price
in effect immediately prior to such combination will be
proportionately increased and the number of Warrant Shares will be
proportionately decreased. Any adjustment under this Section 2(c)
shall become effective at the close of business on the date the
subdivision or combination becomes effective. Each such adjustment
of the Exercise Price shall be calculated to the nearest
one-hundredth of a cent. Such adjustment shall be made successively
whenever any event covered by this Section 2(c) shall
occur.
3. FUNDAMENTAL TRANSACTIONS. The
Company shall give the Holder written notice at least ten (10)
business days prior to the closing of a merger of the Company with
or into another entity and the Company is not the surviving entity
(such surviving entity, the “Successor Entity”), (ii)
the Company effects any sale of all or substantially all of its
assets in one or a series of related transactions, (iii) any tender
offer or exchange offer (whether by the Company or by another
individual or entity, and approved by the Company) is completed
pursuant to which holders of Common Stock are permitted to tender
or exchange their shares of Common Stock for other securities, cash
or property and the holders of at least 50% of the Common Stock
accept such offer, or (iv) the Company effects any reclassification
of the Common Stock or any compulsory share exchange pursuant to
which the Common Stock is effectively converted into or exchanged
for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock) (in any such
case, a “Fundamental
Transaction”). In such event, notwithstanding any
other provision of this Warrant to the contrary, the Company may
terminate this Warrant in exchange for issuing to the Holder
substitute rights (which may be provided in the purchase or merger
agreement governing the Fundamental Transaction or in a separate
instrument) to receive the Net Economic Benefits (as defined in
this Warrant) of this Warrant. “Net Economic Benefits”
shall mean an amount calculated by deducting the aggregate exercise
price of this Warrant from the aggregate proceeds which would be
payable on account of the Warrant Shares, including any
post-closing payments or adjustments to the consideration received
by the Company or its stockholders, as if this Warrant had been
fully exercised by the Holder immediately before the Fundamental
Transaction (but without requiring such exercise). Such substitute
rights shall provide the Holder the right to receive such Net
Economic Benefits when and as the correlative proceeds in excess of
the aggregate exercise price would become payable on account of the
Warrant Shares. For the avoidance of doubt (i) to the extent the
consideration to be provided in the Fundamental Transaction is a
security that is not listed on a national securities exchange, the
Holder shall be entitled to elect to receive either (1) cash in an
amount equal to the fair market value of the Net Economic Benefits
of this Warrant or (2) an amount of such securities having deal
value equal to the Net Economic Benefits of this Warrant and (ii)
at any time prior to the Fundamental Transaction, the Holder may
exercise this Warrant in accordance with the terms hereof, in which
case such Holder shall be entitled to receive any consideration to
be received by stockholders of the Company in such Fundamental
Transaction.
4. NON-CIRCUMVENTION. The Company
covenants and agrees that it will not, by amendment of its
certificate of incorporation, bylaws or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement,
dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, and will at all times in good faith
carry out all the provisions of this Warrant and take all action as
may be required to protect the rights of the Holder. Without
limiting the generality of the foregoing, the Company (i) shall not
increase the par value of any shares of Common Stock receivable
upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock upon the
exercise of this Warrant, and (iii) shall, for so long as this
Warrant is outstanding, have authorized and reserved, free from
preemptive rights, one (1) times the number of shares of Common
Stock into which the Warrants are then exercisable into to provide
for the exercise of the rights represented by this Warrant (without
regard to any limitations on exercise).
5. WARRANT HOLDER NOT DEEMED A
STOCKHOLDER. Except as otherwise specifically provided
herein, this Warrant, in and of itself, shall not entitle the
Holder to any voting rights or other rights as a stockholder of the
Company. In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on the Holder to purchase any
securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted
by the Company or by creditors of the Company.
6.
REISSUANCE.
(a) Lost, Stolen or Mutilated Warrant. If
this Warrant is lost, stolen, mutilated or destroyed, the Company
will, on such terms as to indemnity or otherwise as it may
reasonably impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof), issue a new Warrant of like
denomination and tenor as this Warrant so lost, stolen, mutilated
or destroyed.
(b) Issuance of New Warrants. Whenever the
Company is required to issue a new Warrant pursuant to the terms of
this Warrant, such new Warrant shall be of like tenor with this
Warrant, and shall have an issuance date, as indicated on the face
of such new Warrant which is the same as the Issuance
Date.
