SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, For Use
of the Commission
Only (as permitted by
Rule 14a-6(e)(2)
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-(11(c) or Rule 14a-12
INFINITE GROUP, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Name of Person(s) Filing Proxy Statement, if other than the registrant)
------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
|X| No Fee required
December 16, 2005
Dear Stockholder:
You are invited to attend the Annual Meeting of Stockholders of Infinite
Group, Inc. to be held on Friday, January 13, 2006 at 10:00 a.m., Pacific Time,
at One America Plaza, 600 West Broadway, Second Floor, San Diego, CA 92101.
At this year's meeting you will be asked to elect three directors;
consider and approve the Infinite Group, Inc. 2005 Stock Option Plan; amend
Infinite Group's Certificate of Incorporation to increase the number of
authorized shares of common stock from 20,000,000 to 60,000,000; and ratify the
selection of the Company's independent auditors. The accompanying Notice of
Meeting and Proxy Statement describe these proposals. We urge you to read this
information carefully.
Your Board of Directors unanimously believes that the election of its
nominees for directorships, the approval of our 2005 Stock Option Plan, the
increase in the number of authorized shares of common stock and the ratification
of its selection of independent auditors are in the best interests of Infinite
Group and its stockholders and, accordingly, recommends a vote FOR the election
of the nominees for director and FOR proposals 2, 3 and 4.
In addition to the formal business to be transacted at the Annual Meeting,
management will make a presentation on developments of the past year and respond
to comments and questions of general interest to stockholders. I personally look
forward to greeting those Infinite Group stockholders able to attend the
meeting.
Whether or not you plan to attend the Annual Meeting in person, it is
important that your shares are represented. Therefore, please promptly complete,
sign, date, and return the enclosed proxy card in the accompanying envelope,
which requires no postage if mailed in the United States. You are, of course,
welcome to attend the Annual Meeting and vote in person even if you previously
returned your proxy card.
Thank you.
Sincerely,
Michael S. Smith
President and Chief Executive Officer
INFINITE GROUP, INC.
595 Blossom Road, Suite 309
Rochester, NY 14610
(585) 654-5525
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 13, 2006
------------------------
To the Stockholders of Infinite Group, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Infinite
Group, Inc. ("Infinite Group") will be held at One America Plaza, 600 West
Broadway, Second Floor, San Diego, CA 92101 on January 13, 2006, at 10:00 a.m.,
Pacific Time, for the following purposes:
1. To elect three directors, each to serve for a term of one year.
2. To consider and approve the Infinite Group, Inc. 2005 Stock Option
Plan.
3. To amend Infinite Group's Certificate of Incorporation to increase
the number of shares of authorized common stock from 20,000,000 to
60,000,000.
4. To ratify the appointment of Freed Maxick & Battaglia, CPAs, P.C. as
Infinite Group's independent auditors for the fiscal years 2002,
2003, 2004 and 2005.
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only the stockholders of record at the close of business on December 12,
2005 are entitled to notice of and to vote at the Annual Meeting and any
adjournments or postponements thereof.
All stockholders are cordially invited to attend the meeting. Whether or
not you expect to attend, you are requested to sign, date and return the
enclosed proxy promptly. Stockholders who execute proxies retain the right to
revoke them at any time prior to the voting thereof. A return envelope, which
requires no postage if mailed in the United States, is enclosed for your
convenience.
By Order of the Board of Directors
/s/ Deanna Wohlschlegel
Deanna Wohlschlegel, Secretary
Dated: December 16, 2005
1
INFINITE GROUP, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Infinite Group, Inc., a Delaware corporation ("Infinite
Group"), of proxies in the form enclosed for the Annual Meeting of Stockholders
("Annual Meeting") to be held at One America Plaza, 600 West Broadway, Second
Floor, San Diego, CA 92101 on January 13, 2006, at 10:00 a.m., Pacific Time, and
for any adjournments or postponements thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. The approximate date on
which this statement and the accompanying proxy will be mailed to stockholders
is December 16, 2005.
Record Date and Quorum
Only stockholders of record at the close of business on December 12, 2005 (the
"Record Date"), are entitled to notice of and vote at the Annual Meeting. On the
Record Date, there were 19,206,965 shares of common stock, par value $.001 per
share, outstanding ("Common Stock"). At the Annual Meeting, each share of Common
Stock is entitled to one vote. Shares represented by each properly executed,
unrevoked proxy received in time for the meeting will be voted as specified.
Voting of Proxies
The persons acting as proxies pursuant to the enclosed proxy will vote the
shares represented as directed in the signed proxy. Unless otherwise directed in
the proxy, the proxyholders will vote the shares represented by the proxy: (i)
for election of the director nominees named in this Proxy Statement; (ii) for
approval of the Infinite Group 2005 Stock Option Plan ("2005 Plan"); (iii) for
amendment of the Certificate of Incorporation to increase the number of
authorized shares from 20,000,000 to 60,000,000 shares; (iv) for ratification of
the appointment of Freed Maxick & Battaglia, CPAs, P.C. as independent auditors
to audit the financial statements of Infinite Group for the fiscal years 2002,
2003, 2004 and 2005; and (v) in the proxyholders' discretion, on any other
business that may come before the meeting and any adjournments of the meeting.
All votes will be tabulated by the inspector of election appointed for the
Annual Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Under Infinite Group's bylaws and Delaware
law: (1) shares represented by proxies that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee that are represented at the
meeting, but with respect to which such broker or nominee is not empowered to
vote on a particular proposal) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum; (2) there
is no cumulative voting, and the director nominees receiving the highest number
of votes, up to the number of directors to be elected, are elected and,
accordingly, abstentions, broker non-votes and withholding of authority to vote
will not affect the election of directors; and (3) proxies that reflect
abstentions or non-votes will be treated as unvoted for purposes of determining
approval of that proposal and will not be counted as votes for or against that
proposal.
2
Voting Requirements
Directors are elected by a plurality of the votes cast at the meeting. The
affirmative vote of a majority of votes cast for or against the matter by
stockholders entitled to vote is required to approve the 2005 Plan and to ratify
the appointment of independent auditors. Approval of the proposed amendment to
the certificate of incorporation to increase the number of shares of authorized
common stock to 60,000,000 requires the affirmative vote of a majority of all
outstanding shares of common stock.
Revocability of Proxy
A proxy may be revoked by the stockholder giving the proxy at any time before it
is voted by delivering oral or written notice to the Secretary of Infinite Group
at or prior to the meeting, and a prior proxy is automatically revoked by a
stockholder giving a subsequent proxy or attending and voting at the meeting.
Attendance at the meeting in and of itself does not revoke a prior proxy.
Expenses of Solicitation
We will pay the expenses of the preparation of proxy materials and the
solicitation of proxies for the Annual Meeting. In addition to the solicitation
of proxies by mail, solicitation may be made by certain directors, officers or
employees of Infinite Group telephonically, electronically or by other means of
communication. We will reimburse brokers and other nominees for costs incurred
by them in mailing proxy materials to beneficial owners in accordance with
applicable rules.
Communications with our Board
Our stockholders may contact our Board or a specified individual director by
writing to the Corporate Secretary, Infinite Group, Inc., 595 Blossom Road,
Suite 309, Rochester, NY 14610. The Corporate Secretary shall forward all such
communications (excluding routine advertisements, business solicitations and
communications that he or she, in his or her sole discretion, deems to be a
security risk or for harassment purposes) to each member of our board of
directors, or, if applicable, to the individual director(s) named in the
correspondence with a courtesy copy to the chairman of our board of directors.
It is Infinite Group's policy that directors are invited and encouraged to
attend the Annual Meeting. All of our then directors attended our last annual
meeting.
Board of Directors Meetings and Committees
During the year-ended December 31, 2004, the Board held two meetings, the Audit
Committee two meetings, and the Compensation Committee one meeting. All
directors attended more than 75% of the number of meetings of the Board and its
committees on which they served.
Compensation Committee
The Compensation Committee reviews and recommends to the Board the compensation
and benefits of all officers of Infinite Group, reviews general policy matters
relating to compensation and benefits of employees of Infinite Group, and
administers the issuance of stock options to Infinite Group's officers,
employees, directors and consultants. The Compensation Committee is comprised of
Paul J. Delmore and Dr. Allan M. Robbins.
3
Audit Committee
The Audit Committee was established to meet with management and our independent
accountants to determine the adequacy of internal controls and other financial
reporting matters. The Board has adopted a written charter for the Audit
Committee. The Audit Committee is comprised of Paul J. Delmore and Dr. Allan M.
