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EXHIBIT 10.23
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CONVERTIBLE NOTE PURCHASE AGREEMENT
by and between
MICRO GENERAL CORPORATION,
a Delaware corporation,
and
CALWEST SERVICE CORPORATION,
a California corporation
Dated as of October 27, 1998
CONVERTIBLE NOTE
DUE OCTOBER 27, 2003
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TABLE OF CONTENTS
Article I - Definitions and Other Provisions of General Application......................... 2
Section 101. Definitions.............................................................. 2
Section 102. Effect of Headings and Table of Contents................................. 4
Section 103. Successors and Assigns................................................... 4
Section 104. Severability Clause...................................................... 4
Section 105. Benefits of Agreement.................................................... 4
Section 106. Governing Law............................................................ 4
Section 107. Legal Holidays........................................................... 4
Section 108. Execution in Counterparts................................................ 5
Section 109. Attorneys' Fees.......................................................... 5
Section 110. Notices.................................................................. 5
Article II - The Note....................................................................... 6
Section 201. Form Generally........................................................... 6
Section 202. Conversion Notice........................................................ 6
Section 203. Designation, Amount and Issuance of the Note............................. 6
Section 204. Execution of the Note.................................................... 6
Article III - Covenants of the Company...................................................... 7
Section 301. Payment of Principal and Interest........................................ 7
Section 302. Corporate Existence...................................................... 7
Section 303. Payment of Taxes and Other Claims........................................ 7
Section 304. Dividends/Compensation................................................... 7
Section 305. Corporate Existence; Foreign Qualification............................... 7
Section 306. Books, Records and Inspections........................................... 7
Section 307. Compliance with Laws..................................................... 7
Section 308. Maintenance of Permits................................................... 7
Section 309. Capital Expenditures/Debt................................................ 7
Article IV - Representations and Warranties................................................. 8
Section 401. Customer Contracts....................................................... 8
Section 402. Board of Directors....................................................... 9
Section 403. Organization, Etc........................................................ 9
Section 404. Capital Stock; Stock Options............................................. 9
Section 405. Corporate Authority...................................................... 9
Section 406. Notes and Accounts Receivable............................................ 9
Section 407. Actions, Suits, Etc...................................................... 10
Section 408. Material Contracts....................................................... 10
Section 409. Absence of Undisclosed Liabilities....................................... 11
Section 410. Accuracy of Information.................................................. 11
Section 411. Real Estate Leases....................................................... 11
Section 412. Personal Property Leases................................................. 11
Section 413. Intellectual Property.................................................... 11
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Section 414. Trade Secrets............................................................ 12
Section 415. Software and Information Systems......................................... 12
Section 416. Insurance................................................................ 12
Article V - Defaults; Remedies.............................................................. 13
Section 501. Events of Default........................................................ 13
Section 502. Acceleration of Maturity, Rescission and Annulment;
Other Remedies................................................................... 14
Section 503. Collection of Indebtedness and Suits for Enforcement..................... 15
Section 504. Lender May File Proofs of Claim.......................................... 15
Section 505. Application of Money Collected........................................... 16
Section 506. Rights and Remedies Cumulative........................................... 16
Section 507. Delay or Omission Not Waiver............................................. 16
Section 508. Waiver of Stay or Extension Laws......................................... 16
Article VI - Reports by Company............................................................. 17
Section 601. Annual Statement......................................................... 17
Section 602. Reports by Company....................................................... 17
Section 603. Quarterly Financial Reports.............................................. 17
Article VII - Consolidation, Merger, Conveyance, Transfer , Sale or Lease................... 17
Section 701. Company May Consolidate. etc., on Certain Terms.......................... 17
Section 702. Right of First Refusal of Lenders........................................ 18
Article VIII - Redemption of Note by the Company............................................ 18
Section 801. Right to Redeem.......................................................... 18
Section 802. Notice of Redemption..................................................... 18
Article IX - Right to Convert Note and/or Right to Purchase Stock........................... 19
Section 901. Rights Granted........................................................... 19
Section 902. Anti-Dilution Rights of Lender........................................... 19
Section 903. Manner of Exercise of Conversion Privilege............................... 20
Section 904. Notice to Lender Prior to Certain Corporate Actions...................... 20
Section 905. Reservation of Shares of Common Stock.................................... 21
Section 906. Taxes Upon Conversion.................................................... 21
Section 907. Covenants as to Common Stock............................................. 21
Section 908. Piggyback Registration Rights............................................ 21
Article X - Conditions Precedent............................................................ 22
Section 1001. Conditions Precedent.................................................... 22
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CONVERTIBLE NOTE PURCHASE AGREEMENT
This CONVERTIBLE NOTE PURCHASE AGREEMENT (the "Agreement") is made and
effective as of October 27, 1998, by and between MICRO GENERAL CORPORATION, a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and CALWEST SERVICE CORPORATION, a
California corporation ("Lender").
RECITALS
WHEREAS, Lender has agreed to make a series of loans to the Company; and
WHEREAS, in order to evidence its agreement to repay said loans, the
Company has duly authorized the issuance of two (2) separate convertible
promissory notes, one in the principal amount of $900,000.00 and one in the
principal amount of $14,100,000.00, and each of which permits the Lender to
convert said note into a certain number of shares of the Company's common
capital stock or to purchase a certain number of shares of the Company's common
capital stock, and in connection therewith, the parties have authorized the
execution and delivery of two (2) separate purchase agreements substantially in
the form hereof, and
WHEREAS, as contemplated hereinabove, the Company has, contemporaneously
herewith, issued its convertible promissory note (the "Note") in the original
principal amount of $14,100,000.00, and the Lender has agreed to purchase said
Note; and
WHEREAS, in order to set forth the terms and conditions upon which the
Note is to be issued by the Company and purchased by the Lender, the Company and
Lender have duly authorized the execution and delivery of this Agreement; and
WHEREAS, as an inducement to Lender to purchase the Note, whether or not
the Company borrows the full amount of the Note, the Company has agreed to give
Lender the right, but not the obligation, throughout the five (5) year term of
the Note, to either convert all or a portion of the principal of the Note into,
or to purchase directly from the Company, an aggregate of 3,133,333 shares of
the Company's common stock five cent ($.05) par value common capital stock (the
"Common Stock"), at $4.50 per share;
WHEREAS, Lender has previously made loans to the Company on November 25,
1997 in the amount of $200,000 and on April 8, 1998 in the amount of $250,000
and now desires to forgive said loans and replace them with this Agreement and
Note it being understood that detachable warrants arising out of the November
25, 1997 loan and the April 8, 1998 loan will continue as obligations of the
Company, it being understood that the Convertible Note Purchase Agreement and
Promissory Note of August 1, 1996 remain in full force and effect;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements hereinafter set forth, and intending to be legally bound hereby, the
parties hereto agree as follows:
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ARTICLE I
DEFINITIONS AND
OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation; and
(3) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Administrative Agent" means CalWest Service Corporation, a California
corporation, which shall act as agent for the Lenders.
"Agreement" means this instrument as originally executed or, if amended
or supplemented as herein provided, as so amended or supplemented.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of the board of directors of the Company.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in the City of Los
Angeles, California are authorized or required to close.
"Common Stock" means the five cent ($.05) par value Common Stock of the
Company as the same exists at the date of the execution of this Agreement or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which are not subject to redemption
by the Company; provided, however, that if at any time there shall be more than
one such resulting class, the share of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of shares of
all such classes resulting from all such reclassifications.
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"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor corporation shall have become such pursuant
to applicable provisions of this Agreement, and thereafter "Company" shall mean
such successor corporation.
"Conversion Notice" has the meaning specified in Sections 202 and 903
hereof.
"Conversion Price" has the meaning specified in Section 901 hereof.
"Corporation" includes corporations, associations, companies and
business trusts.
"Dollars" and "$" means the lawful money of the United States of
America.
"Event of Default" has the meaning specified in Section 501 hereof.
"Executive Employee" means any employee of the Company who holds the
title of Vice President or above.
"Indebtedness" means money borrowed.
"Lender," when used in the singular, means Dito Caree L.P.; and
"Lenders," when used in the plural, means collectively Dito Caree L.P. and
CalWest Service Corporation.
"Interest Payment Date" has the meaning specified in Section 203 hereof.
"Note," when used in the singular, means the Note executed by the
Company and delivered to the Lender under this Agreement as specified in the
recitals hereof; and "Notes," when used in the plural, means collectively the
two Notes executed by the Company and delivered to the Lenders under this
Agreement as specified in the recitals hereof.
"Note Rate" has the meaning specified in Section 203 hereof.
"Notice of Redemption" has the meaning specified in Section 802 hereof.
"Officer's Certificate" means a certificate signed by the President of
the Company and delivered to Lender describing with particularity the use of
proceeds of an advance on the Note, representing that there are no defaults
under this Agreement or the Note, or relating to such other matters as may be
required hereunder.
"Payment Date" shall mean an Interest Payment Date or a Principal
Payment Date.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
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"Principal Payment Date" means any date on which a payment of principal
and interest on the Note shall be due.
"Redemption Date" has the meaning specified in Section 802 hereof.
"Subsidiary" means any corporation more than fifty percent (50%) of the
outstanding voting stock of which is at the time owned, directly or indirectly,
by the Company or by one or more other Subsidiaries, or by the Company and one
or more other Subsidiaries. For purposes of this definition, the term "voting
stock" means stock which ordinarily has voting power for the election of
directors, whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.
"Vice President," when used with respect to the Company, means any vice
president, whether or not designated by a number or a word or words added before
or after the title "vice president."
SECTION 102. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 103. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Agreement by either party shall bind its successors and assigns, whether so
expressed or not. Any act or proceeding by any provision of this Agreement
authorized or required to be done or performed by any board, committee or
officer of either party shall and may be done and performed with like force and
effect by the board, committee or officer of any corporation that shall at the
time be the lawful sole successor of either party.
SECTION 104. SEVERABILITY CLAUSE. In case any provision in this
Agreement or in the Note shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 105. BENEFITS OF AGREEMENT. Nothing in this Agreement or in the
Note, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder any benefit or any legal or equitable
right, remedy or claim under this Agreement.
SECTION 106. GOVERNING LAW. Each of this Agreement and the Note shall be
governed by and construed in accordance with the laws of the State of
California.
SECTION 107. LEGAL HOLIDAYS. In any case where the date of maturity of
or interest on or principal of the Note or the date fixed for redemption or for
purchase of the Note or the last day on which Lender has the right to convert
the Note shall not be a Business Day then (notwithstanding any other provision
of this Agreement or of the Note) payment of such interest, premium or principal
or conversion of the Note need not be made on such date but may be made on the
next succeeding Business Day with the same force and effect as if made on the
date of maturity or the date fixed for redemption or for purchase or the last
day for conversion, and interest shall accrue for the period
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from and after such date of maturity or date fixed for redemption or for
purchase or last day for conversion to such next succeeding Business Day.
SECTION 108. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, including facsimile counterparts, each of which
shall be an original, but all of which counterparts shall together constitute
one and the same instrument.
SECTION 109. ATTORNEYS' FEES. Should suit be filed seeking enforcement
or interpretation of this Agreement and/or the Note, the prevailing party in any
such action shall be entitled to receive in addition to any other sums awarded
to such party, attorneys' fees and all other costs of collection actually
incurred in such action.
SECTION 110. NOTICES. All notices or other communications required or
permitted hereunder shall be in writing, and shall be personally delivered or
sent by registered or certified mail, postage prepaid, return receipt requested,
overnight courier, or by facsimile, addressed to the parties as set forth
herein. Any such notice shall be deemed received upon the earlier of (a) if
personally delivered, the date of delivery to the address of the person to
receive such notice, (b) if mailed, four (4) business days after the date of
posting by the United States post office, (c) if given by overnight courier,
upon receipt by the person to receive such notice, or (d) if sent by facsimile,
when sent.
To the Company: Micro General Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Facsimile: 949/477-6802
To Lender: CalWest Service Corporation
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Secretary
Facsimile: 949/622-4104
Any notice, request, demand, direction or other communication sent by telecopy
must be confirmed within forty-eight (48) hours by letter mailed or delivered in
accordance with the foregoing. Notice of change of address shall be given by
written notice in the manner detailed in this Section 110. Rejection or other
refusal to accept or the inability to deliver because of changed address of
which no notice was given shall be deemed to constitute receipt of the notice,
demand, request or communication sent.
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ARTICLE II
THE NOTE
SECTION 201. FORM GENERALLY. The Note shall be in substantially the form
set forth on Exhibit "A" attached hereto, but with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Agreement, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with applicable securities laws.
SECTION 202. CONVERSION NOTICE. A Conversion Notice, substantially in
the form of Exhibit "B" attached hereto, shall be attached to the Note and shall
be used by Lender to exercise the right to convert the Note into Common Stock.
SECTION 203. DESIGNATION, AMOUNT AND ISSUANCE OF THE NOTE.
(a) The Note shall be designated as a "convertible note" of the
Company, and shall be one of two (2) such "convertible notes," to-wit, the Notes
that are the subject of this Agreement, one in the face amount of Nine Hundred
Thousand Dollars ($900,000.00) and the other in the face amount of Fourteen
Million One Dollars ($14,100,000.00); provided, however, that following the
repayment of $7,816,000.00 in short term borrowing owed to CalWest Service
Corporation further disbursements of principal under the Note shall be limited
to no more than $250,000.00 per disbursement during the term of the Note to be
approved by Lender upon each disbursement request, and Lender shall have no
obligation to make any disbursement under the Note until it shall have received
an Officer's Certificate with respect to each such disbursement in compliance
with the requirements of Section 1001(a) hereof.
(b) The Note shall be dated the date of its issue and shall bear
simple interest from the date thereof at the rate of ten percent (10%) per annum
(the "Note Rate"), and shall be payable as follows: Accrued interest only on the
principal amount of the Note shall be payable quarterly in arrears during the
first five (5) years of the term thereof commencing October 27, 1998 (each, an
"Interest Payment Date"). The entire unpaid balance of the Note, including
principal and accrued but unpaid interest, shall be due and payable on October
27, 2003.
SECTION 204. EXECUTION OF THE NOTE. The Note shall be executed on behalf
of the Company by its President or one of its Vice Presidents, under its
corporate seal reproduced thereon, and by its Secretary, one of its Assistant
Secretaries, its Chief Financial Officer, or any Assistant Treasurer.