7. TRANSFER. This Warrant shall be
binding upon the Company and its successors and assigns, and shall
inure to be the benefit of the Holder and its successors and
assigns. Notwithstanding anything to the contrary herein, the
rights, interests or obligations of the Company hereunder may not
be assigned, by operation of law or otherwise, in whole or in part,
by the Company without the prior signed written consent of the
Holder, which consent may be withheld at the sole discretion of the
Holder (any such assignment or transfer shall be null and void if
the Company does not obtain the prior signed written consent of the
Holder). This Warrant or any of the severable rights and
obligations inuring to the benefit of or to be performed by Holder
hereunder may be assigned by Holder to a third party, in whole or
in part, without the need to obtain the Company’s consent
thereto.
8. NOTICES. Whenever notice is
required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with the notice
provisions contained in the Finder’s Fee Agreement. The
Company shall provide the Holder with prompt written notice (i)
immediately upon any adjustment of the Exercise Price, setting
forth in reasonable detail, the calculation of such adjustment and
(ii) at least 10 days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or
distribution upon the shares of Common Stock, (B) with respect to
any grants, issuances or sales of any stock or other securities
directly or indirectly convertible into or exercisable or
exchangeable for shares of Common Stock or other property, pro rata
to the holders of shares of Common Stock or (C) for determining
rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in
conjunction with such notice being provided to the
Holder.
9. AMENDMENT AND WAIVER. The terms
of this Warrant may be amended or waived (either generally or in a
particular instance and either retroactively or prospectively) only
with the written consent of the Company and the
Holder.
10. GOVERNING LAW AND VENUE. This
Warrant shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to principles of
conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Warrant
shall be brought only in the state courts located in the State of
Delaware or federal courts located in the State of Delaware. The
parties to this Warrant hereby irrevocably waive any objection to
jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or
based upon forum non
conveniens. EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT
TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT ENTERED INTO IN
CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION
CONTEMPLATED HEREBY OR THEREBY. The prevailing party shall
be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this
Warrant or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision of any
agreement. Each party hereby irrevocably waives personal service of
process and consents to process being served in any suit, action or
proceeding in connection with this Warrant or any other transaction
document entered into in connection with this Warrant by mailing a
copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect
for notices to it under the Finder’s Fee Agreement and agrees
that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be
deemed to limit in any way any right to serve process in any other
manner permitted by law.
11. ACCEPTANCE. Receipt
of this Warrant by the Holder shall constitute acceptance of and
agreement to all of the terms and conditions contained
herein.
12. CERTAIN DEFINITIONS. For
purposes of this Warrant, the following terms shall have the
following meanings:
(a)
[Intentionally
Omitted].
(b) “Closing Sale Price”
means, for any security as of any date, (i) the last closing trade
price for such security on the Principal Market, as reported by
Quotestream or other similar quotation service provider designated
by the Holder, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing trade
price, then the last trade price of such security prior to 4:00
p.m., New York time, as reported by Quotestream or other similar
quotation service provider designated by the Holder, or (ii) if the
foregoing does not apply, the last trade price of such security in
the over-the-counter market for such security as reported by
Quotestream or other similar quotation service provider designated
by the Holder, or (iii) if no last trade price is reported for such
security by Quotestream or other similar quotation service provider
designated by the Holder, the average of the bid and ask prices of
any market makers for such security as reported by Quotestream or
other similar quotation service provider designated by the Holder.
If the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Sale
Price of such security on such date shall be the fair market value
as mutually determined by the Company and the Holder. All such
determinations to be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during
the applicable calculation period.
(c) “Common Stock” means the
Company’s common stock, par value $0.001, and any other class
of securities into which such securities may hereafter be
reclassified or changed.
(d) “Common Stock Equivalents”
means any securities of the Company that would entitle the holder
thereof to acquire at any time Common Stock, including without
limitation any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
(e)
[Intentionally
Omitted].
(f) “Person” and
“Persons” means an
individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization,
any other entity and any governmental entity or any department or
agency thereof.
(g) “Principal Market” means
the principal securities exchange or trading market where such
Common Stock is listed or quoted, including but not limited to any
tier of the OTC Markets, any tier of the NASDAQ Stock Market
(including NASDAQ Capital Market), or the NYSE American, or any
successor to such markets.
(h) “Market Price” means the
highest traded price of the Common Stock during the one hundred and
fifty Trading Days prior to the date of the respective Exercise
Notice.