Robbins, both of whom are "independent" (as defined in under Rule 4200(a)(15) of
the National Association of Securities Dealers ("NASD") listing standards).
During our most recent fiscal year, Paul J. Delmore, Chairman of the Audit
Committee, was the "audit committee financial expert" as such term is defined in
Item 401(e)(1) of Regulation S-B.
The Audit Committee Charter is annexed as Appendix I to this proxy statement.
Nominating Committee
We do not have a standing nominating committee. The functions of a nominating
committee are currently performed by the Board. In the event that we expand our
Board in the future we will consider establishing a nominating committee and
adopting a charter for such a committee.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of
our common stock as of October 1, 2005 by:
o each person known to us to be the beneficial owner of more than 5%
of our outstanding shares;
o each of our directors;
o each executive officer named in the Summary Compensation Table
below;
o all of our directors and executive officers as a group.
Except as otherwise indicated, the persons listed below have sole voting and
investment power with respect to all shares of common stock owned by them. All
information with respect to beneficial ownership has been furnished to us by the
respective stockholder. The address of record of each individual listed in this
table, except if set forth below, is c/o Infinite Group, Inc., 595 Blossom Road,
Suite 309, Rochester, NY 14610.
Shares of
Common Stock
Beneficially Percentage of
Name of Beneficial Owner (1) Owned (2) Ownership
--------------------------------------------------- ------------- -------------
Michael S. Smith 1,516,500(4) 6.7%
Paul J. Delmore 4,884,500(5) 21.6%
Allan M. Robbins 57,500(6) *
James D. Frost 2,000,000(7) 8.8%
William J. Carroll 794,900(8) 3.5%
All Directors and Officers (5 persons) as a group 9,253,400(3) 40.9%
5% Stockholders
David N. Slavny Family Trust
20 Cobble Creek Road
Victor, NY 14564 1,100,000 5.7%
Clifford G. Brockmyre (9)
c/o Laser Fare, Inc.
One Industrial Drive South
Smithfield, RI 02917 1,047,463 5.5%
---------------
* less than 1%
4
(1) Pursuant to the rules of the Securities and Exchange Commission, shares of
common stock which an individual or group has a right to acquire within 60
days from October 1, 2005 pursuant to the exercise of options or warrants
or upon the conversion of securities are deemed to be outstanding for the
purpose of computing the percent of ownership of such individual or group,
but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table. On October 1,
2005, the Company had 19,206,965 shares of common stock outstanding.
(2) Assumes that all currently exercisable options or warrants or convertible
notes owned by the individual have been exercised.
(3) Assumes that all currently exercisable options or warrants owned by
members of the group have been exercised.
(4) Includes 526,500 shares subject to currently exercisable options and
500,000 shares subject to currently exercisable options which are subject
to shareholder ratification.
(5) Includes (i) 4,827,000 shares owned of record by Upstate Holding Group,
LLC, an entity wholly-owned by Mr. Delmore, (ii) 7,500 shares subject to
currently exercisable options and (iii) 50,000 shares subject to currently
exercisable options which are subject to shareholder ratification.
(6) Includes 7,500 shares subject to currently exercisable options and 50,000
shares subject to currently exercisable options which are subject to
shareholder ratification.
(7) Includes 500,000 shares subject to currently exercisable options and
1,000,000 shares subject to currently exercisable options which are
subject to shareholder ratification.
(8) Includes 794,900 shares subject to currently exercisable options which are
subject to shareholder ratification.
(9) Includes 20,000 shares owned by Mr. Brockmyre's wife as to which shares
Mr. Brockmyre disclaims beneficial ownership. The information with respect
to this stockholder was derived from his Officers and Directors
Questionnaire.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and
persons who own more than ten percent of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than ten-percent stockholders are required by
SEC regulation to furnish us with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to us, or written
representations that no Forms 5 were required, we believe that all Section 16(a)
filing requirements applicable to our officers and directors were complied with
during the year ended December 31, 2004, with the following exceptions: Allan M.
Robbins, James D. Frost, Michael S. Smith, William J. Carroll, Paul J. Delmore
and Upstate Holdings, LLC did not timely file their respective Annual Change in
Beneficial Ownership of Securities on Form 5. With respect to any former
directors, officers, and ten percent (10%) stockholders of Infinite Group,
Infinite Group does not have any knowledge of any known failures to comply with
the filing requirements of Section 16(a).
5
PROPOSAL NO. 1
ELECTION OF DIRECTORS
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
At this meeting three (3) directors are to be elected to serve for one-year
terms, each to hold office until his successor is duly elected and qualified.
The following nominees were selected by the Board of Directors of Infinite Group
(the "Board") and are all currently Directors:
Michael S. Smith
Paul J. Delmore
Allan M. Robbins
It is not contemplated that any nominee will be unable to serve as a director,
but if such contingency should occur prior to the meeting, the persons named as
proxies in the enclosed proxy or their substitutes will have the right to vote
for substitute nominees. Mr. Smith is also an officer of Infinite Group. Certain
information with respect to each nominee is stated below.
Our executive officers and directors and their respective ages, as of the Record
Date, are as follows:
Affiliated
Name Age Position Since
--------------------------- ------- --------------------------------------- -------------
Michael S. Smith 51 Chairman, President, Chief Executive 1995
Officer and Chief Financial Officer
Paul J. Delmore (1) 49 Director 2003
Allan M. Robbins (1) 54 Director 2003
James D. Frost 56 Chief Technology Officer 2003
William J. Carroll 56 Sr. VP, Federal Operations 2005
Deanna Wohlschlegel 34 Secretary 2003
(1) Members of the compensation and the audit committees of the Board.
The principal occupation of each of our directors and executive officers
for at least the past five years is as follows:
Michael S. Smith became a director in 1995 and assumed the positions of
chairman, president, chief executive officer and chief financial officer in
January 2003. Before joining us, Mr. Smith co-founded and served as the
president and chief executive officer of Micropub Systems International Inc., a
brewery system manufacturer, from July 1997 to January 2003. Mr. Smith holds a
BA degree from Cornell University and a JD degree from Cornell University School
of Law.
6
Paul J. Delmore became a director in April 2003 and is a member of the
audit and compensation committees. Mr. Delmore is a Managing Partner of Simpson,
Delmore, Greene LLP, a full service law firm located in San Diego, California.
Mr. Delmore's practice includes representation of small companies, private and
public, with respect to early formation issues, private placements, regulatory
requirements for sale of securities, assistance with regulatory filing concerns
and mergers and acquisitions. Mr. Delmore has a BA degree from the State
University of New York at Oswego and a JD degree from the University of San
Diego School of Law. Mr. Delmore is a member of the State Bar of California, the
San Diego County Bar Association, the Association of Southern California Defense
Counsel and the San Diego Defense Lawyers Association.
Dr. Allan M. Robbins became a director in April 2003 and is a member of
the audit and compensation committees. Dr. Robbins is the Medical Director and
Chief Surgeon at Robbins Eye Associates and Robbins Laser Site in Rochester, New
York. He has also served as the CEO of the Genesee Valley Eye Institute. Dr.
Robbins is a board-certified ophthalmologist and completed his fellowship
training at the University of Rochester. Dr. Robbins has been recognized and
received the AMA Commendation for Continuing Medical Education as well as the
Americas Top Ophthalmologists 2002-2003 Award from the Consumers Research
Council of America. Dr. Robbins is a member of the New York State Medical
Society, New York State Ophthalmologist Society, American Academy of
Ophthalmology, American College of Surgeons, International Society of Refractive
Surgery (ISRS), and the American Society of Cataract and Refractive Surgery
(ASCRS). Dr. Robbins was on the Scientific Advisory Council for Phoenix Laser
and a principal clinical investigator for the VISX laser during the FDA clinical
trials.
James D. Frost has been our chief technology officer since 2003. Mr. Frost
is a Professional Engineer possessing over 25 years of experience at senior and
executive levels in information technology, engineering, and environmental
business units. Prior to joining us, Mr. Frost was the practice director for
Ciber, Inc. where he was responsible for managing the technical IT practice for
the federal systems division and the commercial division for the mid-atlantic
region. Mr. Frost also led the business process re-engineering and start-up
operations for multiple small business enterprises. He has served as the
operations manager for ABB Environmental Services, and the deputy program
manager and section head at Lee Wan & Associates in Oak Ridge, Tennessee. Mr.