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ARTICLE III
COVENANTS OF THE COMPANY
For so long as this Agreement shall remain in effect, the Company
covenants that:
SECTION 301. PAYMENT OF PRINCIPAL AND INTEREST. It will duly and
punctually pay the principal of and interest on the Note at the place, at the
respective times and in the manner provided in the Note; and each installment of
principal and/or interest on the Note shall be paid by mailing checks or wire
transferring funds for the amount due to Lender in a manner reasonably
calculated to cause such funds to be received on or prior to a Payment Date.
SECTION 302. CORPORATE EXISTENCE. Subject to Article VII hereof, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence.
SECTION 303. PAYMENT OF TAXES AND OTHER CLAIMS. The Company has paid and
will in the future pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (a) all taxes, assessments and governmental
charges levied or imposed upon the Company or upon the income, profits or
property of the Company, and (b) all lawful claims against the Company for
labor, materials and supplies which in the case of either clause (a) or (b) of
this Section 303, if unpaid, might by law become a lien upon its property;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
SECTION 304. DIVIDENDS/COMPENSATION. It shall not (a) declare, pay or
make any dividend or distribution (in cash, property or obligations) on any
shares of any class of its capital stock (now or hereafter outstanding) of the
Company or on any warrants, options or other rights with respect to any shares
of any class of capital stock (now or hereafter outstanding) of the Company, or
apply any of its funds, property or assets to the purchase, redemption, sinking
fund or other retirement of any shares of any class of capital stock (now or
hereafter outstanding) of the Company or any option, warrant or other right to
acquire shares of the Company's capital stock, or (b) make any deposit for any
of the foregoing purposes. No additional salary, bonus or other cash or non-cash
compensation shall be paid to any of the Company's Executive Employees in an
amount greater than the amount set forth in any existing employment contracts
with such individuals, or, in the case of "at-will" Executive Employees, any
increase in the compensation paid for such Executive Employees shall require the
prior written approval of the Company's Board of Directors and the
Administrative Agent, which approval will not be unreasonably withheld. No
non-cash compensation shall be paid to any employees of the Company without the
prior written approval of the Company's Board of Directors and the
Administrative Agent, which approval will not be unreasonably withheld.
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SECTION 305. CORPORATE EXISTENCE; FOREIGN QUALIFICATION. It will do and
cause to be done at all times all things necessary to (a) maintain and preserve
the corporate existence of the Company (b) be duly qualified to do business and
in good standing as foreign corporations in each jurisdiction where the nature
of its business makes such qualification necessary, and (c) comply with all
contractual obligations and requirements of law binding upon it.
SECTION 306. BOOKS, RECORDS AND INSPECTIONS. It shall:
(a) maintain, and cause each of its Subsidiaries, if any, to
maintain complete and accurate books and records;
(b) permit, and cause each of its Subsidiaries, if any, to permit
access at reasonable times by Lender to its books and records;
(c) permit, and cause each of its Subsidiaries, if any, to permit
Lender to inspect at reasonable times its properties and operations; and
(d) permit, and cause each of its Subsidiaries, if any, to permit
Lender to discuss its business, operations and financial condition with its
officers and employees or with its outside auditors.
SECTION 307. COMPLIANCE WITH LAWS. It shall comply with all federal,
state and local laws, rules and regulations related to its businesses;
SECTION 308. MAINTENANCE OF PERMITS. It shall maintain all permits,
licenses and consents as may be required for the conduct of its business by any
state, federal or local government agency or instrumentality.
SECTION 309. CAPITAL EXPENDITURES/DEBT. It shall not, without the
express prior written consent of Lender, (a) make any capital expenditures not
made with the proceeds of the sale of the Note, and the use of all proceeds for
capital expenditures shall be substantially as described in the Officer's
Certificate applicable thereto, or (b) other than the Note or any other
"convertible note" as referenced in Section 203(a) hereof, incur any new
Indebtedness, liability or obligation to any third party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants as follows to Lender:
SECTION 401. CUSTOMER CONTRACTS. The Company represents and warrants to
Lender that, as of the date hereof, to its knowledge all contracts and
agreements between it and purchasers of its goods and services (whether payable
in cash or in kind) are valid and in full force and effect, all
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amounts due and owing to the Company thereunder have been paid, no default
exists either on the part of the Company or of any other party to any such
contract and that the list of such contracts appearing on Schedule 401 attached
hereto is true, accurate and complete;
SECTION 402. BOARD OF DIRECTORS. As of the date hereof, the list of
Directors making up its Board of Directors set forth on Schedule 402 attached
hereto is true, accurate and complete, and all such Directors have been duly
elected by valid shareholder action in the manner required by the Certificate of
Incorporation and/or the Bylaws of the Company;
SECTION 403. ORGANIZATION, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has no active Subsidiaries at the date hereof. The company has
corporate power to own or lease its properties and to carry on its business as
and in the places where such properties are now owned, leased or operated, and
its business is now conducted, and the Company has complied in all material
respects with all material federal, state and local laws with respect to the
operation and the conduct of its business. Copies of the Certificate of
Incorporation and all amendments thereto, bylaws as amended and currently in
force, stock records and corporate minutes and records of the Company heretofore
made available to Lender are complete and correct at the date hereof;
SECTION 404. CAPITAL STOCK; STOCK OPTIONS.
(a) The Company has authorized capital stock consisting of
10,000,000 shares of Common Stock, five cent ($.05) par value, of which
6,910,452 shares are issued and outstanding as of October 27, 1998, and
1,000,000 shares of Preferred Stock, five cent ($.05) par value, none of which
are issued or outstanding. All of the issued and outstanding shares of Common
Stock are duly authorized and validly issued, fully-paid and nonassessable, were
offered, issued and sold in accordance with applicable federal and state
securities laws, and there are no preemptive rights in respect thereof. There
are no other classes of stock of the Company other than the Common Stock and
Preferred Stock.
(b) There are no outstanding options, warrants, rights, calls,
commitments, conversion rights, plans or other agreements or instruments of any
character providing for the purchase or other acquisition by the holders thereof
or issuance of any company securities of any description, except as set forth on
Schedule 404(b) attached hereto.
SECTION 405. CORPORATE AUTHORITY. The Company has full legal right and
corporate power and authority, without the consent of any other person, to make,
execute, deliver and perform this Agreement and the transactions contemplated
hereby, and the execution, delivery and performance of this Agreement by the
Company has been duly authorized by all necessary corporate action of the
Company.
SECTION 406. NOTES AND ACCOUNTS RECEIVABLE. To its knowledge, all notes
receivable and accounts receivable are valid obligations of the respective
makers thereof, are as set forth on
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Schedule 406 attached hereto; except as disclosed in such Schedule 406, are not
subject to any valid offset or counterclaim; and are not subject to any
assignment, claim, lien or security interest.
SECTION 407. ACTIONS, SUITS, ETC. There are no actions, suits, claims,
complaints, charges, hearings, investigations, arbitrations (or other dispute
resolution proceedings) or other proceedings pending or, to its knowledge,
threatened against, by or affecting the Company in any court or panel or before
any arbitrator or governmental agency, domestic or foreign, other than (a)
actions related to garnishments of employee wages, or (b) routine matters
covered by insurance. The Company has not been charged with, and to its
knowledge is not under investigation with respect to, any charge concerning any
violation of any provision of any federal, state or other applicable law or
administrative regulation with respect to its business. There are no judgments
unsatisfied against the Company and no consent decrees to which the Company is
subject. The Company is not involved in or threatened with any labor dispute
which could have a material adverse effect on the business and operations of the
Company.
SECTION 408. MATERIAL CONTRACTS. Schedule 408 attached hereto sets forth
an accurate, correct and complete list of all instruments, commitments,
agreements, arrangements and understandings related to its business to which the
Company is a party or bound, or pursuant to which the Company is a beneficiary,
meeting any of the descriptions set forth below (the "Material Contracts"):
(a) Real estate leases, personal property leases, licenses of
intellectual property, technical information or software, employment contracts
and benefit plans;
(b) Any contract for capital expenditures or for the purchase of
goods or services in excess of $5,000;
(c) Any instrument evidencing indebtedness (other than routine
purchase orders), any liability for borrowed money, any obligation for the
deferred payment of the purchase price for property in excess of $5,000
(excluding normal trade payables), or any instrument guaranteeing any
indebtedness, obligation or liability;
(d) Any advertising contract not terminable without payment or
penalty on thirty (30) days (or less) notice;
(e) Any license or royalty agreement;
(f) Any contract for the purchase or sale of any assets in excess
of $5,000 other than in the ordinary course of business or granting an option or
preferential rights to purchase or sell any assets in excess of $5,000;
(g) Any contract containing covenants not to compete in any line
of business or with any person in any geographical area;
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(h) Any contract relating to the acquisition of a business or the
equity of any other person;
(i) Any other contract, commitment, agreement, arrangement or
understanding related to its business which provides for payment or performance
by any party thereto having an aggregate value of $5,000 or more, and is not
terminable without payment or penalty on thirty (30) days (or less) notice.
Accurate, correct and complete copies of each such contract have been made
available to Lender. Each contract is in full force and effect and is valid,
binding and enforceable as to the Company in accordance with its terms. The
Company and, to the Company's knowledge, each other party has complied in all
material respects with all material commitments and obligations on its part to
be performed or observed under each such contract. The Company has not received
any written or, to its knowledge, other notice of a default, offset or
counterclaim under any contract, or any other written or, to its knowledge,
other communication calling upon the Company to comply with any provision of any
contract or asserting noncompliance by the Company.
SECTION 409. ABSENCE OF UNDISCLOSED LIABILITIES. To its knowledge, the
Company does not have any indebtedness, liability or obligation of any nature,
whether absolute, accrued, contingent or otherwise, related to or arising from
the operation of its business or the ownership, possession or use of any assets,
except as set forth on Schedule 409 attached hereto.
SECTION 410. ACCURACY OF INFORMATION. None of the information furnished
by the Company to Lender in writing shall contain any untrue statement of a
material fact or shall omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
circumstances under which they were made, not misleading.
SECTION 411. REAL ESTATE LEASES. Schedule 411 attached hereto sets forth
an accurate, correct and complete list of all real estate which is leased or
subleased by the Company, including identification of the lease or sublease,
street address, and list of material contracts, agreements, leases, subleases,
options and commitments, oral or written, affecting such real estate or any
interest therein to which the Company is a party or by which the Company is
bound (the "Real Estate Leases"). The Company has made available to Lender
accurate, correct and complete copies of each Real Estate Lease and no default
exists under any Real Estate Lease.
SECTION 412. PERSONAL PROPERTY LEASES. Schedule 412 attached hereto
contains an accurate, correct and complete list of each lease of personal
property used in the business which provides for annual lease payments in excess
of $5,000 (the "Personal Property Leases"). The Company has made available to
Lender accurate, correct and complete copies of each Personal Property Lease and
no default exists under any Personal Property Lease.
SECTION 413. INTELLECTUAL PROPERTY. Schedule 413 attached hereto
contains an accurate, correct and complete list and summary description of all
patents, trademarks, trademark rights, trade names, trade styles, trade dress,
service marks, copyrights and applications for any of the foregoing
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utilized by the business (the "Intellectual Property"). During the preceding
five (5) years, the Company has not been known by or done business under any
name other than Micro General Corporation. Schedule 413 contains an accurate,
correct and complete list and summary description of all licenses and other
agreements relating to any Intellectual Property. Except as set forth on
Schedule 413, with respect to the Intellectual Property, (a) the Company is the
sole and exclusive owner and, to the knowledge of the company, has the sole and
exclusive right to use the Intellectual Property; (b) no action, suit,
proceeding or investigation is pending or, to the Company's knowledge,
threatened; (c) to the knowledge of the Company, none of the Intellectual
Property interferes with, infringes upon, conflicts with or otherwise violates
the rights of others or is being interfered with or infringed upon by others,
and none is subject to any outstanding order, decree, judgment, stipulation or
charge; (d) there are no royalty, commission or similar arrangements, and no
licenses, sublicenses or agreements, pertaining to any of the Intellectual
Property; (e) the Company has not agreed to indemnify any person for or against
any infringement of or by the Intellectual Property; and (f) the Intellectual
Property constitutes all such assets, properties and rights which are used in or
necessary for the conduct of its business. To the knowledge of the Company, the
operation of its business by the Company after the date hereof, in the manner
and geographic areas in which its business is currently conducted by the Company
or is to be conducted as a result of its plans to expand its business into other
geographic areas, will not interfere with or infringe upon any currently issued
United States Letters Patent or trademarks currently registered in the Primary
Register of the United States Patent and Trademark Office. The Company is not
subject to any judgment, order, writ, injunction or decree of any court or any
federal, state, local or other governmental agency or instrumentality, domestic
or foreign, or any arbitrator, and has not entered into or is not a party to any
contract which restricts or impairs the use of any Intellectual Property.
SECTION 414. TRADE SECRETS. Schedule 414 attached hereto contains an
accurate, correct and complete list and summary description of all information
in the nature of proprietary information, including databases, compilations of
information, copyrightable material and technical information, if any, relating
to its business "Technical Information"). The Company has the right to use the
Technical Information by virtue of ownership or by virtue of the license
agreements identified in Schedule 414. The Company has no knowledge of any
violation of any trade secret rights or copyrights with respect to such
Technical Information.
SECTION 415. SOFTWARE AND INFORMATION SYSTEMS. The Company has the right
to use all electronic data processing systems, information systems, hardware,
computer software programs, indexes, program specifications, charts, procedures,
source codes, input data, routines, data bases and report layouts and formats,
record file layouts, diagrams, functional specifications and narrative
descriptions, flow charts and other related material (if any) used in and
reasonably necessary for the conduct of its business (collectively the
"Software"). Schedule 415 attached hereto contains an accurate, correct and
complete summary description of all Software (other than non-proprietary
commercially available Software).
SECTION 416. INSURANCE. Set forth on Schedule 416 attached hereto is a
true, accurate and complete list of all policies of insurance currently in force
in which the Company is named as insured, loss payee, or additional insured,
premiums on all of such policies have been paid, and
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copies of all policies have been delivered to Lender at the date hereof, and
Lender has been named as loss payee or additional insured on all such policies
on which such coverage is available.