(i) “Trading Day” means any
day on which the Common Stock is listed or quoted on its Principal
Market, provided, however, that if the Common Stock is not then
listed or quoted on any Principal Market, then any calendar
day.
* * * *
* * *
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed as of the Issuance Date set forth above.
INFINITE
GROUP, INC.
/s/
James Villa
______________________________
Name:
James Villa
Title:
Chief Executive Officer
10551664_1
EXHIBIT A
EXERCISE
NOTICE
(To be
executed by the registered holder to exercise this Common Stock
Purchase Warrant)
THE UNDERSIGNED holder hereby exercises the
right to
purchase of
the shares of Common Stock (“Warrant Shares”) of
INFINITE GROUP, INC., a Delaware corporation (the
“Company”), evidenced by the attached copy of the
Common Stock Purchase Warrant (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Warrant.
1.
Form of Exercise Price. The
Holder intends that payment of the Exercise Price shall be made as
(check one):
a cash exercise
with respect
to Warrant
Shares; or
by cashless
exercise pursuant to the Warrant.
2.
Payment of Exercise Price. If
cash exercise is selected above, the holder shall pay the
applicable Aggregate Exercise Price in the sum of $ to the
Company in accordance with the terms of the Warrant.
3.
Delivery of Warrant Shares. The
Company shall deliver to the
holder Warrant
Shares in accordance with the terms of the Warrant.
Date:
(Print
Name of Registered Holder)
By:
Name:
Title:
10551664_1
EXHIBIT B
ASSIGNMENT
OF WARRANT
(To be
signed only upon authorized transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns, and transfers unto
the right to
purchase
shares of common
stock of INFINITE GROUP, INC., to which the within Common Stock
Purchase Warrant relates and appoints, as attorney-in-fact, to
transfer said right on the books of INFINITE GROUP, INC. with full
power of substitution and re-substitution in the premises. By
accepting such transfer, the transferee has agreed to be bound in
all respects by the terms and conditions of the within
Warrant.
Dated:
(Signature)
*
(Name)
(Address)
(Social
Security or Tax Identification No.)
* The
signature on this Assignment of Warrant must correspond to the name
as written upon the face of the Common Stock Purchase Warrant in
every particular without alteration or enlargement or any change
whatsoever. When signing on behalf of a corporation, partnership,
trust or other entity, please indicate your position(s) and
title(s) with such entity.
Exhibit 10.5
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this “Agreement”),
is made and entered into as of November 2, 2021 (the
“Effective
Date”), by and between Infinite Group, Inc., a
Delaware corporation (the “Company”), and Richard
Popper (the “Purchaser”).
WHEREAS, the
Purchaser loaned the Company and aggregate of $150,000 as evidenced
by that certain demand note (the “Note”) dated as of
October 28, 2021 issued by the Company for the benefit of
Purchaser, and the Purchaser desires to purchase from the Company,
and the Company desires to sell and issue to the Purchaser,
1,000,000 shares (the “Securities”) of common
stock, par value $0.001 per share, of the Company in exchange for
the conversion and cancellation of an aggregate of $100,000
principal amount of the Note, subject to the terms and conditions
of this Agreement.
NOW, THEREFORE, in consideration of the
foregoing and the mutual and dependent covenants hereinafter set
forth, the parties agree as follows:
1. Purchase and
Sale. Subject to the terms and conditions of this Agreement,
on the Effective Date, the Purchaser shall purchase from the
Company, and the Company shall sell and issue to the Purchaser the
Securities. Payment for the Securities shall be made by converting
and cancelling $100,000 of principal of the Note.
2. Effective
Date. The purchase and sale of the Securities shall take
place on the Effective Date. On the Effective Date, the Company
shall register the Securities in the Purchaser’s name on the
books of the Company, against delivery to the Company of the
original Note for conversion and cancellation, whereupon the
Company shall issue to the Purchaser a new note for the balance of
the remaining principal amount of the Note.
3. Representations and
Warranties of the Purchaser. The Purchaser represents and
warrants to the Company as of the Effective Date as
follows:
(a) Authority; Enforceability. This
Agreement has been duly executed and delivered by the Purchaser,
and this Agreement constitutes the legal, valid and binding
obligations of the Purchaser, enforceable against the Purchaser in
accordance with its terms, except as such enforcement shall be
limited by bankruptcy, insolvency, moratorium or similar law
affecting creditors’ rights generally and subject to general
principles of equity.