Frost has also served 20 years in the United States Navy as a Navy Civil
Engineer Corps Officer.
William J. Carroll has been our Senior Vice President, Federal Operations
since May 2005. Prior to joining us, Mr. Carroll was the director of business
development for the federal civilian team at EMC(2) since June 2004. While with
EMC(2), Mr. Carroll was instrumental in introducing a number of major
opportunities with the Department of Homeland Security, the Department of
Justice and the Department of Transportation. He also held, and continues to
hold, key leadership positions with several industry associations. Prior to
joining EMC(2), Mr. Carroll led a distinguished 27-year career with the U.S.
Immigration and Naturalization Service culminating with his appointment to
District Director, Washington, D.C. District.
Deanna Wohlschlegel has been our corporate secretary and controller since
May 2003. Prior to that Ms. Wohlschlegel was corporate controller for Micropub
Systems International, Inc. from January 1999 until joining Infinite Group. She
has an associates degree in accounting from Finger Lakes Community College.
All directors hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified. Officers are elected
to serve, subject to the discretion of the Board, until their successors are
appointed. All of the nominees have been approved, recommended and nominated for
re-election to the Board by the Board.
7
There are no family relationships among the director nominees or among our
executive officers.
The Board Recommends a
Vote FOR the Election of the Foregoing Nominees and
Proxies that are Returned will be so Voted
Unless Otherwise Instructed.
* * * * *
PROPOSAL NO. 2
APPROVAL OF THE INFINITE GROUP, INC.
2005 STOCK OPTION PLAN
The Board adopted the 2005 Plan, subject to stockholder approval, which provides
for the grant to our employees, directors and consultants of incentive and
non-qualified stock options to purchase 4,000,000 shares of Common Stock.
The purpose of the 2005 Plan is to provide incentives to employees, directors
and consultants whose performance will contribute to our long-term success and
growth, to strengthen Infinite Group's ability to attract and retain employees,
directors and consultants of high competence, to increase the identity of
interests of such people with those of its stockholders and to help build
loyalty to Infinite Group through recognition and the opportunity for stock
ownership. The Compensation Committee of the Board will administer the 2005
Plan.
The following description of the 2005 Plan is a summary and is qualified in its
entirety by reference to the 2005 Plan, a copy of which is annexed as Appendix
II to this proxy statement.
Eligibility
Under the 2005 Plan, incentive stock options may be granted only to employees
and non-qualified stock options may be granted to employees, directors and
consultants. The 2005 Plan will expire 10 years from the date of stockholder
approval.
Terms of Options
The 2005 Plan permits the granting of both incentive stock options and
nonqualified stock options. Generally, the option price of both incentive stock
options and non-qualified stock options must be at least equal to 100% of the
fair market value of the shares on the date of grant. The maximum term of each
option is ten years. For any participant who owns shares possessing more than
10% of the voting rights of Infinite Group's outstanding shares of Common Stock,
the exercise price of any incentive stock option must be at least equal to 110%
of the fair market value of the shares subject to such option on the date of
grant and the term of the option may not be longer than five years. Options
become exercisable at such time or times as the Compensation Committee may
determine at the time it grants options.
8
Federal Income Tax Consequences
Non-qualified Stock Options. The grant of non-qualified stock options will
have no immediate tax consequences to Infinite Group or the grantee. The
exercise of a non-qualified stock option will require a recipient to include in
his gross income the amount by which the fair market value of the acquired
shares on the exercise date (or the date on which any substantial risk of
forfeiture lapses) exceeds the option price. Upon a subsequent sale or taxable
exchange of the shares acquired upon exercise of a non-qualified stock option, a
recipient will recognize long or short-term capital gain or loss equal to the
difference between the amount realized on the sale and the tax basis of such
shares. Infinite Group will be entitled (provided applicable withholding
requirements are met) to a deduction for Federal income tax purposes at the same
time and in the same amount as the recipient is in receipt of income in
connection with the exercise of a non-qualified stock option.
Incentive Stock Options. The grant of an incentive stock option will have
no immediate tax consequences to Infinite Group or its employee. If the employee
exercises an incentive stock option and does not dispose of the acquired shares
within two years after the grant of the incentive stock option nor within one
year after the date of the transfer of such shares to him (a "disqualifying
disposition"), he will realize no compensation income and any gain or loss that
he realizes on a subsequent disposition of such shares will be treated as a
long-term capital gain or loss. For purposes of calculating the employee's
alternative minimum taxable income, however, the option will be taxed as if it
were a non-qualified stock option.
Equity Compensation Plan Information
Securities Authorized for Issuance Under Equity Compensation Plans
We have stock option plans, which were adopted by our Board and approved by our
stockholders, covering an aggregate of 1,840,000 unexercised shares of our
Common Stock at October 1, 2005, consisting of both incentive stock options
within the meaning of Section 422 of the United States Internal Revenue Code of
1986 (the Code) and non-qualified options. The option plans are intended to
qualify under Rule 16b-3 of the Securities Exchange Act of 1934. Incentive stock
options are issuable only to our employees, while non-qualified options may be
issued to non-employees, consultants, and others, as well as to employees. We
also have a stock option plan which was adopted by our Board in March 2005,
which has not yet been approved or ratified by our stockholders, covering an
aggregate of 4,000,000 unexercised shares of our Common Stock at October 1,
2005, consisting of both incentive stock options within the meaning of Section
422 of the Code and non-qualified options.
The option plans are administered by the Compensation Committee, which
determines those individuals who shall receive options, the time period during
which the options may be partially or fully exercised, the number of share of
Common Stock that may be purchased under each option, and the option price.
The per share exercise price of an incentive or non-qualified stock option may
not be less than the fair market value of the Common Stock on the date the
option is granted. The aggregate fair market value (determined as of the date
the option is granted) of the shares of Common Stock for which incentive stock
options are first exercisable by any individual during any calendar year may not
exceed $100,000. No person who owns, directly or indirectly, at the time of the
granting of an incentive stock option to him or her, more than 10% of the total
combined voting power of all classes of stock of Infinite Group shall be
eligible to receive any incentive stock option under the option plans unless the
option price is at least 110% of the fair market value of our Common Stock
subject to the option, determined on the date of grant. Non-qualified options
are not subject to this limitation.
9
An optionee may not transfer an incentive stock option, other than by will or
the laws of descent and distribution, and during the lifetime of an optionee,
the option will be exercisable only by him or her. In the event of termination
of employment other than by death or disability, the optionee will have thirty
(30) days after such termination during which to exercise the option. Upon
termination of employment of an optionee by reason of death or permanent total
disability, the option remains exercisable for one year thereafter to the extent
it was exercisable on the date of such termination. No similar limitation
applies to non-qualified options.
Pursuant to our option plans, each new non-employee director is automatically
granted, upon becoming a director, an option to purchase 7,500 shares of our
Common Stock at the fair market value of such shares on the grant date. In
addition, each non-employee director is automatically granted an option to
purchase 5,000 shares at the fair market value of such shares on the date of
grant, on the date of our annual meeting of stockholders. These options vest 1/3
upon grant and 1/3 at the end of each subsequent year of service. In April 2003,
we granted 7,500 options to each of our two new directors. In addition to the
foregoing, in March 2005, we granted 50,000 non-qualified options to each of our
two outside directors. As of October 1, 2005, we have granted 141,500 options to
members of the Board, all of which are exercisable at October 1, 2005 at prices
ranging from $.10 to $7.80.
Options under the option plans must be granted within 10 years from the
effective date of each respective plan. Incentive stock options granted under
the plan cannot be exercised more than 10 years from the date of grant, except
that incentive stock options issued to greater than 10% stockholders are limited
to four-year terms. All options granted under the plans provide for the payment
of the exercise price in cash or by delivery of shares of Common Stock already
owned by the optionee having a fair market value equal to the exercise price of
the options being exercised, or by a combination of such methods of payment.
Therefore, an optionee may be able to tender shares of Common Stock to purchase
additional shares of Common Stock and may theoretically exercise all of his
stock options without making any additional cash investment.
Any unexercised options that expire or that terminate upon an optionee's ceasing
to be affiliated with Infinite Group become available once again for issuance.
The following table summarizes as of October 1, 2005 the (i) currently
exercisable options granted under our plans and (ii) all other securities
subject to contracts, options, warrants and rights or authorized for future
issuance outside our plans. The shares covered by outstanding options or
authorized for future issuance are subject to adjustment for changes in
capitalization stock splits, stock dividends and similar events.