ARTICLE V
DEFAULTS; REMEDIES
SECTION 501. EVENTS OF DEFAULT. "Event of Default," wherever used herein
with respect to the Note, means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) BY THE COMPANY.
(1) default in the payment of any installment of principal
and/or interest on the Note as and when it becomes due and payable, whether by
virtue of the terms of the Note as to payments of principal and/or interest, at
maturity, in connection with any redemption, or otherwise and the passage of
seven (7) days following written notice thereof to the Company; or
(2) default in the performance, or breach, of any material
covenant, representation or warranty of the Company in this Agreement and the
passage of thirty (30) days following written notice thereof to the Company, or,
if such default cannot be cured within such thirty (30) days, commencement of
the cure of such default within such thirty (30) days and diligent prosecution
of such cure to completion; or
(3) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or (B) a decree or order
adjudging the Company a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of or in
respect of the Company under any applicable Federal or state law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of all or substantially all of its property,
or ordering the winding up or liquidation of its affairs, and-the continuance of
any such decree or order for relief or for any such other decree or order
unstayed and in effect for a period of 45 consecutive days;
(4) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or the consent by it to the entry of a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law, other consent by it to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the company or of all or
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substantially all of its property, or the making by it of a general assignment
for the benefit of creditors; or
(5) until all sums due under the Note have been repaid, or
any increase by the Company of the number of members of its Board of Directors
to a number greater than the number who hold office at the time of execution of
the Note, or any change in the actual members of the Company's Board of
Directors, without the prior written consent of the Lender; or
(6) the failure of the Company to provide any information
or report to Lender required to be provided pursuant to Article VI hereof and
the passage of thirty (30) days following written notice thereof to the Company,
or, if such default cannot be cured within such thirty (30) days, commencement
of the cure of such default within such thirty (30) days and diligent
prosecution of such cure to completion.
(b) BY THE LENDER. The failure of the Lender to fund pursuant to
Section 203(a) hereof in the event that a proper Officer's Certificate pursuant
to Section 1001(a) is received and the Company is in compliance with all
covenants of this Agreement and the Note.
SECTION 502. ACCELERATION OF MATURITY, RESCISSION AND ANNULMENT; OTHER
REMEDIES.
(a) LENDER'S REMEDIES.
(i) Upon the occurrence of an Event of Default under any
event described in Section 501(a) (other than an Event of Default described in
Sections 501(a)(4) and 501(a)(5) hereof), then in every such case Lenders may
declare the principal amounts of the Notes to be due and payable immediately, by
a notice in writing to the Company and upon any such declaration such principal
amounts shall become immediately due and payable. The Company specifically
acknowledges and agrees that the occurrence of any Event of Default under any
event described in Section 501(a) hereof will automatically cause all existing
Notes to be in default, and all Events of Default under all Notes must be cured
before any one Event of Default shall be deemed cured.
(ii) At any time after such a declaration of acceleration
with respect to the Note has been made and before a judgment or decree for
payment of the money due has been obtained by Lender as hereinafter in this
Article provided, Lender may, by written notice to the Company, rescind and
annul such declaration and its consequences if, (1) the Company has paid to
Lender a sum sufficient to pay (A) all overdue interest on the Note, (B) the
principal on the Note which has become due otherwise than by such declaration of
acceleration and interest thereon at the Note Rate, (C) to the extent that
payment of such interest is lawful, interest upon overdue interest at the Note
Rate, and (D) all sums paid or advanced by Lender hereunder and the actual
compensation, expenses, disbursements and advances of Lender, its agents and
counsel; and (2) all Events of Default with respect to the Note, other than the
nonpayment of the principal of the Note which has become due solely by such
declaration of acceleration, have been cured or waived by Lender. No such
rescission shall affect any subsequent default or impair any right consequent
thereon. In the case of any Event of Default described in Section 501(a)(4) or
501(a)(5), all unpaid principal of and accrued interest
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on the Note shall be due and payable immediately without any declaration or
other act on the part of Lender.
(iii) Obligations of this Note are secured by the Security
Agreement dated August 1, 1996.
(b) THE COMPANY'S REMEDIES. Upon the occurrence of an Event of
Default as described in Section 501(b) hereof, then the option amount referred
to in Section 901 hereof shall be limited to a number equal in value to the
amount already funded.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT.
(a) The Company covenants that if default is made in the payment
of any principal and/or interest on the Note when such principal and/or interest
becomes due and payable, whether at a time specified in the Note, at maturity of
the Note or in connection with any redemption or otherwise, the Company will,
upon demand of Lender, pay to it the whole amount then due and payable on the
Note for principal and interest and, to the extent that payment of such interest
shall be legally enforceable, interest on any overdue principal and-on any
overdue interest, at the Note Rate, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
Lender, its agents and counsel, it being understood that as to the Lenders, any
payments will be applied on a pro rata basis among the Lenders based on each
Lender's respective Note amount. If the Company fails to pay such amounts
forthwith upon such demand, Lender may prosecute a proceeding to judgment or
final decree and may enforce the same against the Company or any other obligor
on the Note and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or of any other
obligor on the Note, wherever situated, it being understood that any monies
collected shall be applied on a pro rata basis among the Lenders based on each
Lender's respective Note. In addition, Lender may give notice to customers of
the Company that all payments under contracts listed on Schedule 401 shall,
until further notice, be paid directly to Lender, and the Company consents to
each such notice.
(b) If an Event of Default with respect to the Note occurs,
Lender may in its discretion proceed to protect and enforce its rights by such
appropriate judicial proceedings as it shall deem most effectual to protect and
enforce any such rights, whether for the specific enforcement of any covenant or
agreement in this Agreement or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
SECTION 504. LENDER MAY FILE PROOFS OF CLAIM. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or of any other obligor on the Note or the property of the Company
or of such other obligor or their creditors, Lender (irrespective of whether the
principal of the Note shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether it shall have made any
demand on the Company for the
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payment of overdue principal or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal
and interest owing and unpaid in respect of the Note and to file such other
papers and documents as may be necessary or advisable in order to have the
claims of Lender (including any claim to the right to own Common Stock or for
the reasonable compensation, expenses, disbursements and advances of Lender, its
agents and counsel) allowed in such judicial proceeding, and
(b) to collect and receive any monies or other property payable
or deliverable on any such claims.
SECTION 505. APPLICATION OF MONEY COLLECTED. Any money collected by
Lender pursuant to this Article V shall be applied in the following order, at
the date or dates fixed by Lender and, in case of the distribution of such money
on account of principal or interest, upon presentation of the Note and the
notation thereon of the payment if only partially said and upon surrender
thereof if fully paid:
First: To the costs and expenses of Lender in collecting sums due
it hereunder;
Second: To the payment of the amounts then due and unpaid first
for interest on and then for principal of all outstanding Notes, applied on a
pro rata basis among the Lenders based on each Lender's respective Note; and
Third: To the payment of the remainder, if any, to the Company or
any other Person lawfully entitled thereto.
SECTION 506. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to Lender is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 507. DELAY OR OMISSION NOT WAIVER. No delay or omission of
Lender to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default. Every right and remedy given by this Article V or by law may be
exercised from time to time, and as often as may be deemed expedient by Lender.
SECTION 508. WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Agreement; and
the Company (to the extent that it may lawfully do so) hereby expressly waives
all
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benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to Lender, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
ARTICLE VI
REPORTS BY COMPANY
SECTION 601. ANNUAL STATEMENT. The Company will deliver to Lender,
within 30 days after the end of each fiscal year of the Company, an Officer's
Certificate stating that to the best of such officer's knowledge, the Company
has fulfilled all its obligations under this Agreement throughout such year, or,
if there has been a default in the fulfillment of any such obligation and such
default is continuing, specifying each such default of which such officer has
knowledge, and the nature and status thereof.
SECTION 602. REPORTS BY COMPANY. The Company shall file with Lender,
such information, documents and other reports, and such summaries thereof, as
Lender shall request, immediately upon request, but without request the Company
shall deliver to Lender audited financial statements of the Company prepared by
independent certified public accountants ("Accountants") within ninety (90) days
of the end of each Company fiscal year.
SECTION 603. QUARTERLY FINANCIAL REPORTS. Throughout the term of this
Agreement and for so long as any amount remains unpaid under the Note, the
Company shall furnish Lender with copies of its quarterly financial reports no
later than forty-five (45) days following the end of the subject fiscal quarter.
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER, SALE OR LEASE
SECTION 701. COMPANY MAY CONSOLIDATE. ETC., ON CERTAIN TERMS. The
Company shall not consolidate with or merge into any other corporation or
convey, transfer, sell or lease its properties and assets as, or substantially
as, an entirety to any Person, issue any capital stock (including Common Stock)
of the Company unless (a) prior to such transaction Lender has released in
writing its Right of First Refusal as required by Section 702 hereof, and (b)
upon any such consolidation, merger, sale, conveyance or exchange of or by the
Company, (i) the Company is the continuing corporation and the Company's Common
Stock outstanding immediately prior to the merger is not exchanged for
securities, cash or other property of another corporation, (ii) there is an
exchange of the Note for other securities in connection with such transaction,
or (iii) the due and punctual payment of the principal of and interest on, the
Note, according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of the Agreement to be
performed by the Company, are expressly assumed by a note supplemental to the
Note by the
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corporation formed by such consolidation, or whose securities, cash or other
property will immediately after the merger be owned, by virtue of the merger, by
the holders of Common Stock of the Company immediately prior to the merger, or
by the corporation that shall have acquired such property or securities.
Furthermore, the Company shall not consolidate with or merge into any other
corporation or convey, transfer, sell or lease its properties and assets as, or
substantially as, an entirety to any Person, or enter into any statutory
exchange of securities with another corporation, unless the Right of First
Refusal has been released and unless immediately after giving effect to such
transaction no Event of Default shall have occurred and be continuing, and the
Company shall have delivered to Lender an Officer's Certificate stating that
such transaction and such supplemental agreement comply with this Agreement.
SECTION 702. RIGHT OF FIRST REFUSAL OF LENDERS. For so long as any
amounts due under the Note shall be outstanding, Lenders shall have and retain
the first option to purchase any and all assets of the Company and any and all
capital stock (including Common Stock) of the Company, upon the same terms and
subject to the same conditions as may be offered to the Company by a third party
for such assets or capital stock; provided, however, that any non-cash
consideration offered for any such assets or capital stock shall be given its
then current market value in cash and Lenders shall have the opportunity to pay
the amount of such cash in lieu of any non-cash consideration offered by a
prospective owner of any assets or capital stock on a pro rata basis as to the
Lenders' exercise of that right. Immediately upon receipt of any offer to
purchase any assets or capital stock, or upon determining that the Company
desires to sell any assets or capital stock, the Company shall immediately
notify Lenders of the assets and/or capital stock proposed to be bought and
sold, and of the terms of such proposed purchase and sale. Within twenty (20)
days of being so notified, Lenders shall notify either the Company and/or the
owner of the capital stock in question that they (or any one of them) will
exercise the right of first refusal granted herein ("Right of First Refusal"),
or, in the alternative, that they (or any one of them) thereby release such
Right of First Refusal and consents to the sale of the assets or capital stock
on the terms described. Any change in such terms shall give each Lender the
right to once again exercise or release its Right of First Refusal within an
additional time period identical to that specified above.
ARTICLE VIII
REDEMPTION OF NOTE BY THE COMPANY
SECTION 801. RIGHT TO REDEEM. The Company may, at its option, redeem all
or, from time to time, any part of the Note, on any date prior to maturity, in
the manner specified in this Article VIII, at the original principal amount
thereof, plus accrued and unpaid interest, if any, to the date fixed for
redemption, but no such redemption shall in any way impair the right of Lender
to convert the Note into shares of Common Stock as specified in this Agreement
or in the Right of First Refusal granted hereunder.
SECTION 802. NOTICE OF REDEMPTION.
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(a) In case the Company shall desire to exercise its right to
redeem all or any part of the Note pursuant to Section 801 hereof, it shall fix
a date for redemption (a "Redemption Date"), shall notify Lenders in writing of
such date, and shall mail or cause to be mailed a notice of such redemption (a
"Notice of Redemption") at least ten (10) and not more than thirty (30) days
prior to the date fixed for redemption to Lenders at their principal executive
offices. Such mailing shall be by first class mail. The Company agrees to
exercise said right of redemption on an equitable and pro rata basis among the
Lenders.
(b) The Notice of Redemption shall specify the principal amount
of the Note to be redeemed, the Redemption Date for the Note, and the Redemption
Price at which the Note is to be redeemed, and shall state that payment of the
Redemption Price of the Note or portions thereof to be redeemed will be made on
surrender of the Note to be redeemed, that interest accrued to such Redemption
Date will be paid as specified in such notice, and that from and after such date
interest thereon will cease to accrue. In the event of full redemption of the
Note, such Notice of Redemption shall also state that the right to convert the
Note or portion thereof into Common Stock will expire at the close of business
on October 27, 2003.
(c) On or prior to each Redemption Date specified in each Notice
of Redemption given as provided in this Section 802, the Company will pay to
Lender an amount of money sufficient to redeem on such Redemption Date the Note
or portion thereof so called for redemption at the appropriate Redemption Price,
together with accrued interest to the Redemption Date.
(d) If the Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear interest
from the date fixed for redemption at the Note Rate and the Note shall remain
convertible into Common Stock until October 27, 2003, or until all amounts due
under the Note have been repaid in full.
ARTICLE IX
RIGHT TO CONVERT NOTE AND/OR RIGHT TO PURCHASE STOCK
SECTION 901. RIGHTS GRANTED. Subject to and upon compliance with the
provisions of this Article IX, and specifically Section 902 hereof, Lender shall
have the right, at its option, at any time or from time to time on or prior to
the close of business on October 27, 2003, to convert the principal amount of
the Note up to a value of $14,100,000.00 into, an aggregate of 3,133,333 shares
of Common Stock at a price of $4.50 per share (the "Conversion Price"), or to
pay in cash in an amount up to $14,100,000.00..