(b) No Conflict. The execution and
delivery by the Purchaser of this Agreement does not, and the
consummation by the Purchaser of the transactions contemplated
hereby and thereby will not (with or without the giving of notice
or the lapse of time or both), contravene, conflict with or result
in a breach or violation of, or a default under, (i) in any material respects, any
judgment, order, decree, statute, rule, regulation or other law
applicable to the Purchaser or (ii) in any material respects, any
contract, agreement or instrument by which the Purchaser is bound.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality,
domestic or foreign, is required by or with respect to the
Purchaser in connection with the execution and delivery by the
Purchaser of this Agreement or the consummation by the Purchaser of
the transactions contemplated hereby or thereby.
(c) Access to and Evaluation of
Information Concerning the Company; General Solicitation.
The Purchaser has:
(i) such knowledge,
sophistication and experience in business and financial matters so
as to be capable of evaluating the merits and risks of purchasing
the Securities, including the risk that the Purchaser could lose
the entire value of the Securities, and has so evaluated the merits
and risks of such purchase;
(ii) been
given access to and an opportunity to examine such documents,
materials and information concerning the Company as the Purchaser
deems to be necessary or advisable in order to reach an informed
decision as to an investment in the Company, to the extent that the
Company possesses such information, has carefully reviewed and
understands these materials and has had answered to the
Purchaser’s full satisfaction any and all questions regarding
such information;
(iii) made
such independent investigation of the Company, its management, and
related matters as the Purchaser deems to be necessary or advisable
in connection with the purchase of the Securities, and is able to
bear the economic and financial risk of purchasing the Securities
(including the risk that the Purchaser could lose the entire value
of the Securities); and
(iv) not
been offered the Securities by any means of general solicitation or
general advertising.
(d) Accredited Investor; No Public
Distribution Intent. The Purchaser is:
(i) an
“accredited investor” as defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as
amended (the “Securities
Act”); and
(ii) purchasing
the Securities for the Purchaser’s own benefit and account
for investment only and not with a view to, or for resale in
connection with, a public offering or distribution
thereof.
4. Acknowledgements
and Agreements of the Purchaser. The Purchaser acknowledges
and agrees as follows:
(a) No Registration. The Securities
have not been registered under the Securities Act or the securities
laws of any other jurisdiction and the offer and sale of the
Securities are being made in reliance on one or more exemptions for
private offerings under Section 4(a)(2) of the Securities Act and
applicable securities laws. Accordingly, no transfer of any of the
Securities is permitted unless such transfer is registered under
the Securities Act and other applicable securities laws, or an
exemption from such registration is available.
(b) Transfer Restrictions. The
Securities are subject to the restrictions on transfer.
Accordingly, no transfer of any of the Securities is permitted
unless such transfer complies with the transfer restrictions
provided for herein or under the Securities Act or other applicable
securities laws. In addition, any certificate representing the
Securities, if any, will bear a restrictive legend.
(c) Disclosure. Other than the
representations and warranties of the Company set forth in
Section 6 of this
Agreement, neither the Company nor any other individual,
corporation, partnership, association, limited liability company,
trust, unincorporated organization, other entity or group (as group
is defined in Section 13(d)(3) of the Securities Exchange Act of
1934, as amended) (each, a “Person”) makes any
representation or warranty, expressed or implied, as to the
accuracy or completeness of the information provided or to be
provided to the Purchaser by or on behalf of the Company or related
to the transactions contemplated hereby, and nothing contained in
any documents provided or statements made by or on behalf of the
Company to the Purchaser is, or shall be relied upon as, a promise
or representation by the Company or any other Person that any such
information is accurate or complete.
5. Representations and
Warranties of the Company. The Company represents and
warrants to the Purchaser as of the Effective Date as
follows:
(a) Organization and Standing. The
Company is duly formed, validly existing and in good standing under
the laws of the state of Delaware. The Company has all requisite
power and authority to own, license and operate its properties, to
carry on its business as now conducted and as proposed to be
conducted and to execute and deliver this Agreement and to perform
its obligations hereunder and thereunder.
(b) Authority. The execution and
delivery by the Company of this Agreement and the consummation by
the Company of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Company. This
Agreement has been duly executed and delivered by the Company, and
this Agreement constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with
its terms, except as such enforcement shall be limited by
bankruptcy, insolvency, moratorium or similar law affecting
creditors’ rights generally and subject to general principles
of equity.
(c) Validity of Securities. Prior
to the Effective Date, the Securities will have been duly
authorized and, when issued and paid for in accordance with the
terms of this Agreement, will be validly issued to the Purchaser
free of any liens, claims or other encumbrances, except for
restrictions on transfer provided for herein or under the
Securities Act or other applicable securities laws.