10
Equity Compensation Plan Table
--------------------------------------------------------------
Number of securities
Number of Weighted- remaining available
securities to be average for future issuance
issued upon exercise price under equity
exercise of of outstanding compensation plans
outstanding options, (excluding securities
options, warrants warrants and reflected in column
and rights rights (a))
(a) (b) (c)
----------------- ----------------- ----------------------
Equity Compensation Plans Approved By
Security Holders (1) 1,254,000 $0.12 586,000
Equity Compensation Plans Not Approved By
Security Holders (2) 2,667,400 $0.18 1,332,600
----------------- ----------------- -----------------
Non Qualified Options and Warrants
Granted to Service Providers 140,000 $1.98 0
----------------- ----------------- -----------------
Total.......................................... 4,061,400 $0.20 1,918,600
----------------- ----------------- -----------------
(1) Includes the 1995, 1996, 1997, 1998 and 1999 Stock Option Plans
(2) Includes the 2005 Stock Option Plan
At October 1, 2005, we had notes payable and accrued interest of $354,316 due to
Dr. Allan M. Robbins, a member of our Board, and $570,176 due to a related third
party. These notes and accrued interest are convertible into shares of our
Common Stock at $.05 per share at the option of the note holder at any time
after 60 days following the date on which the shareholders of the Company vote
to authorize a sufficient number of shares to permit such conversion, provided
that such conversions do not result in a change of control that would limit the
Company's utilization of its net operating loss carryforwards. If the principal
and accrued interest were converted in full, we would be required to issue
7,086,320 common shares to the Dr. Robbins and 11,403,520 common shares to the
third party.
If all of the aforementioned incentive and non-qualified options and warrants
were to be exercised and notes including accrued interest were to be converted
to shares of our Common Stock, we would be obligated to issue an additional
22,551,240 common shares as of October 1, 2005.
11
The following table summarizes the number and value of unexercised options
granted under the 2005 Plan and held as of October 1, 2005. The realizable value
of options represents the positive spread between the exercise price of any such
option and the market value of Common Stock on October 1, 2005.
Grants Under the 2005 Stock Option Plan
---------------------------------------
Number of
Shares of
Common
RealizableValue Stock
of Outstanding Underlying
Options Outstanding
Name and Position ($) (3) Options
----------------- -------------- ------------
Michael S. Smith $50,000 500,000
James D. Frost $180,000 1,000,000
William J. Carroll $166,575 794,900
All executive officers (4 persons) as a group(1) $399,575 2,314,900
All non-executive directors (2 persons) as a $25,000
group(2) 100,000
All employees as a group (not including $26,000 272,500
executive officers)
Number Of Options Remaining
Available For Future Issuance 1,332,600
(1) Includes options granted to Deanna Wohlschlegel, Infinite Group's
Secretary and Controller.
(2) Consist of Paul J. Delmore and Dr. Allan M. Robbins.
(3) For the purpose of this calculation value is based upon the
difference between the exercise price of the outstanding options and
the closing stock price at October 1, 2005 of $.35 per share.
The Board Unanimously Recommends A Vote FOR the Approval of the
Infinite Group 2005 Stock Option Plan.
* * * * *
PROPOSAL NO. 3
AMENDMENT OF CERTIFICATE OF INCORPORATION
TO INCREASE NUMBER OF AUTHORIZED SHARES
Infinite Group's Certificate of Incorporation, as amended, currently authorizes
the issuance of 20,000,000 shares of Common Stock and 1,000,000 shares of
preferred stock. On November 15, 2005, the Board adopted a resolution, subject
to stockholder approval, to amend Article Fourth of Infinite Group's Certificate
of Incorporation to increase the number of authorized shares of Common Stock
from 20,000,000 to 60,000,000.
The Board believes that the proposed increase in the number of shares of
authorized Common Stock is appropriate so that shares will be available, if
needed, for issuance in connection with outstanding debt conversions, future
equity financings, possible acquisitions, stock splits, stock dividends,
employee benefit plans and for other proper corporate purposes without further
action by Infinite Group's stockholders, except as required by applicable law,
regulation or rule. Infinite Group has no present agreements or plans to issue
any of these shares; provided, however, that at October 1, 2005, we had a total
of $924,492 in convertible debt and accrued interest outstanding that, if
converted, would result in the issuance of 18,489,840 shares of Common Stock.
12
Of the currently authorized shares of common stock, 19,206,965 were outstanding
as of October 1, 2005. As a result, Infinite Group had only 793,035 shares of
common stock available for issuance as of that date.
Infinite Group's stockholders, under its Certificate of Incorporation, do not
have preemptive rights to subscribe to additional securities that may be issued
by Infinite Group. This means that current stockholders do not have a prior
right to purchase any new issue of Infinite Group capital stock in order to
maintain their proportionate ownership of Common Stock. In addition, if Infinite
Group issues additional shares of Common Stock or other securities convertible
into Common Stock in the future, it could dilute the voting rights of existing
stockholders and could also dilute earnings per share and book value per share
of existing stockholders. The increase in authorized Common Stock could also
discourage or hinder efforts by other parties to obtain control of Infinite
Group, thereby having an anti-takeover effect. The increase in authorized shares
of Common Stock is not being proposed in response to any known threat to acquire
control of Infinite Group.
A copy of the proposed amendment to our Certificate of Incorporation is attached
as Appendix III to this proxy statement.
The Board unanimously recommends a vote FOR this proposal.
* * * * *
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
Infinite Group is recommending that the stockholders ratify the appointment of
Freed Maxick & Battaglia, CPAs, P.C. as its independent public accountants for
2002, 2003, 2004 and 2005. Freed Maxick & Battaglia, CPAs, P.C. audited Infinite
Group's financial statements for the fiscal year ended December 31, 2004. The
report of Freed Maxick & Battaglia, CPAs, P.C. with respect to Infinite Group's
financial statements appears in Infinite Group's annual report for the fiscal
year ended December 31, 2004. A representative of Freed Maxick & Battaglia,
CPAs, P.C. will attend the meeting by telephone and will have an opportunity to
make a statement if he desires to do so and will be available to respond to
appropriate questions through conference telephone. In the event the
stockholders fail to ratify the appointment, the Board will consider it a
directive to consider other Independent Public Accountants for the subsequent
year.
13
The Board Recommends a Vote FOR the Ratification of the Appointment
of Freed Maxick & Battaglia, CPAs, P.C. for Fiscal Years
2002, 2003, 2004 and 2005
and
Proxies that are Returned will be so Voted
Unless Otherwise Instructed.
* * * * *
AUDIT COMMITTEE REPORT
The Audit Committee is comprised of two non-management Directors and operates
pursuant to a written Charter, both of whom are "independent" (as defined in
under Rule 4200(a)(15) of the NASD listing standards). During fiscal 2004, the
Audit Committee held one meeting and one private session with our independent
auditors. The Audit Committee's purpose is to assist the Board in its oversight
of (i) the integrity of our financial statements, (ii) our compliance with legal
and regulatory requirements, (iii) our independent auditors' qualifications and
independence, (iv) the performance of our internal audit function and
independent auditors and (v) our management of market, credit, liquidity and
other financial and operational risks; to decide whether to appoint, retain or
terminate our independent auditors and to pre-approve all audit, audit-related
and other services, if any, to be provided by the independent auditors; and to
prepare this audit committee report. The Board has determined that each member
is financially literate and at least one member of the Audit Committee has
accounting or related financial management expertise, as such qualifications are
defined under NASD listing standards, and that Mr. Delmore is an "audit
committee financial expert" as such term is defined in Item 401(e)(1) of
Regulation S-B.
Management is responsible for the preparation, presentation and integrity of our
financial statements, accounting and financial reporting principles and the
establishment and effectiveness of internal controls and procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
The independent auditors are responsible for performing an independent audit of
the financial statements in accordance with generally accepted auditing
standards. The independent auditors have free access to the Audit Committee to
discuss any matters they deem appropriate.
In performing its oversight role, the Audit Committee has considered and
discussed the audited financial statements with management and the independent
auditors. The Audit Committee has also discussed with the independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as currently in effect. The Audit Committee
has received the written disclosures and the letter from its independent
auditors required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, as currently in effect, and has discussed
with the auditors, of Freed Maxick & Battaglia, CPAs, P.C., the auditors'
independence. All non-audit services performed by the independent auditors must
be specifically pre-approved by the Audit Committee or a member thereof.