SECTION 902. ANTI-DILUTION RIGHTS OF LENDER. The Company will not, by
any voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of the conversion privilege set forth in Section 901 hereof,
but will at all times in good faith carry out the provisions and intent of
Section 901 and take all such action as may be necessary or appropriate to
protect against impairment of the rights of Lender to convert the Note into, or
to purchase, Common Stock. In the event that, at any time prior to full exercise
by Lender of its right to purchase such Common
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Stock, the Company shall sell or otherwise transfer any Common Stock, the
Company undertakes and agrees to make any adjustments that may be necessary to
permit Lender to purchase an equal number of shares of the Common Stock for a
per share price equal to the per share price paid by such other purchaser or
transferee, including, if necessary, refunding to Lender any sums necessary to
cause Lender to receive the benefit of this Section 902, such benefit to survive
the repayment of the Note and to be applicable with respect to issuances of
Common Stock until October 27, 1998. Nothing in this Section 902 shall be
interpreted to permit or require any increase in the consideration to be paid by
Lender in exchange for 200,000 shares of the Common Stock.
SECTION 903. MANNER OF EXERCISE OF CONVERSION PRIVILEGE. In order to
exercise the conversion privilege, Lender shall surrender the Note, duly
endorsed or assigned to the Company or in blank, at the office of the Company,
together with the Conversion Notice duly executed, that Lender elects to convert
the Note or the portion thereof specified in said Conversion Notice or,
alternatively, that Lender will purchase such Common Stock. Such Conversion
Notice shall also state the name or names, together with the address or
addresses in which the certificate or certificates for shares of Common Stock
which shall be issuable in such conversion or purchase shall be issued as
promptly as practicable after the surrender of the Note and the receipt of such
Conversion Notice, the Company shall issue and deliver to Lender, or on Lender's
written order, a certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of the Note or portion thereof in
accordance with the provisions of this Article IX. In case the Note shall be
surrendered for partial conversion, the Company shall execute and deliver to or
upon the order of Lender, at the expense of the Company, a new note or notes in
authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Note. Each conversion shall be deemed to
have been effected immediately prior to the close of business on the date on
which the Note shall have been surrendered and such Conversion Notice received
by the Company as aforesaid, and the Person or Persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion or purchase shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time on such date.
SECTION 904. NOTICE TO LENDER PRIOR TO CERTAIN CORPORATE ACTIONS. In
case:
(a) the Company shall authorize the granting to the holders of
its Common Stock generally of rights, warrants or options to subscribe for or
purchase any shares of stock of any class or of any other rights; or
(b) there shall be any reorganization or reclassification of the
Common Stock (other than a change in the par value of the Common Stock), or any
permissible consolidation or merger to which the Company is a party, or any
permissible conveyance, transfer, sale or lease of the Company's properties and
assets as, or substantially as, an entity; or
(c) there shall be a voluntary or in-voluntary dissolution,
liquidation or winding-up of the Company;
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then the Company shall cause to be given to Lender, in the manner provided in
Section 110 hereof, and with respect to the events described in subsections (a),
(b) and (c) of this Section 904, as promptly as possible, but in any event at
least twenty (20) days prior to the applicable date hereinafter specified, a
notice stating (i) the date on which the Company expects to file a Registration
Statement covering the Common Stock, or (ii) the date on which such
reorganization, reclassification, consolidation, merger, conveyance, transfer,
sale, lease, dissolution, liquidation, or winding-up is expected to become
effective or occur, and, if applicable, the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance, transfer,
sale, lease, dissolution, liquidation, or winding-up, subject to compliance with
the Right of First Refusal required by Section 702 hereof.
SECTION 905. RESERVATION OF SHARES OF COMMON STOCK. The Company
covenants that it will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued shares of
Common Stock, for the purpose of effecting conversion of the Note, the full
number of shares of Common Stock deliverable upon the conversion of the Note.
SECTION 906. TAXES UPON CONVERSION. The Company will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversion of the Note pursuant
hereto.
SECTION 907. COVENANTS AS TO COMMON STOCK. The Company covenants that
all shares of Common Stock which may be delivered upon conversion of the Note
will, upon delivery, be duly and validly issued and fully paid and
non-assessable, free of all liens and charges and not subject to any preemptive
rights.
SECTION 908. PIGGYBACK REGISTRATION RIGHTS. If the Company shall
determine to register any of its securities, either for its own account or for
the account of a security holder or holders, other than a registration relating
solely to employee benefit plans, or a registration on any registration form
that does not permit secondary sales, the Company will promptly give to Lender
written notice thereof and use its best efforts to include in such registration
(and any related qualification under applicable Blue Sky laws or other
compliance), and any underwriting involved therein, Common Stock specified in a
written request made by Lender within twenty (20) days after the written notice
of the Company provided for above is given. Such written request may specify all
or a part of Lender's Common Stock. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
company shall so advise as a part of the written notice given as required above.
In such event the right of Lender to registration shall be conditioned upon
Lender's participation in such underwriting and the inclusion of its Common
Stock in the underwriting. Lender shall enter with the Company into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company. Notwithstanding the above,
if the representative of the underwriters advises the Company in writing that
marketing factors require a limitation of the number of shares to be
underwritten, the representative may exclude Lender's Common Stock from, or
limit the number of shares of Lender's Common Stock to be included in, the
registration and underwriting. The number of shares of
-21-
25
securities that are entitled to be included in the registration and underwriting
shall be allocated first to the Company for securities being sold for its own
account, then to Lender to the extent of securities it has elected to sell for
its own account, and thereafter to all other owners of Common Stock with the
right to participate in such registration and underwriting pro rata in
proportion to the percentage of all outstanding Common Stock owned by each such
Person immediately prior to commencement of such registration and underwriting.
If any Person does not agree to the terms of any such underwriting, he shall be
excluded therefrom by written notice from the Company or the underwriter. Any
Common Stock or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration. If shares are so withdrawn from the
registration or if the number of shares of Common Stock to be included in such
registration is increased during the period of such registration, the Company
shall offer first to Lender and then, if additional shares may be sold in the
registration to all other Persons who have retained the right to include
securities in the registration, the right to include additional securities in
the registration in an aggregate amount equal to the number of shares so
withdrawn, with such shares to be allocated among the Persons requesting
additional inclusion pro rata in proportion to the percentage that each Person's
Common Stock represents of the total amount of Common Stock owned by all such
Persons prior to commencement of such registration and underwriting.
ARTICLE X
CONDITIONS PRECEDENT
SECTION 1001. CONDITIONS PRECEDENT. The obligation of Lender to purchase
the Note(s) and to make all individual disbursements thereunder is expressly
conditioned upon the following:
(a) The Lender's receipt from the Company, in each instance, of
an Officer's Certificate signed by its President satisfactory to Lender in which
such President represents and warrants to Lender on behalf of the Company that
(1) use of the proceeds from any disbursement of principal of the Note shall be
dedicated to such corporate uses as the Company's Board of Directors may deem
proper; and (2) there are no defaults under this Agreement or the Note.
(b) The Lender's receipt of a Certificate of Good Standing
certified by the Secretary of State of the State of Delaware as to the corporate
status of the Company; and
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26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, and their respective seals to be hereunto fixed and attested, all
as of the day and year first above written.
MICRO GENERAL CORPORATION
(the "Company")
By: _____________________________________
Name:____________________________________
Title:___________________________________
CALWEST SERVICE CORPORATION ("Lender")
By: _____________________________________
Name:____________________________________
Title:___________________________________
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27
EXHIBIT "A"
MICRO GENERAL CORPORATION
CONVERTIBLE NOTE
(MULTIPLE ADVANCES)
$14,100,000.00 Irvine, California
October 27, 1998
MICRO GENERAL CORPORATION, a corporation duly organized and existing
under the laws of Delaware (herein called the "Company," which term includes any
successor corporation or corporations under the Agreement hereinafter referred
to), for value received, hereby promises to pay to Fidelity National Financial,
Inc., at its office at ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ("Lender"), or order, principal sum of Fourteen Million One Hundred
Thousand Dollars ($14,100,000.00), or so much thereof as shall have been
disbursed by Lender and which at that time remains unpaid, together with simple
interest thereon from the date hereof at the rate of ten percent (10%) per
annum, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts,
payable as follows: Accrued interest only on the principal amount hereof shall
be payable quarterly in arrears during the first five (5) years of the term
hereof commencing October 27, 1998. Thereafter, on October 27, 2003 the entire
unpaid balance of this Note, including principal and accrued but unpaid
interest, shall be due and payable.
This Note may be prepaid in whole or in part at any time with the prior
written consent of Lender so long as the Company gives ten (10) days' prior
written notice to Lender of the Company's intent to prepay this Note or any
portion hereof. Such notice shall state the proposed payment date (the "Payment
Date") and the principal amount to be repaid. At any time during the term
hereof, the Lender may, but shall not be obligated to, elect to convert all or
any portion of the principal to be repaid on the Payment Date into shares of the
Company's common stock (the "Common Stock") at the "Conversion Price" (as that
term is defined in the Agreement hereinafter referred to) then in effect by
delivering to the Company, to the attention of its President, written notice of
its election to exercise its conversion rights as set forth herein.
Notwithstanding anything contained herein to the contrary, and notwithstanding
the Company's payment of this Note in whole or in part, the Lender shall retain
the right to convert the then-outstanding principal balance hereof into the
subject shares of Common Stock throughout the five (5) year term of this Note at
the Conversion Price.
Any partial prepayments made hereunder shall be applied to installments
due hereunder in inverse order of maturity.
This Note is duly authorized and issued by the Company, is designated as
set forth on the face hereof, and is limited to the aggregate principal amount
of $14,100,000.00 issued under and pursuant to that certain Convertible Note
Purchase Agreement, dated as of October 27, 1998 (herein called the
"Agreement"), duly executed and delivered by the Company and Lender, to which
Agreement reference is hereby made for a further description of the rights,
limitation of rights, obligations, and
-24-
28
duties thereunder of the Company and Lender. In case an Event of Default shall
have occurred under this Note or under the Agreement (as the term "Event of
Default" is defined in said Agreement), the principal balance hereof and all
accrued but unpaid interest thereon may be declared, and upon such declaration
shall become, due and payable, in the manner, with the effect and subject to the
conditions provided in the Agreement.
Reference is hereby made to the further provisions of the Agreement,
including, without limitation, provisions giving the Lender of this Note the
right to convert this Note into Common Stock on the terms and subject to the
limitations more fully specified in the Agreement. Such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
Capitalized terms used in this Note and not otherwise defined still have the
meanings assigned to such terms in the Agreement.
IN WITNESS WHEREOF, the Company has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: _______________________ MICRO GENERAL CORPORATION (the "Company")
By: _____________________________________
Name:____________________________________
Title:___________________________________
-25-
29
EXHIBIT "B"
CONVERSION NOTICE
To: Micro General Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
The undersigned, as the owner of that certain Convertible Promissory
Note dated October 27, 1998 (the "Note"), hereby irrevocably exercises the
option to convert the Note, or that portion of the Note designed herein below,
into _____________ shares of Common Stock of Micro General Corporation at a
price of $_______ per share, in accordance with the terms of that certain
Convertible Note Purchase Agreement between the undersigned and Micro General
Corporation as referenced in the Note, and directs that the shares issuable and
deliverable upon the conversion be issued and delivered to the holder hereof
unless a different name has been indicated below. If shares or any portion of
this Note not converted are to be issued in the name of a person other than the
undersigned, the undersigned has herein below named the transferee to whom the
new Note should be issued.
Dated: _____________________________
_______________________________________
Signature(s)
By: ___________________________________
Name:__________________________________
Title:_________________________________
30
MICRO GENERAL CORPORATION
CONVERTIBLE NOTE
(MULTIPLE ADVANCES)
$14,100,000.00 Irvine, California
October 27, 1998
MICRO GENERAL CORPORATION, a corporation duly organized and existing
under the laws of Delaware (herein called the "Company," which term includes any
successor corporation or corporations under the Agreement hereinafter referred
to), for value received, hereby promises to pay to Fidelity National Financial,
Inc., at its office at ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ("Lender"), or order, principal sum of Fourteen Million One Hundred
Thousand Dollars ($14,100,000.00), or so much thereof as shall have been
disbursed by Lender and which at that time remains unpaid, together with simple
interest thereon from the date hereof at the rate of ten percent (10%) per
annum, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts,
payable as follows: Accrued interest only on the principal amount hereof shall
be payable quarterly in arrears during the first five (5) years of the term
hereof commencing October 27, 1998. Thereafter, on October 27, 2003 the entire
unpaid balance of this Note, including principal and accrued but unpaid
interest, shall be due and payable.
This Note may be prepaid in whole or in part at any time with the prior
written consent of Lender so long as the Company gives ten (10) days' prior
written notice to Lender of the Company's intent to prepay this Note or any
portion hereof. Such notice shall state the proposed payment date (the "Payment
Date") and the principal amount to be repaid. At any time during the term
hereof, the Lender may, but shall not be obligated to, elect to convert all or
any portion of the principal to be repaid on the Payment Date into shares of the
Company's common stock (the "Common Stock") at the "Conversion Price" (as that
term is defined in the Agreement hereinafter referred to) then in effect by
delivering to the Company, to the attention of its President, written notice of
its election to exercise its conversion rights as set forth herein.
Notwithstanding anything contained herein to the contrary, and notwithstanding
the Company's payment of this Note in whole or in part, the Lender shall retain
the right to convert the then-outstanding principal balance hereof into the
subject shares of Common Stock throughout the five (5) year term of this Note at
the Conversion Price.
Any partial prepayments made hereunder shall be applied to installments
due hereunder in inverse order of maturity.
This Note is duly authorized and issued by the Company, is designated as
set forth on the face hereof, and is limited to the aggregate principal amount
of $14,100,000.00 issued under and pursuant to that certain Convertible Note
Purchase Agreement, dated as of October 27, 1998 (herein called the
"Agreement"), duly executed and delivered by the Company and Lender, to which
Agreement reference is hereby made for a further description of the rights,
limitation of rights, obligations, and duties thereunder of the Company and
Lender. In case an Event of Default shall have occurred under
31
this Note or under the Agreement (as the term "Event of Default" is defined in
said Agreement), the principal balance hereof and all accrued but unpaid
interest thereon may be declared, and upon such declaration shall become, due
and payable, in the manner, with the effect and subject to the conditions
provided in the Agreement.
Reference is hereby made to the further provisions of the Agreement,
including, without limitation, provisions giving the Lender of this Note the
right to convert this Note into Common Stock on the terms and subject to the
limitations more fully specified in the Agreement. Such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
Capitalized terms used in this Note and not otherwise defined still have the
meanings assigned to such terms in the Agreement.