6. Survival of
Representations and Warranties and Acknowledgements and
Agreements. All representations and warranties and
acknowledgements and agreements contained herein shall survive the
execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, regardless of any
investigation made by any party or on its behalf.
7. Notices. All
notices, requests, consents, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to
have been given (a) when delivered by hand (with written
confirmation of receipt); (b) when received by the addressee if
sent by a nationally recognized overnight courier (receipt
requested); (c) on the date sent by e-mail of a PDF document if
sent during normal business hours of the recipient, and on the next
business day if sent after normal business hours of the recipient;
or (d) on the third day after the date mailed, by certified or
registered mail, return receipt requested, postage
prepaid.
8. Entire
Agreement. This Agreement constitutes the sole and entire
agreement of the parties to this Agreement with respect to the
subject matter contained herein, and supersedes all prior and
contemporaneous understandings and agreements, both written and
oral, with respect to such subject matter.
9. Successor and
Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors and permitted assigns. However, neither this Agreement
nor any of the rights of the parties hereunder may otherwise be
transferred or assigned by any party hereto without the prior
written consent of the other party. Any attempted transfer or
assignment in violation of this Section 9 shall be
void.
10. No Third-Party
Beneficiaries. This Agreement is for the sole benefit of the
parties hereto and their respective successors and permitted
assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right,
benefit or remedy of any nature whatsoever, under or by reason of
this Agreement.
11. Headings.
The headings in this Agreement are for reference only and shall not
affect the interpretation of this Agreement.
12. Amendment and
Modification; Waiver. This Agreement may only be amended,
modified or supplemented by an agreement in writing signed by each
party hereto. No waiver by any party of any of the provisions
hereof shall be effective unless explicitly set forth in writing
and signed by the party so waiving. No waiver by any party shall
operate or be construed as a waiver in respect of any failure,
breach or default not expressly identified by such written waiver,
whether of a similar or different character, and whether occurring
before or after that waiver. No failure to exercise, or delay in
exercising, any rights, remedy, power or privilege arising from
this Agreement shall operate or be construed as a waiver thereof;
nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or
privilege.
13. Severability.
If any term or provision of this Agreement is invalid, illegal or
unenforceable in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other term or provision of
this Agreement or invalidate or render unenforceable such term or
provision in any other jurisdiction.
14. Governing Law;
Submission to Jurisdiction. This Agreement shall be governed
by and construed in accordance with the internal laws of the State
of New York without giving effect to any choice or conflict of law
provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of laws of any
jurisdiction other than those of the State of New York. Any legal
suit, action or proceeding arising out of or based upon this
Agreement or the transactions contemplated hereby may be instituted
in the federal courts of the United States of America or the courts
of the State of New York in each case located in the State of New
York, and each party irrevocably submits to the exclusive
jurisdiction of such courts in any such suit, action or proceeding.
Service of process, summons, notice or other document by certified
or registered mail to such party’s address set forth herein
shall be effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any
suit, action or any proceeding in such courts and irrevocably waive
and agree not to plead or claim in any such court that any such
suit, action or proceeding brought in any such court has been
brought in an inconvenient forum.
15. Waiver of Jury
Trial. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
16. Counterparts.
This Agreement may be executed in counterparts, each of which shall
be deemed an original, but all of which together shall be deemed to
be one and the same agreement. A signed copy of this Agreement
delivered by facsimile, e-mail or other means of electronic
transmission shall be deemed to have the same legal effect as
delivery of an original signed copy of this Agreement.
17. No Strict
Construction. This Agreement shall be construed without
regard to any presumption or rule requiring construction or
interpretation against the party drafting an instrument or causing
any instrument to be drafted.
[Signature
page follows.]
IN
WITNESS WHEREOF, the parties hereto have executed this Subscription
Agreement on the date first written above.
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COMPANY:
INFINITE
GROUP, INC.
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/s/ James Villa
By:
Name:
James Villa Title: Chief Executive Officer
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Address
for Notices:
175
Sully’s Trail, Suite 202
_______________________________
Pittsford,
NY 14534
_______________________________
_______________________________
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PURCHASER:
/s/ Richard Popper
______________________________________
Name: Richard
Popper
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Address
for Notices:
175
Sully’s Trail, Suite 202
_______________________________
Pittsford,
NY 14534
_______________________________
_______________________________
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