During fiscal 2004, the Audit Committee performed all of its duties and
responsibilities under the Audit Committee Charter. The Audit Committee has
reviewed and discussed with management Infinite Group's audited statements for
the year ended December 31, 2004. In addition, based on the reports and
discussions described in this Report, the Audit Committee recommended to the
Board that the audited financial statements of Infinite Group for fiscal 2004 be
included in its Annual Report on Form 10-KSB for such fiscal year.
14
Audit Committee Matters and Fees Paid to Independent Auditors
Under its charter, the Audit Committee must pre-approve all engagements of our
independent auditor unless an exception to such pre-approval exists under the
Exchange Act or the rules of the SEC. Each year, the independent auditor's
retention to audit our financial statements, including the associated fee, is
approved by the Audit Committee before the filing of the preceding year's Annual
Report on Form 10-KSB. At the beginning of the fiscal year, the Audit Committee
will evaluate other known potential engagements of the independent auditor,
including the scope of the work proposed to be performed and the proposed fees,
and approve or reject each service, taking into account whether the services are
permissible under applicable law and the possible impact of each non-audit
service on the independent auditor's independence from management. At each
subsequent Audit Committee meeting, the Audit Committee will receive updates on
the services actually provided by the independent auditor, and management may
present additional services for approval. Typically, these would be services
such as due diligence for an acquisition, that would not have been known at the
beginning of the year. The Audit Committee has delegated to the Chairperson of
the Audit Committee the authority to evaluate and approve engagements on behalf
of the Audit Committee in the event that a need arises for pre-approval between
committee meetings. This might occur, for example, if we proposed to execute a
financing on an accelerated timetable. If the Chairperson so approves any such
engagements, he will report that approval to the full Audit Committee at the
next Audit Committee meeting.
Since the May 6, 2003 effective date of the SEC rules stating that an auditor is
not independent of an audit client if the services it provides to the client are
not appropriately approved, each new engagement of Freed Maxick & Battaglia,
CPAs, P.C. was approved in advance by the Audit Committee, and none of those
engagements made use of the de minimis exception to pre-approval contained in
the SEC's rules.
Audit Committee Pre-Approved Policies and Procedures
The Audit Committee will pre-approve audit services and non-audit services to be
provided by Infinite Group's independent auditors before the accountant is
engaged to render these services. The Audit Committee may consult with
management in the decision-making process, but may not delegate this authority
to management. The Audit Committee may delegate its authority to pre-approve
services to one or more committee members, provided that the designees present
the pre-approvals to the full committee at the next committee meeting.
15
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed by our principal accounting firm, Freed Maxick &
Battaglia, CPA's, PC, for fees billed for fiscal years ended December 31, 2004
and 2003 are as follows:
2004 2003
---------- ----------
Audit fees $66,032 $82,712
Audit related fees -- --
---------- ----------
$66,032 $82,712
Total audit and audit related fees
Tax fees -- --
All other fees -- --
---------- ----------
$66,032 $82,712
Total fees ========== ==========
Audit-Related Fees
The Audit Related fees were zero for the periods presented.
Tax Fees
The tax fees were zero for the periods presented.
All Other Fees
All other fees were zero for the periods presented.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Summary Compensation Table below includes, for each of the fiscal years
ended December 31, 2002, 2003 and 2004 individual compensation for services to
Infinite Group and its subsidiaries paid to: (1) the Chief Executive Officer,
and (2) the other most highly paid executive officers of Infinite Group in 2002,
2003 and 2004 whose salary and bonus exceeded $100,000 (together, the "Named
Executives").
16
All other
Name and Principal Position Year Salary Bonus compensation (1)
------------------------------------------------------------------------------------ ------------ -----------------
Michael S. Smith
President, Chief Executive Officer, Chief Financial
Officer and Director commencing May 1, 2003, 2004 $181,789 $ 3,500 $ 854
Director 2003 $108,856 $ 30,000 --
2002 -- -- --
Mark J. Ackley
Chief Operating Officer and Director of Business 2004 $173,682 $ 10,000 --
Development commencing April 19, 2003 (2) 2003 $103,846 $ 15,000 --
2002 -- -- --
James D. Frost
Chief Technology Officer and Director of Delivery 2004 $173,978 $ 10,000
commencing May 12, 2003 2003 $ 89,423 $ 15,000
2002 -- --
Clifford G. Brockmyre II
President and Chief Executive Officer
through January 3, 2003, CEO Laser Fare from 2004 -- -- --
January 3, 2003 through December 31, 2003 2003 $149,376 $ 1,500 --
2002 $106,672 -- --
Clifford G. Brockmyre III
President Laser Fare, Inc. 2004 $ 90,679 $ 1, 050 --
through December 31, 2004 2003 $107,655 $ 2,099 --
2002 $108,718 -- --
(1) Reflects stock grants, Company matching contributions to the
employee's IRA Plan and Company paid life insurance premiums.
(2) Mr. Ackley's employment was terminated in March 2005.
Employment Agreements
In 2003, we entered into employment agreements with Messrs. Smith, Ackley and
Frost. These agreements are essentially identical and provide, among other
things, for annual base compensation of $150,000 for five-year terms. In
addition, each agreement provides for the issuance of 500,000 shares of our
common stock with a value of $25,000 as of the date of issuance and 500,000
employee stock options exercisable at $.05 per share. Each agreement also
provides for, among other things, incentive compensation, termination benefits
in the event of death, disability and termination for other than cause, and a
covenant against competition. Mr. Ackley's employment was terminated for cause
in March, 2005.
Stock Options
The following table sets forth certain information regarding options granted by
us in 2005 through October 1, 2005 to each of the Named Executives. There were
no stock options granted to the Named Executives in 2004.
17
Number of
Shares of Percent of Total
Common Options
Stock Granted to
Underlying Employees in Exercise Price
Name Option Year ($/Sh) Expiration Date
----------------------- ------------- --------------- -------------- -----------------
James D. Frost 500,000 18.7 % $ .09 3/9/2015
James D. Frost 500,000 18.7 % $ .25 3/9/2015
Michael S. Smith 500,000 18.7 % $ .25 3/9/2015
William J. Carroll(1) 750,000 38.1 % $ .13 4/18/2015
William J. Carroll(1) 7,500 .3 % $ .14 7/1/2015
William J. Carroll(1) 37,400 1.4 % $ .35 10/1/2015
Paul J. Delmore 50,000 1.9% $.10 3/30/2015
Allan M. Robbins 50,000 1.9% $.10 3/30/2015
--------- -----
Total 2,394,400 89.8%
========= =====
The following table provides information with respect to options exercised by
the named executive officers for the twelve months ended October 1, 2005 and the
number and value of unexercised options held by the named executive officers as
of October 1, 2005.
Number of Dollar Number of Shares
Shares Value Underlying Unexercised Value of Unexercised
Underlying Realized Options at October 1, In-the-Money Options at
Options on 2005 October 1, 2005 (1)
Name Exercised Exercise Exercisable Nonexercisable Exercisable Nonexercisable
----------------------- ------------ ----------- ------------- ---------------- ------------- ----------------
Michael S. Smith -- $ -- 1,000,000 -- $ 200,000 $ --
William J. Carroll -- $ -- 794,400 -- $ 166,575 $ --
James D. Frost -- $ -- 1,500,000 -- $ 330,000 $ --
Paul J. Delmore -- $ -- 57,500 -- $ 14,375 $ --
Allan M. Robbins -- $ -- 57,500 -- $ 14,375 $ --
--------- --------- --------- --------- --------- ---------
Total -- $ -- 3,409,400 -- $ 725,325 $ --
========= ========= ========= ========= ========= =========
(1) For the purpose of this calculation value is based upon the difference
between the exercise price of the options and the stock price at October
1, 2005 of $.35 per share.
Compensation of Directors
Pursuant to our option plans, each new non-employee director is automatically
granted, upon becoming a director, an option to purchase 7,500 shares of our
Common Stock at the fair market value of such shares on the grant date. In
addition, each non-employee director is automatically granted an option to
purchase 5,000 shares at the fair market value of such shares on the date of
grant, on the date of our annual meeting of stockholders. These options vest 1/3
upon grant and 1/3 at the end of each subsequent year of service. In April 2003,
we granted 7,500 options to each of our two new directors. In addition to the
foregoing, in March 2005, we granted 50,000 non-qualified options to each of our
two outside directors under our 2005 Plan. As of October 1, 2005, we have
granted 141,500 options to members of the board of directors, all of which are
exercisable at October 1, 2005 at prices ranging from $.10 to $7.80.