IN WITNESS WHEREOF, the Company has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: October 27, 1998 MICRO GENERAL CORPORATION (the "Company")
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Executive Vice President
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32
================================================================================
CONVERTIBLE NOTE PURCHASE AGREEMENT
by and between
MICRO GENERAL CORPORATION,
a Delaware corporation,
and
DITO CAREE L.P.,
a Nevada limited partnership
Dated as of October 27, 1998
CONVERTIBLE NOTE
DUE OCTOBER 27, 2003
================================================================================
33
TABLE OF CONTENTS
Article I - Definitions and Other Provisions of General Application...............................................2
Section 101. Definitions...................................................................................2
Section 102. Effect of Headings and Table of Contents......................................................4
Section 103. Successors and Assigns........................................................................4
Section 104. Severability Clause...........................................................................4
Section 105. Benefits of Agreement.........................................................................4
Section 106. Governing Law.................................................................................4
Section 107. Legal Holidays................................................................................4
Section 108. Execution in Counterparts.....................................................................5
Section 109. Attorneys' Fees...............................................................................5
Section 110. Notices.......................................................................................5
Article II - The Note.............................................................................................5
Section 201. Form Generally................................................................................5
Section 202. Conversion Notice.............................................................................6
Section 203. Designation, Amount and Issuance of the Note..................................................6
Section 204. Execution of the Note.........................................................................6
Article III - Covenants of the Company............................................................................6
Section 301. Payment of Principal and Interest.............................................................6
Section 302. Corporate Existence...........................................................................7
Section 303. Payment of Taxes and Other Claims.............................................................7
Section 304. Dividends/Compensation........................................................................7
Section 305. Corporate Existence; Foreign Qualification....................................................7
Section 306. Books, Records and Inspections................................................................7
Section 307. Compliance with Laws..........................................................................8
Section 308. Maintenance of Permits........................................................................8
Section 309. Capital Expenditures/Debt.....................................................................8
Article IV - Representations and Warranties.......................................................................8
Section 401. Customer Contracts............................................................................8
Section 402. Board of Directors............................................................................8
Section 403. Organization, Etc.............................................................................8
Section 404. Capital Stock; Stock Options..................................................................9
Section 405. Corporate Authority...........................................................................9
Section 406. Notes and Accounts Receivable.................................................................9
Section 407. Actions, Suits, Etc...........................................................................9
Section 408. Material Contracts...........................................................................10
Section 409. Absence of Undisclosed Liabilities...........................................................11
Section 410. Accuracy of Information......................................................................11
Section 411. Real Estate Leases...........................................................................11
Section 412. Personal Property Leases.....................................................................11
Section 413. Intellectual Property........................................................................11
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34
Section 414. Trade Secrets................................................................................12
Section 415. Software and Information Systems.............................................................12
Section 416. Insurance....................................................................................12
Article V - Defaults; Remedies...................................................................................12
Section 501. Events of Default............................................................................12
Section 502. Acceleration of Maturity, Rescission and Annulment;
Other Remedies.....................................................................................14
Section 503. Collection of Indebtedness and Suits for Enforcement.........................................14
Section 504. Lender May File Proofs of Claim..............................................................15
Section 505. Application of Money Collected...............................................................15
Section 506. Rights and Remedies Cumulative...............................................................16
Section 507. Delay or Omission Not Waiver.................................................................16
Section 508. Waiver of Stay or Extension Laws.............................................................16
Article VI - Reports by Company..................................................................................16
Section 601. Annual Statement.............................................................................16
Section 602. Reports by Company...........................................................................16
Section 603. Quarterly Financial Reports..................................................................17
Article VII - Consolidation, Merger, Conveyance, Transfer , Sale or Lease........................................17
Section 701. Company May Consolidate. etc., on Certain Terms..............................................17
Section 702. Right of First Refusal of Lenders............................................................17
Article VIII - Redemption of Note by the Company.................................................................18
Section 801. Right to Redeem..............................................................................18
Section 802. Notice of Redemption.........................................................................18
Article IX - Right to Convert Note and/or Right to Purchase Stock................................................19
Section 901. Rights Granted...............................................................................19
Section 902. Anti-Dilution Rights of Lender...............................................................19
Section 903. Manner of Exercise of Conversion Privilege...................................................19
Section 904. Notice to Lender Prior to Certain Corporate Actions..........................................20
Section 905. Reservation of Shares of Common Stock........................................................20
Section 906. Taxes Upon Conversion........................................................................21
Section 907. Covenants as to Common Stock.................................................................21
Section 908. Piggyback Registration Rights................................................................21
Article X - Conditions Precedent.................................................................................21
Section 1001. Conditions Precedent........................................................................21
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35
CONVERTIBLE NOTE PURCHASE AGREEMENT
This CONVERTIBLE NOTE PURCHASE AGREEMENT (the "Agreement") is made and
effective as of October 27, 1998, by and between MICRO GENERAL CORPORATION, a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and DITO CAREE, L.P., a Nevada limited
partnership ("Lender").
RECITALS
WHEREAS, Lender has agreed to make a series of loans to the Company; and
WHEREAS, in order to evidence its agreement to repay said loans, the
Company has duly authorized the issuance of two (2) separate convertible
promissory notes, one in the principal amount of $900,000.00 and one in the
principal amount of $14,100,000.00, and each of which permits the Lender to
convert said note into a certain number of shares of the Company's common
capital stock or to purchase a certain number of shares of the Company's common
capital stock, and in connection therewith, the parties have authorized the
execution and delivery of two (2) separate purchase agreements substantially in
the form hereof, and
WHEREAS, as contemplated hereinabove, the Company has, contemporaneously
herewith, issued its convertible promissory note (the "Note") in the original
principal amount of $900,000.00, and the Lender has agreed to purchase said
Note; and
WHEREAS, in order to set forth the terms and conditions upon which the
Note is to be issued by the Company and purchased by the Lender, the Company and
Lender have duly authorized the execution and delivery of this Agreement; and
WHEREAS, as an inducement to Lender to purchase the Note, whether or not
the Company borrows the full amount of the Note, the Company has agreed to give
Lender the right, but not the obligation, throughout the five (5) year term of
the Note, to either convert all or a portion of the principal of the Note into,
or to purchase directly from the Company, an aggregate of 200,000 shares of the
Company's common stock five cent ($.05) par value common capital stock (the
"Common Stock"), at $4.50 per share;
WHEREAS, Lender has previously made loans to the Company on November 25,
1997 in the amount of $400,000 and on April 8, 1998 in the amount of $500,000
and now desires to forgive said loans and replace them with this Agreement and
Note it being understood that detachable warrants arising out of the November
25, 1997 loan and the April 8, 1998 loan will continue as obligations of the
Company, it being understood that the Convertible Note Purchase Agreement and
Promissory Note of August 1, 1996 remain in full force and effect;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements hereinafter set forth, and intending to be legally bound hereby, the
parties hereto agree as follows:
36
ARTICLE I
DEFINITIONS AND
OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation; and
(3) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Administrative Agent" means CalWest Service Corporation, a California
corporation, which shall act as agent for the Lenders.
"Agreement" means this instrument as originally executed or, if amended
or supplemented as herein provided, as so amended or supplemented.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of the board of directors of the Company.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in the City of Los
Angeles, California are authorized or required to close.
"Common Stock" means the five cent ($.05) par value Common Stock of the
Company as the same exists at the date of the execution of this Agreement or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which are not subject to redemption
by the Company; provided, however, that if at any time there shall be more than
one such resulting class, the share of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of shares of
all such classes resulting from all such reclassifications.
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37
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor corporation shall have become such pursuant
to applicable provisions of this Agreement, and thereafter "Company" shall mean
such successor corporation.
"Conversion Notice" has the meaning specified in Sections 202 and 903
hereof.
"Conversion Price" has the meaning specified in Section 901 hereof.
"Corporation" includes corporations, associations, companies and
business trusts.
"Dollars" and "$" means the lawful money of the United States of
America.
"Event of Default" has the meaning specified in Section 501 hereof.
"Executive Employee" means any employee of the Company who holds the
title of Vice President or above.
"Indebtedness" means money borrowed.
"Lender," when used in the singular, means Dito Caree L.P.; and
"Lenders," when used in the plural, means collectively Dito Caree L.P. and
CalWest Service Corporation.
"Interest Payment Date" has the meaning specified in Section 203 hereof.
"Note," when used in the singular, means the Note executed by the
Company and delivered to the Lender under this Agreement as specified in the
recitals hereof; and "Notes," when used in the plural, means collectively the
two Notes executed by the Company and delivered to the Lenders under this
Agreement as specified in the recitals hereof.
"Note Rate" has the meaning specified in Section 203 hereof.
"Notice of Redemption" has the meaning specified in Section 802 hereof.
"Officer's Certificate" means a certificate signed by the President of
the Company and delivered to Lender describing with particularity the use of
proceeds of an advance on the Note, representing that there are no defaults
under this Agreement or the Note, or relating to such other matters as may be
required hereunder.
"Payment Date" shall mean an Interest Payment Date or a Principal
Payment Date.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
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38
"Principal Payment Date" means any date on which a payment of principal
and interest on the Note shall be due.
"Redemption Date" has the meaning specified in Section 802 hereof.
"Subsidiary" means any corporation more than fifty percent (50%) of the
outstanding voting stock of which is at the time owned, directly or indirectly,
by the Company or by one or more other Subsidiaries, or by the Company and one
or more other Subsidiaries. For purposes of this definition, the term "voting
stock" means stock which ordinarily has voting power for the election of
directors, whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.
"Vice President," when used with respect to the Company, means any vice
president, whether or not designated by a number or a word or words added before
or after the title "vice president."
SECTION 102. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 103. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Agreement by either party shall bind its successors and assigns, whether so
expressed or not. Any act or proceeding by any provision of this Agreement
authorized or required to be done or performed by any board, committee or
officer of either party shall and may be done and performed with like force and
effect by the board, committee or officer of any corporation that shall at the
time be the lawful sole successor of either party.
SECTION 104. SEVERABILITY CLAUSE. In case any provision in this
Agreement or in the Note shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 105. BENEFITS OF AGREEMENT. Nothing in this Agreement or in the
Note, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder any benefit or any legal or equitable
right, remedy or claim under this Agreement.
SECTION 106. GOVERNING LAW. Each of this Agreement and the Note shall be
governed by and construed in accordance with the laws of the State of
California.
SECTION 107. LEGAL HOLIDAYS. In any case where the date of maturity of
or interest on or principal of the Note or the date fixed for redemption or for
purchase of the Note or the last day on which Lender has the right to convert
the Note shall not be a Business Day then (notwithstanding any other provision
of this Agreement or of the Note) payment of such interest, premium or principal
or conversion of the Note need not be made on such date but may be made on the
next succeeding Business Day with the same force and effect as if made on the
date of maturity or the date fixed for redemption or for purchase or the last
day for conversion, and interest shall accrue for the period
- 4 -
39
from and after such date of maturity or date fixed for redemption or for
purchase or last day for conversion to such next succeeding Business Day.
SECTION 108. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, including facsimile counterparts, each of which
shall be an original, but all of which counterparts shall together constitute
one and the same instrument.
SECTION 109. ATTORNEYS' FEES. Should suit be filed seeking enforcement
or interpretation of this Agreement and/or the Note, the prevailing party in any
such action shall be entitled to receive in addition to any other sums awarded
to such party, attorneys' fees and all other costs of collection actually
incurred in such action.
SECTION 110. NOTICES. All notices or other communications required or
permitted hereunder shall be in writing, and shall be personally delivered or
sent by registered or certified mail, postage prepaid, return receipt requested,
overnight courier, or by facsimile, addressed to the parties as set forth
herein. Any such notice shall be deemed received upon the earlier of (a) if
personally delivered, the date of delivery to the address of the person to
receive such notice, (b) if mailed, four (4) business days after the date of
posting by the United States post office, (c) if given by overnight courier,
upon receipt by the person to receive such notice, or (d) if sent by facsimile,
when sent.
To the Company: Micro General Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Facsimile: 949/477-6802
To Lender: Dito Caree L.P.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Any notice, request, demand, direction or other communication sent by telecopy
must be confirmed within forty-eight (48) hours by letter mailed or delivered in
accordance with the foregoing. Notice of change of address shall be given by
written notice in the manner detailed in this Section 110. Rejection or other
refusal to accept or the inability to deliver because of changed address of
which no notice was given shall be deemed to constitute receipt of the notice,
demand, request or communication sent.
ARTICLE II
THE NOTE
SECTION 201. FORM GENERALLY. The Note shall be in substantially the form
set forth on Exhibit "A" attached hereto, but with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Agreement, and may have such letters, numbers or
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40
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with applicable securities laws.
SECTION 202. CONVERSION NOTICE. A Conversion Notice, substantially in
the form of Exhibit "B" attached hereto, shall be attached to the Note and shall
be used by Lender to exercise the right to convert the Note into Common Stock.
SECTION 203. DESIGNATION, AMOUNT AND ISSUANCE OF THE NOTE.
(a) The Note shall be designated as a "convertible note" of the
Company, and shall be one of two (2) such "convertible notes," to-wit, the Notes
that are the subject of this Agreement, one in the face amount of Nine Hundred
Thousand Dollars ($900,000.00) and the other in the face amount of Fourteen
Million One Dollars ($14,100,000.00); provided, however, that following the
repayment of $7,816,000 in short term borrowings owed to CalWest Service
Corporation further disbursements of principal under the Note shall be limited
to no more than $250,000.00 per disbursement during the term of the Note to be
approved by Lender upon each disbursement request, and Lender shall have no
obligation to make any disbursement under the Note until it shall have received
an Officer's Certificate with respect to each such disbursement in compliance
with the requirements of Section 1001(a) hereof.
(b) The Note shall be dated the date of its issue and shall bear
simple interest from the date thereof at the rate of ten percent (10%) per annum
(the "Note Rate"), and shall be payable as follows: Accrued interest only on the
principal amount of the Note shall be payable quarterly in arrears during the
first five (5) years of the term thereof commencing October 27, 1998 (each, an
"Interest Payment Date"). The entire unpaid balance of the Note, including
principal and any accrued but unpaid interest, shall be due and payable on
October 27, 2003.
SECTION 204. EXECUTION OF THE NOTE. The Note shall be executed on behalf
of the Company by its President or one of its Vice Presidents, under its
corporate seal reproduced thereon.
ARTICLE III
COVENANTS OF THE COMPANY
For so long as this Agreement shall remain in effect, the Company
covenants that:
SECTION 301. PAYMENT OF PRINCIPAL AND INTEREST. It will duly and
punctually pay the principal of and interest on the Note at the place, at the
respective times and in the manner provided in the Note; and each installment of
principal and/or interest on the Note shall be paid by mailing checks or wire
transferring funds for the amount due to Lender in a manner reasonably
calculated to cause such funds to be received on or prior to a Payment Date.
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SECTION 302. CORPORATE EXISTENCE. Subject to Article VII hereof, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence.
SECTION 303. PAYMENT OF TAXES AND OTHER CLAIMS. The Company has paid and
will in the future pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (a) all taxes, assessments and governmental
charges levied or imposed upon the Company or upon the income, profits or
property of the Company, and (b) all lawful claims against the Company for
labor, materials and supplies which in the case of either clause (a) or (b) of
this Section 303, if unpaid, might by law become a lien upon its property;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
SECTION 304. DIVIDENDS/COMPENSATION. It shall not (a) declare, pay or
make any dividend or distribution (in cash, property or obligations) on any
shares of any class of its capital stock (now or hereafter outstanding) of the
Company or on any warrants, options or other rights with respect to any shares
of any class of capital stock (now or hereafter outstanding) of the Company, or
apply any of its funds, property or assets to the purchase, redemption, sinking
fund or other retirement of any shares of any class of capital stock (now or
hereafter outstanding) of the Company or any option, warrant or other right to
acquire shares of the Company's capital stock, or (b) make any deposit for any
of the foregoing purposes. No additional salary, bonus or other cash or non-cash
compensation shall be paid to any of the Company's Executive Employees in an
amount greater than the amount set forth in any existing employment contracts
with such individuals, or, in the case of "at-will" Executive Employees, any
increase in the compensation paid for such Executive Employees shall require the
prior written approval of the Company's Board of Directors and the
Administrative Agent, which approval will not be unreasonably withheld. No
non-cash compensation shall be paid to any employees of the Company without the
prior written approval of the Company's Board of Directors and the
Administrative Agent, which approval will not be unreasonably withheld.
SECTION 305. CORPORATE EXISTENCE; FOREIGN QUALIFICATION. It will do and
cause to be done at all times all things necessary to (a) maintain and preserve
the corporate existence of the Company (b) be duly qualified to do business and
in good standing as foreign corporations in each jurisdiction where the nature
of its business makes such qualification necessary, and (c) comply with all
contractual obligations and requirements of law binding upon it.
SECTION 306. BOOKS, RECORDS AND INSPECTIONS. It shall:
(a) maintain, and cause each of its Subsidiaries, if any, to
maintain complete and accurate books and records;
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(b) permit, and cause each of its Subsidiaries, if any, to
permit access at reasonable times by Lender to its books and records;
(c) permit, and cause each of its Subsidiaries, if any, to
permit Lender to inspect at reasonable times its properties and operations; and
(d) permit, and cause each of its Subsidiaries, if any, to
permit Lender to discuss its business, operations and financial condition with
its officers and employees or with its outside auditors.
SECTION 307. COMPLIANCE WITH LAWS. It shall comply with all federal,
state and local laws, rules and regulations related to its businesses;
SECTION 308. MAINTENANCE OF PERMITS. It shall maintain all permits,
licenses and consents as may be required for the conduct of its business by any
state, federal or local government agency or instrumentality.
SECTION 309. CAPITAL EXPENDITURES/DEBT. It shall not, without the
express prior written consent of Lender, (a) make any capital expenditures not
made with the proceeds of the sale of the Note, and the use of all proceeds for
capital expenditures shall be substantially as described in the Officer's
Certificate applicable thereto, or (b) other than the Note or any other
"convertible note" as referenced in Section 203(a) hereof, incur any new
Indebtedness, liability or obligation to any third party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants as follows to Lender:
SECTION 401. CUSTOMER CONTRACTS. The Company represents and warrants to
Lender that, as of the date hereof, to its knowledge all contracts and
agreements between it and purchasers of its goods and services (whether payable
in cash or in kind) are valid and in full force and effect, all amounts due and
owing to the Company thereunder have been paid, no default exists either on the
part of the Company or of any other party to any such contract and that the list
of such contracts appearing on Schedule 401 attached hereto is true, accurate
and complete;
SECTION 402. BOARD OF DIRECTORS. As of the date hereof, the list of
Directors making up its Board of Directors set forth on Schedule 402 attached
hereto is true, accurate and complete, and all such Directors have been duly
elected by valid shareholder action in the manner required by the Certificate of
Incorporation and/or the Bylaws of the Company;
SECTION 403. ORGANIZATION, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has no active Subsidiaries
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at the date hereof. The company has corporate power to own or lease its
properties and to carry on its business as and in the places where such
properties are now owned, leased or operated, and its business is now conducted,
and the Company has complied in all material respects with all material federal,
state and local laws with respect to the operation and the conduct of its
business. Copies of the Certificate of Incorporation and all amendments thereto,
bylaws as amended and currently in force, stock records and corporate minutes
and records of the Company heretofore made available to Lender are complete and
correct at the date hereof;
SECTION 404. CAPITAL STOCK; STOCK OPTIONS.
(a) The Company has authorized capital stock consisting of
10,000,000 shares of Common Stock, five cent ($.05) par value, of which
6,910,452 shares are issued and outstanding as of October 27, 1998, and
1,000,000 shares of Preferred Stock, five cent ($.05) par value, none of which
are issued or outstanding. All of the issued and outstanding shares of Common
Stock are duly authorized and validly issued, fully-paid and nonassessable, were
offered, issued and sold in accordance with applicable federal and state
securities laws, and there are no preemptive rights in respect thereof. There
are no other classes of stock of the Company other than the Common Stock and
Preferred Stock.
(b) There are no outstanding options, warrants, rights, calls,
commitments, conversion rights, plans or other agreements or instruments of any
character providing for the purchase or other acquisition by the holders thereof
or issuance of any company securities of any description, except as set forth on
Schedule 404(b) attached hereto.
SECTION 405. CORPORATE AUTHORITY. The Company has full legal right and
corporate power and authority, without the consent of any other person, to make,
execute, deliver and perform this Agreement and the transactions contemplated
hereby, and the execution, delivery and performance of this Agreement by the
Company has been duly authorized by all necessary corporate action of the
Company.
SECTION 406. NOTES AND ACCOUNTS RECEIVABLE. To its knowledge, all notes
receivable and accounts receivable are valid obligations of the respective
makers thereof, are as set forth on Schedule 406 attached hereto; except as
disclosed in such Schedule 406, are not subject to any valid offset or
counterclaim; and are not subject to any assignment, claim, lien or security
interest.
SECTION 407. ACTIONS, SUITS, ETC. There are no actions, suits, claims,
complaints, charges, hearings, investigations, arbitrations (or other dispute
resolution proceedings) or other proceedings pending or, to its knowledge,
threatened against, by or affecting the Company in any court or panel or before
any arbitrator or governmental agency, domestic or foreign, other than (a)
actions related to garnishments of employee wages, or (b) routine matters
covered by insurance. The Company has not been charged with, and to its
knowledge is not under investigation with respect to, any charge concerning any
violation of any provision of any federal, state or other applicable law or
administrative regulation with respect to its business. There are no judgments
unsatisfied against the Company and no consent decrees to which the Company is
subject. The Company is not involved
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in or threatened with any labor dispute which could have a material adverse
effect on the business and operations of the Company.
SECTION 408. MATERIAL CONTRACTS. Schedule 408 attached hereto sets forth
an accurate, correct and complete list of all instruments, commitments,
agreements, arrangements and understandings related to its business to which the
Company is a party or bound, or pursuant to which the Company is a beneficiary,
meeting any of the descriptions set forth below (the "Material Contracts"):
(a) Real estate leases, personal property leases, licenses of
intellectual property, technical information or software, employment contracts
and benefit plans;
(b) Any contract for capital expenditures or for the purchase of
goods or services in excess of $5,000;
(c) Any instrument evidencing indebtedness (other than routine
purchase orders), any liability for borrowed money, any obligation for the
deferred payment of the purchase price for property in excess of $5,000
(excluding normal trade payables), or any instrument guaranteeing any
indebtedness, obligation or liability;
(d) Any advertising contract not terminable without payment or
penalty on thirty (30) days (or less) notice;
(e) Any license or royalty agreement;
(f) Any contract for the purchase or sale of any assets in
excess of $5,000 other than in the ordinary course of business or granting an
option or preferential rights to purchase or sell any assets in excess of
$5,000;
(g) Any contract containing covenants not to compete in any line
of business or with any person in any geographical area;
(h) Any contract relating to the acquisition of a business or
the equity of any other person;
(i) Any other contract, commitment, agreement, arrangement or
understanding related to its business which provides for payment or performance
by any party thereto having an aggregate value of $5,000 or more, and is not
terminable without payment or penalty on thirty (30) days (or less) notice.
Accurate, correct and complete copies of each such contract have been made
available to Lender. Each contract is in full force and effect and is valid,
binding and enforceable as to the Company in accordance with its terms. The
Company and, to the Company's knowledge, each other party has complied in all
material respects with all material commitments and obligations on its part to
be performed or observed under each such contract. The Company has not received
any written or, to
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its knowledge, other notice of a default, offset or counterclaim under any
contract, or any other written or, to its knowledge, other communication calling
upon the Company to comply with any provision of any contract or asserting
noncompliance by the Company.
SECTION 409. ABSENCE OF UNDISCLOSED LIABILITIES. To its knowledge, the
Company does not have any indebtedness, liability or obligation of any nature,
whether absolute, accrued, contingent or otherwise, related to or arising from
the operation of its business or the ownership, possession or use of any assets,
except as set forth on Schedule 409 attached hereto.
SECTION 410. ACCURACY OF INFORMATION. None of the information furnished
by the Company to Lender in writing shall contain any untrue statement of a
material fact or shall omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
circumstances under which they were made, not misleading.
SECTION 411. REAL ESTATE LEASES. Schedule 411 attached hereto sets forth
an accurate, correct and complete list of all real estate which is leased or
subleased by the Company, including identification of the lease or sublease,
street address, and list of material contracts, agreements, leases, subleases,
options and commitments, oral or written, affecting such real estate or any
interest therein to which the Company is a party or by which the Company is
bound (the "Real Estate Leases"). The Company has made available to Lender
accurate, correct and complete copies of each Real Estate Lease and no default
exists under any Real Estate Lease.
SECTION 412. PERSONAL PROPERTY LEASES. Schedule 412 attached hereto
contains an accurate, correct and complete list of each lease of personal
property used in the business which provides for annual lease payments in excess
of $5,000 (the "Personal Property Leases"). The Company has made available to
Lender accurate, correct and complete copies of each Personal Property Lease and
no default exists under any Personal Property Lease.
SECTION 413. INTELLECTUAL PROPERTY. Schedule 413 attached hereto
contains an accurate, correct and complete list and summary description of all
patents, trademarks, trademark rights, trade names, trade styles, trade dress,
service marks, copyrights and applications for any of the foregoing utilized by
the business (the "Intellectual Property"). During the preceding five (5) years,
the Company has not been known by or done business under any name other than
Micro General Corporation. Schedule 413 contains an accurate, correct and
complete list and summary description of all licenses and other agreements
relating to any Intellectual Property. Except as set forth on Schedule 413, with
respect to the Intellectual Property, (a) the Company is the sole and exclusive
owner and, to the knowledge of the company, has the sole and exclusive right to
use the Intellectual Property; (b) no action, suit, proceeding or investigation
is pending or, to the Company's knowledge, threatened; (c) to the knowledge of
the Company, none of the Intellectual Property interferes with, infringes upon,
conflicts with or otherwise violates the rights of others or is being interfered
with or infringed upon by others, and none is subject to any outstanding order,
decree, judgment, stipulation or charge; (d) there are no royalty, commission or
similar arrangements, and no licenses, sublicenses or agreements, pertaining to
any of the Intellectual Property; (e) the Company has not agreed to indemnify
any person for or against any infringement of or by the Intellectual Property;
and (f) the
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Intellectual Property constitutes all such assets, properties and rights which
are used in or necessary for the conduct of its business. To the knowledge of
the Company, the operation of its business by the Company after the date hereof,
in the manner and geographic areas in which its business is currently conducted
by the Company or is to be conducted as a result of its plans to expand its
business into other geographic areas, will not interfere with or infringe upon
any currently issued United States Letters Patent or trademarks currently
registered in the Primary Register of the United States Patent and Trademark
Office. The Company is not subject to any judgment, order, writ, injunction or
decree of any court or any federal, state, local or other governmental agency or
instrumentality, domestic or foreign, or any arbitrator, and has not entered
into or is not a party to any contract which restricts or impairs the use of any
Intellectual Property.
SECTION 414. TRADE SECRETS. Schedule 414 attached hereto contains an
accurate, correct and complete list and summary description of all information
in the nature of proprietary information, including databases, compilations of
information, copyrightable material and technical information, if any, relating
to its business "Technical Information"). The Company has the right to use the
Technical Information by virtue of ownership or by virtue of the license
agreements identified in Schedule 414. The Company has no knowledge of any
violation of any trade secret rights or copyrights with respect to such
Technical Information.
SECTION 415. SOFTWARE AND INFORMATION SYSTEMS. The Company has the right
to use all electronic data processing systems, information systems, hardware,
computer software programs, indexes, program specifications, charts, procedures,
source codes, input data, routines, data bases and report layouts and formats,
record file layouts, diagrams, functional specifications and narrative
descriptions, flow charts and other related material (if any) used in and
reasonably necessary for the conduct of its business (collectively the
"Software"). Schedule 415 attached hereto contains an accurate, correct and
complete summary description of all Software (other than non-proprietary
commercially available Software).
SECTION 416. INSURANCE. Set forth on Schedule 416 attached hereto is a
true, accurate and complete list of all policies of insurance currently in force
in which the Company is named as insured, loss payee, or additional insured,
premiums on all of such policies have been paid, and copies of all policies have
been delivered to Lender at the date hereof, and Lender has been named as loss
payee or additional insured on all such policies on which such coverage is
available.