18
Limitation of Directors' Liability and Indemnification
The Delaware General Corporation Law (the "DGCL") authorizes corporations to
limit or eliminate the personal liability of directors to corporations and their
shareholders for monetary damages for breach of directors' fiduciary duty of
care. The Infinite Group's Certificate of Incorporation limits the liability of
its directors to Infinite Group or its stockholders to the fullest extent
permitted by Delaware law.
Infinite Group's Certificate of Incorporation provides mandatory indemnification
rights to any officer or director of Infinite Group who, by reason of the fact
that he or she is an officer or director of Infinite Group, is involved in a
legal proceeding of any nature. Such indemnification rights include
reimbursement for expenses incurred by such officer or director in advance of
the final disposition of such proceeding in accordance with the applicable
provisions of the DGCL. Insofar as indemnification for liabilities under the
Securities Act of 1933 (the "Act") may be provided to officers and directors or
persons controlling Infinite Group, Infinite Group has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
None of the Directors serving on the Compensation Committee of our board is
employed by Infinite Group. In addition, none of our Directors or executive
officers of Infinite Group is a director or executive officer of any other
corporation that has a director or executive officer who is also a member of our
Board.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Clifford G. Brockmyre II was the President and Chief Executive Officer of
our Laser Fare, Inc. subsidiary until December 31, 2003. Mr. Brockmyre's son,
Clifford G. Brockmyre III, was employed as the General Manager of our Laser
Fare, Inc. subsidiary at an annual salary of $100,000 through December 31, 2004,
at which time the business, assets and certain liabilities of Laser Fare were
sold. Mr. Brockmyre is no longer affiliated with us.
We believe that Mr. Brockmyre's employment with Laser Fare was on terms no less
favorable to us than could have been obtained from third parties. As a matter of
policy, in order to reduce the risks of self-dealing or a breach of the duty of
loyalty to Infinite Group, all transactions between Infinite Group and any of
its officers, directors or principal stockholders are for bona fide purposes and
are approved by a majority of the disinterested members of our Board.
At October 1, 2005, we had notes payable and accrued interest of $354,316 due to
Dr. Allan M. Robbins, a member of our board of directors, and $570,176 due to a
related third party. These notes and accrued interest are convertible into
shares of our common stock at $.05 per share at the option of the note holder at
any time after 60 days following the date on which the shareholders of the
Company vote to authorize a sufficient number of shares to permit such
conversion, provided that such conversions do not result in a change of control
that would limit the Company's utilization of its net operating loss
carryforwards. If the principal and accrued interest were converted in full, we
would be required to issue 7,086,320 common shares to the Dr. Robbins and
11,403,520 common shares to the related third party at October 1, 2005.
19
OTHER MATTERS
Infinite Group knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the shares they represent as
the Board of Directors may recommend.
Stockholder Proposals
Stockholders interested in presenting a proposal for consideration at the annual
meeting of stockholders for 2006 must follow the procedures found in Rule 14a-8
under the Exchange Act. To be eligible for inclusion in Infinite Group's 2006
proxy materials, all qualified proposals must be received by our Corporate
Secretary no later than 120 prior to the anniversary date of filing this
definitive proxy statement. If a stockholder fails to give notice by this date,
then the persons named as proxies in the proxies solicited by us for the next
Annual Meeting will have discretionary authority to vote on the proposal.
Code of Ethics
We have adopted a Code of Ethics that applies to our principal executive
officer, principal financial officer and other persons performing similar
functions, as well all of our other employees and directors. This Code of Ethics
is posted and can be viewed on our website at www.us-igi.com.
Proxy Materials
We will mail our 2004 Annual Report, this Proxy Statement and the accompanying
proxy card to stockholders beginning on or about December 16, 2005. The Annual
Report and Proxy Statement will also be available on the Internet at
www.us-igi.com. The Annual Report is not part of our proxy soliciting materials.
Reports and Financial Statements
Infinite Group's Annual Report on Form 10-KSB for the year ended December 31,
2004 including the financial statements and financial statement schedules
included therein is included with this proxy material. The Financial Statements
contained in the Annual Report are incorporated by reference and are part of
this soliciting material.
20
EVERY STOCKHOLDER, WHETHER OR NOT HE OR SHE EXPECTS TO ATTEND THE ANNUAL MEETING
IN PERSON, IS URGED TO EXECUTE THE PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
BUSINESS REPLY ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Deanna Wohlschlegel
------------------------------------
Deanna Wohlschlegel, Secretary
Dated: Rochester, New York
December 16, 2005
21
APPENDIX I
INFINITE GROUP, INC.
AUDIT COMMITTEE CHARTER
Composition
The Audit Committee shall be composed of at least two outside directors who are
independent (as defined below) of the management of the company and are free of
any relationship that would interfere with their exercise of independent
judgment as a committee member. The Audit Committee must consist of directors
who are financially literate and at least one director must have past employment
experience in finance or accounting, requisite professional certification in
accounting, or other comparable experience or background, including a current or
past position as a chief executive or financial officer or other senior officer
with financial oversight responsibilities.
Independent Directors
The relationships that disqualify a director from being considered "independent"
for purposes of serving as a member of the audit committee are, if among other
things, he or she has:
o Been employed by the Company or its affiliates in the current or
past three years;
o Accepted any compensation from the Company or its affiliates in
excess of $60,000 during the previous fiscal year (except for board
service, retirement plan benefits, or non-discretionary
compensation);
o An immediate family member who is, or has been in the past three
years, employed by the Company or its affiliates as an executive
officer;
o Been a partner, controlling shareholder or an executive officer of
any for-profit business to which the Company made, or from which it
received, payments (other than those which arise solely from
investments in the Company's securities) that exceed five percent of
the organization's consolidated gross revenues for that year, or
$200,000, whichever is more, in any of the past three years; or
o Been employed as an executive of another entity where any of the
Company's executives serve on that entity's compensation committee.
Objective of the Audit Committee
The Audit Committee shall assist the board of directors in fulfilling its
responsibility to the shareholders, potential shareholders, and the investment
community relating to corporate accounting, reporting practices of the company,
and the quality and integrity of the financial reports of the company.
Specific Responsibilities of the Audit Committee
In fulfilling its objective, the Audit Committee shall have the responsibility
with respect to:
The Company's Risk and Control Environment:
o To review management's overview of the risks, policies, procedures
and controls surrounding the integrity of financial reporting and,
particularly, the adequacy of the Company's controls in areas
representing significant financial and business risks;
o To review, with the Company's counsel, legal matters, including
litigation, compliance with securities trading policies, the foreign
corrupt practices act and other laws, having a significant impact on
the Company's business or its financial statements, and
o To investigate and matter brought to its attention within the scope
of its duties, and retain outside counsel for this purpose if, in
its judgment, that is appropriate;
The Hiring and Firing of and Relationship with the Independent Accountants:
o To participate, on behalf of the board of directors, in the process
by which the Company selects the independent accountants to audit
the Company's financial statements, evaluate annually the
effectiveness and objectivity of such accountants, and recommend the
engagement or replacement of independent accountants to the board of
directors;
o To have an open line of communications with the independent
accountants, who shall have ultimate accountability to the board of
directors and the audit committee, as representatives of the
shareholders;
o To approve the fees and other compensation paid to the independent
accountants; and
o To review the independence of the independent accounts prior to
engagement, annually discuss with the independent accountants their
independence annually based upon the written disclosures and the
letter from the independent accountants required by Independent
Standards Board Standard and discuss with the board of directors any
relationship that may adversely affect the independence of the
independent accountants.