ARTICLE V
DEFAULTS; REMEDIES
SECTION 501. EVENTS OF DEFAULT. "Event of Default," wherever used herein
with respect to the Note, means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
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(a) BY THE COMPANY.
(1) default in the payment of any installment of principal
and/or interest on the Note as and when it becomes due and payable, whether by
virtue of the terms of the Note as to payments of principal and/or interest, at
maturity, in connection with any redemption, or otherwise and the passage of
seven (7) days following written notice thereof to the Company; or
(2) default in the performance, or breach, of any material
covenant, representation or warranty of the Company in this Agreement and the
passage of thirty (30) days following written notice thereof to the Company, or,
if such default cannot be cured within such thirty (30) days, commencement of
the cure of such default within such thirty (30) days and diligent prosecution
of such cure to completion; or
(3) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable Federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of all or substantially all of its property,
or ordering the winding up or liquidation of its affairs, and-the continuance of
any such decree or order for relief or for any such other decree or order
unstayed and in effect for a period of 45 consecutive days;
(4) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or the consent by it to the entry of a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law, other consent by it to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the company or of all or substantially all
of its property, or the making by it of a general assignment for the benefit of
creditors; or
(5) until all sums due under the Note have been repaid, or any
increase by the Company of the number of members of its Board of Directors to a
number greater than the number who hold office at the time of execution of the
Note, or any change in the actual members of the Company's Board of Directors,
without the prior written consent of the Lender; or
(6) the failure of the Company to provide any information or
report to Lender required to be provided pursuant to Article VI hereof and the
passage of thirty (30) days following written notice thereof to the Company, or,
if such default cannot be cured within such thirty (30) days, commencement of
the cure of such default within such thirty (30) days and diligent prosecution
of such cure to completion.
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(b) BY THE LENDER. The failure of the Lender to fund pursuant to
Section 203(a) hereof in the event that a proper Officer's Certificate pursuant
to Section 1001(a) is received and the Company is in compliance with all
covenants of this Agreement and the Note.
SECTION 502. ACCELERATION OF MATURITY, RESCISSION AND ANNULMENT; OTHER
REMEDIES.
(a) LENDER'S REMEDIES.
(i) Upon the occurrence of an Event of Default under any
event described in Section 501(a) (other than an Event of Default described in
Sections 501(a)(4) and 501(a)(5) hereof), then in every such case Lenders may
declare the principal amounts of the Notes to be due and payable immediately, by
a notice in writing to the Company and upon any such declaration such principal
amounts shall become immediately due and payable. The Company specifically
acknowledges and agrees that the occurrence of any Event of Default under any
event described in Section 501(a) hereof will automatically cause all existing
Notes to be in default, and all Events of Default under all Notes must be cured
before any one Event of Default shall be deemed cured.
(ii) At any time after such a declaration of
acceleration with respect to the Note has been made and before a judgment or
decree for payment of the money due has been obtained by Lender as hereinafter
in this Article provided, Lender may, by written notice to the Company, rescind
and annul such declaration and its consequences if, (1) the Company has paid to
Lender a sum sufficient to pay (A) all overdue interest on the Note, (B) the
principal on the Note which has become due otherwise than by such declaration of
acceleration and interest thereon at the Note Rate, (C) to the extent that
payment of such interest is lawful, interest upon overdue interest at the Note
Rate, and (D) all sums paid or advanced by Lender hereunder and the actual
compensation, expenses, disbursements and advances of Lender, its agents and
counsel; and (2) all Events of Default with respect to the Note, other than the
nonpayment of the principal of the Note which has become due solely by such
declaration of acceleration, have been cured or waived by Lender. No such
rescission shall affect any subsequent default or impair any right consequent
thereon. In the case of any Event of Default described in Section 501(a)(4) or
501(a)(5), all unpaid principal of and accrued interest on the Note shall be due
and payable immediately without any declaration or other act on the part of
Lender.
(iii) Obligations of this Note are secured by the
Security Agreement dated August 1, 1996.
(b) THE COMPANY'S REMEDIES. Upon the occurrence of an Event of
Default as described in Section 501(b) hereof, then the option amount referred
to in Section 901 hereof shall be limited to a number equal in value to the
amount already funded.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT.
(a) The Company covenants that if default is made in the payment
of any principal and/or interest on the Note when such principal and/or interest
becomes due and payable, whether
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at a time specified in the Note, at maturity of the Note or in connection with
any redemption or otherwise, the Company will, upon demand of Lender, pay to it
the whole amount then due and payable on the Note for principal and interest
and, to the extent that payment of such interest shall be legally enforceable,
interest on any overdue principal and-on any overdue interest, at the Note Rate,
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of Lender, its agents and counsel, it being
understood that as to the Lenders, any payments will be applied on a pro rata
basis among the Lenders based on each Lender's respective Note amount. If the
Company fails to pay such amounts forthwith upon such demand, Lender may
prosecute a proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor on the Note and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or of any other obligor on the Note, wherever situated,
it being understood that any monies collected shall be applied on a pro rata
basis among the Lenders based on each Lender's respective Note. In addition,
Lender may give notice to customers of the Company that all payments under
contracts listed on Schedule 401 shall, until further notice, be paid directly
to Lender, and the Company consents to each such notice.
(b) If an Event of Default with respect to the Note occurs,
Lender may in its discretion proceed to protect and enforce its rights by such
appropriate judicial proceedings as it shall deem most effectual to protect and
enforce any such rights, whether for the specific enforcement of any covenant or
agreement in this Agreement or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
SECTION 504. LENDER MAY FILE PROOFS OF CLAIM. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or of any other obligor on the Note or the property of the Company
or of such other obligor or their creditors, Lender (irrespective of whether the
principal of the Note shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether it shall have made any
demand on the Company for the payment of overdue principal or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal
and interest owing and unpaid in respect of the Note and to file such other
papers and documents as may be necessary or advisable in order to have the
claims of Lender (including any claim to the right to own Common Stock or for
the reasonable compensation, expenses, disbursements and advances of Lender, its
agents and counsel) allowed in such judicial proceeding, and
(b) to collect and receive any monies or other property payable
or deliverable on any such claims.
SECTION 505. APPLICATION OF MONEY COLLECTED. Any money collected by
Lender pursuant to this Article V shall be applied in the following order, at
the date or dates fixed by Lender and, in case of the distribution of such money
on account of principal or interest, upon presentation of the
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Note and the notation thereon of the payment if only partially said and upon
surrender thereof if fully paid:
First: To the costs and expenses of Lender in collecting sums
due it hereunder;
Second: To the payment of the amounts then due and unpaid first
for interest on and then for principal of all outstanding Notes, applied on a
pro rata basis among the Lenders based on each Lender's respective Note; and
Third: To the payment of the remainder, if any, to the Company
or any other Person lawfully entitled thereto.
SECTION 506. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to Lender is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 507. DELAY OR OMISSION NOT WAIVER. No delay or omission of
Lender to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default. Every right and remedy given by this Article V or by law may be
exercised from time to time, and as often as may be deemed expedient by Lender.
SECTION 508. WAIVER OF STAY OR EXTENSION LAWS. The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Agreement; and
the Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to Lender, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
ARTICLE VI
REPORTS BY COMPANY
SECTION 601. ANNUAL STATEMENT. The Company will deliver to Lender,
within 30 days after the end of each fiscal year of the Company, an Officer's
Certificate stating that to the best of such officer's knowledge, the Company
has fulfilled all its obligations under this Agreement throughout such year, or,
if there has been a default in the fulfillment of any such obligation and such
default is continuing, specifying each such default of which such officer has
knowledge, and the nature and status thereof.
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SECTION 602. REPORTS BY COMPANY. The Company shall file with Lender,
such information, documents and other reports, and such summaries thereof, as
Lender shall request, immediately upon request, but without request the Company
shall deliver to Lender audited financial statements of the Company prepared by
independent certified public accountants ("Accountants") within ninety (90) days
of the end of each Company fiscal year.
SECTION 603. QUARTERLY FINANCIAL REPORTS. Throughout the term of this
Agreement and for so long as any amount remains unpaid under the Note, the
Company shall furnish Lender with copies of its quarterly financial reports no
later than forty-five (45) days following the end of the subject fiscal quarter.
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER, SALE OR LEASE
SECTION 701. COMPANY MAY CONSOLIDATE. ETC., ON CERTAIN TERMS. The
Company shall not consolidate with or merge into any other corporation or
convey, transfer, sell or lease its properties and assets as, or substantially
as, an entirety to any Person, issue any capital stock (including Common Stock)
of the Company unless (a) prior to such transaction Lender has released in
writing its Right of First Refusal as required by Section 702 hereof, and (b)
upon any such consolidation, merger, sale, conveyance or exchange of or by the
Company, (i) the Company is the continuing corporation and the Company's Common
Stock outstanding immediately prior to the merger is not exchanged for
securities, cash or other property of another corporation, (ii) there is an
exchange of the Note for other securities in connection with such transaction,
or (iii) the due and punctual payment of the principal of and interest on, the
Note, according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of the Agreement to be
performed by the Company, are expressly assumed by a note supplemental to the
Note by the corporation formed by such consolidation, or whose securities, cash
or other property will immediately after the merger be owned, by virtue of the
merger, by the holders of Common Stock of the Company immediately prior to the
merger, or by the corporation that shall have acquired such property or
securities. Furthermore, the Company shall not consolidate with or merge into
any other corporation or convey, transfer, sell or lease its properties and
assets as, or substantially as, an entirety to any Person, or enter into any
statutory exchange of securities with another corporation, unless the Right of
First Refusal has been released and unless immediately after giving effect to
such transaction no Event of Default shall have occurred and be continuing, and
the Company shall have delivered to Lender an Officer's Certificate stating that
such transaction and such supplemental agreement comply with this Agreement.
SECTION 702. RIGHT OF FIRST REFUSAL OF LENDERS. For so long as any
amounts due under the Note shall be outstanding, Lenders shall have and retain
the first option to purchase any and all assets of the Company and any and all
capital stock (including Common Stock) of the Company, upon the same terms and
subject to the same conditions as may be offered to the Company by a third party
for such assets or capital stock; provided, however, that any non-cash
consideration offered for any
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52
such assets or capital stock shall be given its then current market value in
cash and Lenders shall have the opportunity to pay the amount of such cash in
lieu of any non-cash consideration offered by a prospective owner of any assets
or capital stock on a pro rata basis as to the Lenders' exercise of that right.
Immediately upon receipt of any offer to purchase any assets or capital stock,
or upon determining that the Company desires to sell any assets or capital
stock, the Company shall immediately notify Lenders of the assets and/or capital
stock proposed to be bought and sold, and of the terms of such proposed purchase
and sale. Within twenty (20) days of being so notified, Lenders shall notify
either the Company and/or the owner of the capital stock in question that they
(or any one of them) will exercise the right of first refusal granted herein
("Right of First Refusal"), or, in the alternative, that they (or any one of
them) thereby release such Right of First Refusal and consents to the sale of
the assets or capital stock on the terms described. Any change in such terms
shall give each Lender the right to once again exercise or release its Right of
First Refusal within an additional time period identical to that specified
above.
ARTICLE VIII
REDEMPTION OF NOTE BY THE COMPANY
SECTION 801. RIGHT TO REDEEM. The Company may, at its option, redeem all
or, from time to time, any part of the Note, on any date prior to maturity, in
the manner specified in this Article VIII, at the original principal amount
thereof, plus accrued and unpaid interest, if any, to the date fixed for
redemption, but no such redemption shall in any way impair the right of Lender
to convert the Note into shares of Common Stock as specified in this Agreement
or in the Right of First Refusal granted hereunder.
SECTION 802. NOTICE OF REDEMPTION.
(a) In case the Company shall desire to exercise its right to
redeem all or any part of the Note pursuant to Section 801 hereof, it shall fix
a date for redemption (a "Redemption Date"), shall notify Lenders in writing of
such date, and shall mail or cause to be mailed a notice of such redemption (a
"Notice of Redemption") at least ten (10) and not more than thirty (30) days
prior to the date fixed for redemption to Lenders at their principal executive
offices. Such mailing shall be by first class mail. The Company agrees to
exercise said right of redemption on an equitable and pro rata basis among the
Lenders.
(b) The Notice of Redemption shall specify the principal amount
of the Note to be redeemed, the Redemption Date for the Note, and the Redemption
Price at which the Note is to be redeemed, and shall state that payment of the
Redemption Price of the Note or portions thereof to be redeemed will be made on
surrender of the Note to be redeemed, that interest accrued to such Redemption
Date will be paid as specified in such notice, and that from and after such date
interest thereon will cease to accrue. In the event of full redemption of the
Note, such Notice of Redemption shall also state that the right to convert the
Note or portion thereof into Common Stock will expire at the close of business
on October 27, 2003.
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53
(c) On or prior to each Redemption Date specified in each Notice
of Redemption given as provided in this Section 802, the Company will pay to
Lender an amount of money sufficient to redeem on such Redemption Date the Note
or portion thereof so called for redemption at the appropriate Redemption Price,
together with accrued interest to the Redemption Date.
(d) If the Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear interest
from the date fixed for redemption at the Note Rate and the Note shall remain
convertible into Common Stock until October 27, 2003, or until all amounts due
under the Note have been repaid in full.
ARTICLE IX
RIGHT TO CONVERT NOTE AND/OR RIGHT TO PURCHASE STOCK
SECTION 901. RIGHTS GRANTED. Subject to and upon compliance with the
provisions of this Article IX, and specifically Section 902 hereof, Lender shall
have the right, at its option, at any time or from time to time on or prior to
the close of business on October 27, 2003, to convert the principal amount of
the Note up to a value of $900,000.00 into, an aggregate of 200,000 shares of
Common Stock at a price of $4.50 per share (the "Conversion Price")or to pay in
cash in an amount up to $900,000.00.
SECTION 902. ANTI-DILUTION RIGHTS OF LENDER. The Company will not, by
any voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of the conversion privilege set forth in Section 901 hereof,
but will at all times in good faith carry out the provisions and intent of
Section 901 and take all such action as may be necessary or appropriate to
protect against impairment of the rights of Lender to convert the Note into, or
to purchase, Common Stock. In the event that, at any time prior to full exercise
by Lender of its right to purchase such Common Stock, the Company shall sell or
otherwise transfer any Common Stock, the Company undertakes and agrees to make
any adjustments that may be necessary to permit Lender to purchase an equal
number of shares of the Common Stock for a per share price equal to the per
share price paid by such other purchaser or transferee, including, if necessary,
refunding to Lender any sums necessary to cause Lender to receive the benefit of
this Section 902, such benefit to survive the repayment of the Note and to be
applicable with respect to issuances of Common Stock until October 27, 1998.
Nothing in this Section 902 shall be interpreted to permit or require any
increase in the consideration to be paid by Lender in exchange for 200,000
shares of the Common Stock.
SECTION 903. MANNER OF EXERCISE OF CONVERSION PRIVILEGE. In order to
exercise the conversion privilege, Lender shall surrender the Note, duly
endorsed or assigned to the Company or in blank, at the office of the Company,
together with the Conversion Notice duly executed, that Lender elects to convert
the Note or the portion thereof specified in said Conversion Notice or,
alternatively, that Lender will purchase such Common Stock. Such Conversion
Notice shall also state the name or names, together with the address or
addresses in which the certificate or certificates for shares of Common Stock
which shall be issuable in such conversion or purchase shall be issued
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54
as promptly as practicable after the surrender of the Note and the receipt of
such Conversion Notice, the Company shall issue and deliver to Lender, or on
Lender's written order, a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of the Note or portion
thereof in accordance with the provisions of this Article IX. In case the Note
shall be surrendered for partial conversion, the Company shall execute and
deliver to or upon the order of Lender, at the expense of the Company, a new
note or notes in authorized denominations in an aggregate principal amount equal
to the unconverted portion of the surrendered Note. Each conversion shall be
deemed to have been effected immediately prior to the close of business on the
date on which the Note shall have been surrendered and such Conversion Notice
received by the Company as aforesaid, and the Person or Persons in whose name or
names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion or purchase shall be deemed to have become the
holder or holders of record of the shares represented thereby at such time on
such date.
SECTION 904. NOTICE TO LENDER PRIOR TO CERTAIN CORPORATE ACTIONS. In
case:
(a) the Company shall authorize the granting to the holders of
its Common Stock generally of rights, warrants or options to subscribe for or
purchase any shares of stock of any class or of any other rights; or
(b) there shall be any reorganization or reclassification of the
Common Stock (other than a change in the par value of the Common Stock), or any
permissible consolidation or merger to which the Company is a party, or any
permissible conveyance, transfer, sale or lease of the Company's properties and
assets as, or substantially as, an entity; or
(c) there shall be a voluntary or in-voluntary dissolution,
liquidation or winding-up of the Company;
then the Company shall cause to be given to Lender, in the manner provided in
Section 110 hereof, and with respect to the events described in subsections (a),
(b) and (c) of this Section 904, as promptly as possible, but in any event at
least twenty (20) days prior to the applicable date hereinafter specified, a
notice stating (i) the date on which the Company expects to file a Registration
Statement covering the Common Stock, or (ii) the date on which such
reorganization, reclassification, consolidation, merger, conveyance, transfer,
sale, lease, dissolution, liquidation, or winding-up is expected to become
effective or occur, and, if applicable, the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance, transfer,
sale, lease, dissolution, liquidation, or winding-up, subject to compliance with
the Right of First Refusal required by Section 702 hereof.
SECTION 905. RESERVATION OF SHARES OF COMMON STOCK. The Company
covenants that it will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued shares of
Common Stock, for the purpose of effecting conversion of the Note, the full
number of shares of Common Stock deliverable upon the conversion of the Note.
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55
SECTION 906. TAXES UPON CONVERSION. The Company will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversion of the Note pursuant
hereto.
SECTION 907. COVENANTS AS TO COMMON STOCK. The Company covenants that
all shares of Common Stock which may be delivered upon conversion of the Note
will, upon delivery, be duly and validly issued and fully paid and
non-assessable, free of all liens and charges and not subject to any preemptive
rights.
SECTION 908. PIGGYBACK REGISTRATION RIGHTS. If the Company shall
determine to register any of its securities, either for its own account or for
the account of a security holder or holders, other than a registration relating
solely to employee benefit plans, or a registration on any registration form
that does not permit secondary sales, the Company will promptly give to Lender
written notice thereof and use its best efforts to include in such registration
(and any related qualification under applicable Blue Sky laws or other
compliance), and any underwriting involved therein, Common Stock specified in a
written request made by Lender within twenty (20) days after the written notice
of the Company provided for above is given. Such written request may specify all
or a part of Lender's Common Stock. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
company shall so advise as a part of the written notice given as required above.
In such event the right of Lender to registration shall be conditioned upon
Lender's participation in such underwriting and the inclusion of its Common
Stock in the underwriting. Lender shall enter with the Company into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company. Notwithstanding the above,
if the representative of the underwriters advises the Company in writing that
marketing factors require a limitation of the number of shares to be
underwritten, the representative may exclude Lender's Common Stock from, or
limit the number of shares of Lender's Common Stock to be included in, the
registration and underwriting. The number of shares of securities that are
entitled to be included in the registration and underwriting shall be allocated
first to the Company for securities being sold for its own account, then to
Lender to the extent of securities it has elected to sell for its own account,
and thereafter to all other owners of Common Stock with the right to participate
in such registration and underwriting pro rata in proportion to the percentage
of all outstanding Common Stock owned by each such Person immediately prior to
commencement of such registration and underwriting. If any Person does not agree
to the terms of any such underwriting, he shall be excluded therefrom by written
notice from the Company or the underwriter. Any Common Stock or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration. If shares are so withdrawn from the registration or if the number
of shares of Common Stock to be included in such registration is increased
during the period of such registration, the Company shall offer first to Lender
and then, if additional shares may be sold in the registration to all other
Persons who have retained the right to include securities in the registration,
the right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among the Persons requesting additional inclusion pro rata in
proportion to the percentage that each Person's Common Stock represents of the
total amount of Common Stock owned by all such Persons prior to commencement of
such registration and underwriting.
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56
ARTICLE X
CONDITIONS PRECEDENT
SECTION 1001. CONDITIONS PRECEDENT. The obligation of Lender to purchase
the Note(s) and to make all individual disbursements thereunder is expressly
conditioned upon the following:
(a) The Lender's receipt from the Company, in each instance, of
an Officer's Certificate signed by its President satisfactory to Lender in which
such President represents and warrants to Lender on behalf of the Company that
(1) use of the proceeds from any disbursement of principal of the Note is shall
be dedicated to such corporate uses as the Company's Board of Directors may deem
proper; and (2) there are no defaults under this Agreement or the Note; and.
(b) The Lender's receipt of a Certificate of Good Standing
certified by the Secretary of State of the State of Delaware as to the corporate
status of the Company.
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57
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, and their respective seals to be hereunto fixed and attested, all
as of the day and year first above written.
MICRO GENERAL CORPORATION
(the "Company")
By: ________________________________
Name:_______________________________
Title:______________________________
DITO CAREE L.P. ("Lender")
By: ________________________________
Name:_______________________________
Title:______________________________
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58
EXHIBIT "A"
MICRO GENERAL CORPORATION
CONVERTIBLE NOTE
(MULTIPLE ADVANCES)
$900,000.00 Irvine, California
October 27, 1998
MICRO GENERAL CORPORATION, a corporation duly organized and existing
under the laws of Delaware (herein called the "Company," which term includes any
successor corporation or corporations under the Agreement hereinafter referred
to), for value received, hereby promises to pay to Dito Caree L.P., a Nevada
limited partnership, at its office at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ ("Lender"), or order, principal sum of Nine Hundred Thousand
Dollars ($900,000.00), or so much thereof as shall have been disbursed by Lender
and which at that time remains unpaid, together with simple interest thereon
from the date hereof at the rate of ten percent (10%) per annum, in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, payable as follows:
Accrued interest only on the principal amount hereof shall be payable quarterly
in arrears during the first five (5) years of the term hereof commencing October
27, 1998. Thereafter, on October 27, 2003 the entire unpaid balance of this
Note, including principal and accrued but unpaid interest, shall be due and
payable.
This Note may be prepaid in whole or in part at any time with the prior
written consent of Lender so long as the Company gives ten (10) days' prior
written notice to Lender of the Company's intent to prepay this Note or any
portion hereof. Such notice shall state the proposed payment date (the "Payment
Date") and the principal amount to be repaid. At any time during the term
hereof, the Lender may, but shall not be obligated to, elect to convert all or
any portion of the principal to be repaid on the Payment Date into shares of the
Company's common stock (the "Common Stock") at the "Conversion Price" (as that
term is defined in the Agreement hereinafter referred to) then in effect by
delivering to the Company, to the attention of its President, written notice of
its election to exercise its conversion rights as set forth herein.
Notwithstanding anything contained herein to the contrary, and notwithstanding
the Company's payment of this Note in whole or in part, the Lender shall retain
the right to convert the then-outstanding principal balance hereof into the
subject shares of Common Stock throughout the five (5) year term of this Note at
the Conversion Price.
Any partial prepayments made hereunder shall be applied to installments
due hereunder in inverse order of maturity.
This Note is duly authorized and issued by the Company, is designated as
set forth on the face hereof, and is limited to the aggregate principal amount
of $900,000.00 issued under and pursuant to that certain Convertible Note
Purchase Agreement, dated as of October 27, 1998 (herein called the
"Agreement"), duly executed and delivered by the Company and Lender, to which
Agreement reference is hereby made for a further description of the rights,
limitation of rights, obligations, and
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59
duties thereunder of the Company and Lender. In case an Event of Default shall
have occurred under this Note or under the Agreement (as the term "Event of
Default" is defined in said Agreement), the principal balance hereof and all
accrued but unpaid interest thereon may be declared, and upon such declaration
shall become, due and payable, in the manner, with the effect and subject to the
conditions provided in the Agreement.
Reference is hereby made to the further provisions of the Agreement,
including, without limitation, provisions giving the Lender of this Note the
right to convert this Note into Common Stock on the terms and subject to the
limitations more fully specified in the Agreement. Such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
Capitalized terms used in this Note and not otherwise defined still have the
meanings assigned to such terms in the Agreement.
IN WITNESS WHEREOF, the Company has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: _______________________ MICRO GENERAL CORPORATION (the
"Company")
By: ________________________________
Name:_______________________________
Title:______________________________
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60
EXHIBIT "B"
CONVERSION NOTICE
To: Micro General Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
The undersigned, as the owner of that certain Convertible Promissory
Note dated October 27, 1998 (the "Note"), hereby irrevocably exercises the
option to convert the Note, or that portion of the Note designed herein below,
into _____________ shares of Common Stock of Micro General Corporation at a
price of $_______ per share, in accordance with the terms of that certain
Convertible Note Purchase Agreement between the undersigned and Micro General
Corporation as referenced in the Note, and directs that the shares issuable and
deliverable upon the conversion be issued and delivered to the holder hereof
unless a different name has been indicated below. If shares or any portion of
this Note not converted are to be issued in the name of a person other than the
undersigned, the undersigned has herein below named the transferee to whom the
new Note should be issued.
Dated: _____________________________
____________________________________
Signature(s)
By: ________________________________
Name:_______________________________
Title:______________________________
61
MICRO GENERAL CORPORATION
CONVERTIBLE NOTE
(MULTIPLE ADVANCES)
$900,000.00 Irvine, California
October 27, 1998
MICRO GENERAL CORPORATION, a corporation duly organized and existing
under the laws of Delaware (herein called the "Company," which term includes any
successor corporation or corporations under the Agreement hereinafter referred
to), for value received, hereby promises to pay to Dito Caree L.P., a Nevada
limited partnership, at its office at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ ("Lender"), or order, principal sum of Nine Hundred Thousand
Dollars ($900,000.00), or so much thereof as shall have been disbursed by Lender
and which at that time remains unpaid, together with simple interest thereon
from the date hereof at the rate of ten percent (10%) per annum, in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, payable as follows:
Accrued interest only on the principal amount hereof shall be payable quarterly
in arrears during the first five (5) years of the term hereof commencing October
27, 1998. Thereafter, on October 27, 2003 the entire unpaid balance of this
Note, including principal and accrued but unpaid interest, shall be due and
payable.
This Note may be prepaid in whole or in part at any time with the prior
written consent of Lender so long as the Company gives ten (10) days' prior
written notice to Lender of the Company's intent to prepay this Note or any
portion hereof. Such notice shall state the proposed payment date (the "Payment
Date") and the principal amount to be repaid. At any time during the term
hereof, the Lender may, but shall not be obligated to, elect to convert all or
any portion of the principal to be repaid on the Payment Date into shares of the
Company's common stock (the "Common Stock") at the "Conversion Price" (as that
term is defined in the Agreement hereinafter referred to) then in effect by
delivering to the Company, to the attention of its President, written notice of
its election to exercise its conversion rights as set forth herein.
Notwithstanding anything contained herein to the contrary, and notwithstanding
the Company's payment of this Note in whole or in part, the Lender shall retain
the right to convert the then-outstanding principal balance hereof into the
subject shares of Common Stock throughout the five (5) year term of this Note at
the Conversion Price.
Any partial prepayments made hereunder shall be applied to installments
due hereunder in inverse order of maturity.
This Note is duly authorized and issued by the Company, is designated as
set forth on the face hereof, and is limited to the aggregate principal amount
of $900,000.00 issued under and pursuant to that certain Convertible Note
Purchase Agreement, dated as of October 27, 1998 (herein called the
"Agreement"), duly executed and delivered by the Company and Lender, to which
Agreement reference is hereby made for a further description of the rights,
limitation of rights, obligations, and duties thereunder of the Company and
Lender. In case an Event of Default shall have occurred under
62
this Note or under the Agreement (as the term "Event of Default" is defined in
said Agreement), the principal balance hereof and all accrued but unpaid
interest thereon may be declared, and upon such declaration shall become, due
and payable, in the manner, with the effect and subject to the conditions
provided in the Agreement.
Reference is hereby made to the further provisions of the Agreement,
including, without limitation, provisions giving the Lender of this Note the
right to convert this Note into Common Stock on the terms and subject to the
limitations more fully specified in the Agreement. Such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
Capitalized terms used in this Note and not otherwise defined still have the
meanings assigned to such terms in the Agreement.
IN WITNESS WHEREOF, the Company has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: October 27, 1998 MICRO GENERAL CORPORATION (the
"Company")
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------
Title: Executive Vice President
------------------------------
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