The Financial Reporting Process:
o To meet with the independent accountants and the financial
management of the Company with respect to major changes to the
Company's auditing and accounting principles;
o To meet with the independent accountants and the financial
management of the Company together and separately with the
independent accountants (a) prior to the performance by the
independent accountants of the audit to discuss the scope of the
proposed audit for the current year and the audit procedures to be
utilized; and (b) at the conclusion of the audit to discuss (i) the
independent accountants' judgments about the quality, not just the
acceptability, of the Company's accounting principles as applied in
its financial reporting, the consistency of application of the
Company's accounting policies and the clarity, consistency, and
completeness of the entity's accounting information contained in the
financial statements and related disclosures, (ii) the adequacy and
effectiveness of the accounting and financial controls of the
Company and any recommendations for improvement of such internal
control procedures or for new or mere detailed controls or
procedures of the Company, (iii) any other results of the audit,
including any comments or recommendations, and (iv) the views of the
independent accountants with respect to the financial, accounting,
and auditing personnel and the cooperation that the independent
accountants received during the course of the audit;
2
o To review and discuss with the independent accountants and the
financial management of the Company the Company's financial results
before they are made public. In general, the chairman of the audit
committee may represent the entire committee with respect to the
review and discussions about interim financial results; and
o To review other reports submitted by the Company to any governmental
body or the public, including any certification, reports, opinion or
review rendered by the independent accountants;
Other Responsibilities of the Audit Committee:
o To review and update periodically the charter for the Audit
Committee;
o To review, assess, and approve or disapprove conflicts of interest
and related-party transactions;
o To review accounting, financial, human resources and succession
planning within the Company;
o To meet at least two times annually, or more frequently as
circumstances dictate;
o To report to the board of directors the matters discussed at each
committee meeting;
o To assess the performance of the audit committee members through a
self-assessment process, led by the chairman of the committee; and
o To keep an open line communication with the financial and senior
management, the independent accountants, and the board of directors.
3
APPENDIX II
INFINITE GROUP, INC.
2005 STOCK OPTION PLAN
1. PURPOSES. The purposes of this Stock Option Plan (the "Plan") are to
attract and retain the best qualified personnel for positions of substantial
responsibility, to provide additional incentive to the Employees of the Company
or its Subsidiaries, if any (as defined in Section 2 below), as well as other
individuals who perform services for the Company or its Subsidiaries, and to
promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options" as
defined in Section 422A of the Internal Revenue Code, or "non-qualified stock
options," at the discretion of the Board and as reflected in the terms of the
written instrument evidencing an Option.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "Common Stock" shall mean the Common Stock of the Company, par
value $.001 per share.
(c) "Company" shall mean Infinite Group, Inc., a Delaware
corporation.
(d) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(e) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board.
(f) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(h) "Incentive Stock Option" shall mean a stock option intended to
qualify as an incentive stock option within the meaning of Section 422A of the
Internal Revenue Code of 1986, as amended.
(i) "Non-qualified Stock Option" shall mean a stock option not
intended to qualify as an Incentive Stock Option.
(j) "Option" shall mean a stock option granted pursuant to the Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean an Employee or other person who receives
an Option.
(m) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 425(e) of the Internal Revenue Code of
1986, as amended.
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(o) "SEC" shall mean the Securities and Exchange Commission.
(p) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 425(f) of the Internal Revenue Code
of 1986, as amended.
3. STOCK.
Subject to the provisions of Section 11 of the Plan, the maximum
aggregate number of shares which may be optioned and sold under the Plan is four
million (4,000,000) shares of authorized, but unissued, or reacquired $.001 par
value Common Stock. If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for further grant under the Plan.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors may appoint a
Committee to administer the Plan. The Committee shall consist of not less than
two members of the Board of Directors who shall administer the Plan on behalf of
the Board of Directors, subject to such terms and conditions as the Board of
Directors may prescribe. Once appointed, the Committee shall continue to serve
until otherwise directed by the Board of Directors. From time to time the Board
of Directors may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause), and appoint new members
in substitution therefore, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
If a majority of the Board of Directors is eligible to be granted
Options or has been eligible at any time within the preceding year, a Committee
must be appointed to administer the Plan. The Committee must consist of not less
than two members of the Board of Directors, all of whom are "non-employee
directors" as defined in Rule 16b-3 of the General Rules and Regulations
promulgated under the Exchange Act.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, in accordance with Section 422A of the Internal Revenue Code of 1986,
as amended, or to grant Non-Qualified Stock Options; (ii) to determine, upon
review of relevant information and in accordance with Section 8(a) of the Plan,
the fair market value of the Common Stock; (iii) to determine the exercise price
per share of Options to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the persons to whom,
and the time or times at which, Options shall be granted and the number of
shares to be represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an Option
previously granted by the Board; and (x) to make all other determinations deemed
necessary or advisable for the administration of the Plan.
(c) Effect of the Board's Decision. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
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5. ELIGIBILITY. Incentive Stock Options may be granted only to Employees.
Nonqualified Stock Options may be granted to Employees as well as directors
(subject to the limitations set forth in Section 4), independent contractors and
agents, as determined by the Board. Any person who has been granted an Option
may, if he is otherwise eligible, be granted an additional Option or Options.
No Incentive Stock Option may be granted to an Employee if, as the
result of such grant, the aggregate fair market value (determined at the time
each Option was granted) of the Shares with respect to which such Incentive
Stock Options are exercisable for the first time by such Employee during any
calendar year (under all such plans of the Company and any Parent and
Subsidiary) shall exceed One Hundred Thousand Dollars ($100,000).
The Plan shall not confer upon any Optionee any right with respect
to continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur
of (i) its adoption by the Board of Directors, or (ii) its approval by vote of a
majority of the outstanding shares of the Company entitled to vote on the
adoption of the Plan. The Plan shall continue in effect for a period of ten (10)
years from the effective date of the Plan, unless sooner terminated pursuant to
Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be ten (10) years from
the date of the grant thereof, or such shorter term as may be provided in the
instrument evidencing the Option. However, in the case of an Incentive Stock
Option granted to an Employee who, immediately before the Incentive Stock Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant thereof or such shorter time as may be provided in the instrument
evidencing the Option.
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued
pursuant to the exercise of an Option shall be such price as is determined by
the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, immediately before the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the fair market value per Share on the date of the grant; or, as the case may be
(B) granted to an Employee not subject to the provisions
of Section 8(a)(i)(A), the per Share exercise price shall be no less than one
hundred percent (100%) of the fair market value per Share on the date of the
grant.
(ii) In the case of a Non-qualified Stock Option, the per
Share exercise price shall be no less than one hundred percent (100%) of the
fair market value per Share on the date of the grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices or, if applicable, the closing price of the Common Stock on the
date of the grant, as reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) System or, in the event the Common Stock is listed
on a stock exchange, the fair market value per Share shall be the closing price
on the exchange on the date of the grant of the Option, as reported in the Wall
Street Journal.
(c) The consideration to be paid for the Shares to be issued upon
the exercise of an Option or in payment of any withholding taxes thereon,
including the method of payment, shall be determined by the Board and may
consist entirely of (i) cash, check or promissory note; (ii) other Shares of
Common Stock owned by the Employee that has a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised; (iii) an assignment by the Employee of the net
proceeds to be received from a registered broker upon the sale of the Shares or
the proceeds of a loan from such broker in such amount; or (iv) any combination
of such methods of payment, or such other consideration and method of payment
for the issuance of Shares to the extent permitted under Delaware law and
meeting rules and regulations of the SEC to plans meeting the requirements of
Section 16(b)(3) of the Exchange Act.
3
9. EXERCISE OF OPTION.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and subject to such
conditions as may be determined by the Board, including performance criteria
with respect to the Company and/or the Optionee, as shall be permissible under
the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the instrument evidencing the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment may, as authorized by
the Board, consist of any consideration and method of payment allowable under
Section 8(c) of the Plan; it being understood that the Company shall take such
action as may be reasonably required to permit use of an approved payment
method. Until the issuance, which in no event will be delayed more than thirty
(3) days from the date of the exercise of the Option, (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the sock certificate is issued, except as provided in
the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for the sale under the Option, by the number of Shares
as to which the Option is exercised.
(b) Termination of Status as an Employee. If an Employee ceases to
serve as an Employee, he may, but only within thirty (30) days (or such other
period of time not exceeding three (3) months as is determined by the Board)
after the date he ceases to be an Employee of the Company, exercise his Option
to the extent that he was entitled to exercise it as of the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of such termination, or if he does not exercise such option (which he
was entitled to exercise) within the time period specified herein, the Option
shall terminate. Notwithstanding the provisions of this Section 9(b), in the
event that the Employee's employment is terminated "for cause," as such term is
defined and interpreted by the courts of the State of New York, the Employee's
right to exercise his Option shall expire on the date of his termination.
(c) Notwithstanding the provisions of Section 9(b) above, in the
event an Employee is unable to continue his employment with the Company as a
result of his total and permanent disability (as defined in Section 105(d)(4) of
the Internal Revenue Code of 1986, as amended), he may, but only with three (3)
months (or such other period of time not exceeding twelve (12) months as is
determined by the Board) from the date of disability, exercise his Option to the
extent he was entitled to exercise it at the date of such disability. To the
extent that he was not entitled to exercise the Option at the date of
disability, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option, who is at the time of his
death an Employee of the Company and who shall have been in Continuous Status as
an Employee since the date of the grant of the Option, the Option may be
exercised, at any time within twelve (12) months following the date of death, by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent of the right to
exercise that would have accrued had the Optionee continued living one (1) month
after the date of death; or
4
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Board) after the termination
of Continuous Status as an Employee, the Option may be exercised at any time
within three (3) months following the date of death, by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of termination.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated or disposed of in any manner other than by will or by the
laws of descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split or the payment of a stock dividend with
respect to the Common Stock or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, or in the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Board of Directors of the Company shall, as to outstanding
Options, either (i) make appropriate provision for the protection of any such
outstanding Options by the substitution on an equitable basis of appropriate
stock of the Company or of the merged, consolidated or otherwise reorganized
corporation which will be issuable in respect to one share of Common Stock of
the Company; provided, only that the excess of the aggregate fair market value
of the shares subject to the Options immediately after such substitution over
the market price thereof is not more than the excess of the aggregate fair
market value of the shares subject to such Options immediately before such
substitution over the purchase price thereof, or (ii) upon written notice to an
Optionee, provide that all unexercised Options must be exercised within a
specified number of days of the date of such notice or they will be terminated.
In any case, the Board of Directors may, in its discretion, advance the lapse of
any waiting or installment period and exercise dates.
12. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each person to whom
an Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) The Board may amend or terminate the Plan from time to time in
such respects as the Board may deem advisable; provided, however, that the
following revisions or amendments shall require the approval of the holders of a
majority of the outstanding shares of the Company entitled to vote:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the Plan;
5
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) any material increase in the benefits accruing to
participants under the Plan.
(b) Stockholder Approval. If any amendment requiring stockholder
approval under Section 13(a) of the Plan is made, such stockholder approval
shall be solicited as described in Section 17(a) of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act,
the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by, or
appropriate under, any of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company shall be under no obligation to
reserve shares of capital stock to fill Options. The grant of Options to
Employees hereunder shall not be construed to constitute the establishment of a
trust of such shares and no particular shares shall be identified as optioned
and reserved for Employees hereunder. The Company shall be deemed to have
complied with the terms of the Plan if, at the time of issuance and delivery
pursuant to the exercise of an Option, it has a sufficient number of shares
authorized and unissued or in its treasury which may then be appropriated and
issued for purposes of the Plan, irrespective of the date when such shares were
authorized.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuation of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. If such stockholder approval is obtained at
a duly held stockholders' meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon. The approval of such stockholders of
the Company shall be (1) solicited substantially in accordance with Section
14(a) of the Exchange Act and the rules and regulations promulgated thereunder,
or (2) solicited after the Company has furnished in writing to the holders
entitled to vote substantially the same information concerning the Plan as that
which would be required by the rules and regulations in effect under Section
14(a) of the Exchange Act at the time such information is furnished.
18. OTHER PROVISIONS. The Stock Option Agreement authorized under the Plan
shall contain such other provisions, including without limitation restrictions
upon the exercise of the Option, as the Board of Directors of the Company shall
deem advisable. Any Incentive Stock Option Agreement shall contain such
limitations and restrictions upon the exercise of the Incentive Stock Options as
shall be necessary in order that such Option will be an Incentive Stock Option
as defined in Section 422A of the Internal Revenue Code of 1986, as amended.
19. INDEMNFICATION OF BOARD. In addition to such other rights of
indemnification as they may have as directors or as members of the Board, the
members of the Board shall be indemnified by the Company against the reasonable
expenses, including attorneys fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such Board
member is liable for negligence or misconduct in the performance of his duties,
provided that within 60 days after the institution of any such action, suit or
proceeding a Board member shall, in writing, offer the Company the opportunity,
at its own expense, to handle and defend the same.
6
20. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
21. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the singular
shall include the plural, and masculine pronoun shall include the feminine
gender.
22. HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
Adopted by Directors: March 9, 2005
Adopted by Stockholders:
7
APPENDIX III (CHARTER AMENDMENT)
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
INFINITE GROUP, INC.
(Pursuant to Section 242 of
the Delaware General Corporation Law)
--------------------------
Infinite Group, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the Delaware General Corporation Law (the
"DGCL") does hereby certify that:
1. The name of the Corporation is Infinite Group, Inc.
2. The Board of Directors of the Corporation unanimously duly adopted a
resolution to amend the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") to increase the number of shares of common stock
authorized for issuance from 20,000,000 to 60,000,000, declaring the amendment's
advisability to its stockholders, and directing that the amendment be considered
at the 2005 annual meeting of the stockholders of the Corporation followed by a
majority vote in favor of the amendment by the stockholders at such annual
meeting. The amendment adopted provides as follows:
(i) That the first sentence of Article Fourth of the Certificate of
Incorporation would be amended in its entirety to read as follows:
"FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is sixty-one million (61,000,000) shares of which
sixty million (60,000,000) shares shall be Common Stock with a par value
of each of $.001 per share and one million (1,000,000) shares shall be
Preferred Stock with a par value of $.01 per share.
Additional designations of powers, the rights and preferences and
the qualifications, limitations or restrictions with respect to each class
of stock of the corporation shall be determined by the Board of Directors
from time to time."
3. That the Amendment herein certified have been duly adopted in
accordance with the provisions of Section 242 of the DGCL by the Board of
Directors.
4. This Certificate of Amendment shall become effective upon the filing
hereof in the Office of the Secretary of State of the State of Delaware.
Executed on this ____ day of ____, 2006
Infinite Group, Inc.
By:
---------------------------------------
Michael S. Smith
President and Chief Executive Officer
8
SOLICITED BY THE BOARD OF DIRECTORS
INFINITE GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
January 13, 2006
PROXY
The undersigned stockholder of Infinite Group Inc. (the "Company") hereby
appoints Michael S. Smith and Kenneth S. Rose and each of them acting singly,
with power of substitution, the attorneys and proxies of the undersigned and
authorizes them to represent and vote on behalf of the undersigned, as
designated, all of the shares of capital stock of the Company that the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held on Friday, January 13, 2006 at 10:00 a.m., Pacific time, at
One America Plaza, 600 West Broadway, Second Floor, San Diego, CA 92101 ("Annual
Meeting"), and at any adjournment or postponement of such meeting for the
purposes identified on the reverse side of this proxy and with discretionary
authority as to any other matters that properly come before the Annual Meeting,
in accordance with and as described in the Notice of Annual Meeting of
Stockholders and the Proxy Statement. This proxy when properly executed will be
voted in the manner directed herein by the undersigned stockholder. If this
proxy is returned without direction being given, this proxy will be voted FOR
all proposals.
SEE REVERSE
(IMPORTANT - TO BE SIGNED AND DATED ON REVERSE SIDE)
|X| Please mark votes as in this example.
The Board of Directors recommends a vote FOR proposals 1, 2, 3 and 4.
1. Election of Directors:
Nominees: FOR WITHHOLD
Michael S. Smith |_| |_|
Paul J. Delmore |_| |_|
Allan M. Robbins |_| |_|
FOR AGAINST ABSTAIN
2. Proposal to ratify and approve the |_| |_| |_|
Company's 2005 Stock Option Plan
FOR AGAINST ABSTAIN
3. Proposal to approve an increase in the |_| |_| |_|
number of authorized shares of common
stock from 20,000,000 to 60,000,000
4. Ratify the appointment of |_| |_| |_|
Freed Maxick & Battaglia, CPAs, P.C.
as independent auditors.
MARK HERE FOR MARK
ADDRESS CHANGE |_| HERE FOR |_|
AND NOTE BELOW COMMENTS
The undersigned hereby acknowledges receipt of the Notice of, and Proxy
Statement for, the aforesaid Annual Meeting.
Dated:
---------------------------------------
---------------------------------------
Signature of Stockholder
---------------------------------------
Signature of Stockholder
NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporate name by President or
other authorized officer. If a partnership, please sign in partnership name by
an authorized person.
IMPORTANT - PLEASE FILL IN, SIGN AND RETURN PROMPTLY USING THE ENCLOSED
ENVELOPE.