EXHIBIT 10.20
FIRST MODIFICATION TO
CREDIT AGREEMENT
This First Modification to Credit Agreement (this 'Modification') is
entered into by and MICRO GENERAL CORPORATION ("Borrower") and IMPERIAL BANK
("Bank") as of this 23rd day of July, 2001, at Inglewood, California.
RECITALS
This Modification is entered into upon the basis of the following facts
and understandings of the parties, which facts and understandings are
acknowledged by the parties to be true and accurate:
Bank and Borrower previously entered into a Credit Agreement dated
December 22, 1999. The Credit Agreement shall be referred to herein as the
"Agreement."
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as set forth
below.
AGREEMENT
1. Incorporation by Reference. The Recitals and the documents referred to
therein are incorporated herein by this reference. Except as otherwise noted,
the terms not defined herein shall have the meaning set forth in the Agreement.
2. Modifications to the Agreement. Subject to the satisfaction of the
conditions precedent as set forth in Section 3 hereof, the Agreement is hereby
modified as set forth below.
A. Subsection 1.01 (a) of the Agreement is hereby deleted in its
entirety and replaced with the following:
(a) REVOLVING LINE OF CREDIT. Subject to the terms and
conditions of this Agreement, provided that no event of default then
has occurred and is continuing, Bank shall, upon Borrower's request
make advances ("Revolving Loans") to Borrower, for general corporate
purposes and the issuance of letters of credit, in an amount not to
exceed Ten Million Dollars ($10,000,000) (the "Revolving Line of
Credit") until July 1, 2002 (the "Revolving Line of Credit Maturity
Date"). Revolving Loans may be repaid and reborrowed, subject to the
provisions of the LIBOR Addendum attached to the promissory note
evidencing the Revolving Line of Credit, provided that all
outstanding principal and accrued interest on the Revolving Loans
shall be payable in full on the Revolving Credit Maturity Date."
B. Subsection 1.01 of the Agreement is hereby amended by adding the
following new subsection at the end thereof:
"(c) LETTER OF CREDIT USAGE AND SUBLIMIT. Subject to
availability under the Revolving Line of Credit, at any time and
from time to time from the date hereof through the banking day
immediately prior to the Revolving Line of Credit Maturity Date,
Bank shall issue for the account of Borrower such standby letters of
credit ("Letters of Credit") as Borrower may request, which requests
shall be made by delivering to Bank a duly executed letter of credit
application on Bank's standard form; provided, however, that the
outstanding and undrawn amounts under all such Letters of Credit (i)
shall not at any time exceed Two Hundred Thousand Dollars ($200,000)
("Letter of Credit Sublimit") and (ii) shall be deemed to constitute
Revolving Loans for the purpose of calculating availability under
the Revolving Line of Credit. Unless agreed to in writing by Bank,
no Letter of Credit shall have an expiration date that is later than
the Revolving Line of Credit Maturity Date. All Letters of Credit
shall be in form and substance acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of
Bank's form application and letter of credit agreement and other
agreements required by Bank. Borrower will pay all usual issuance
and other fees that Bank notifies Borrower it will be charged for
issuing and processing Letters of Credit for Borrower."
C. Article 2 of the Agreement is hereby amended by adding the
following new section at the end thereof:
"2.12 INTELLECTUAL PROPERTY COLLATERAL. Borrower is the sole
owner of the Intellectual Property Collateral, except for
non-exclusive licenses granted by Borrower to its customers in the
ordinary course of business. Each of the Patents is valid and
enforceable, and no part of the Intellectual Property Collateral has
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been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property
Collateral violates the rights of any third party. Borrower's rights
as a licensee of intellectual property do not give rise to more than
5.00% of its gross revenue in any given month, including without
limitation revenue derived from the sale, licensing, rendering or
disposition of any product or service.
As used herein, Intellectual Property Collateral shall mean all of
Borrower's right, title, and interest in and to the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products
now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the
right, but not the obligation. to xxx for and collect such damages
for said use or infringement of the intellectual property rights
identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or
warranty payable In respect of any of the foregoing.
"Copyrights" - shall mean any and all copyright rights,
copyright applications, copyright registrations and like protections
in each work or authorship and derivative work thereof, whether
published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created,
acquired or held.
"Patents" - shall mean all patents, patent applications and
like protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.
"Trademarks" - shall mean any trademark and servicemark
rights, whether registered or not, applications to register and
registrations of the same and like protections, and the entire
goodwill of the business of Borrower connected with and symbolized
by such trademarks."
D. Subsection 4.05(a) of the Agreement is hereby deleted in its
entirety and replaced with the following:
"(a) QUARTERLY FINANCIAL STATEMENT - BORROWER. As soon as
available, and in any event within sixty (60) days after the close
of each quarter, either: (i) a consolidated balance sheet, profit
and loss statement and reconciliation of Borrower's capital balance
accounts as of the close of such period and covering operations for
the portion of Borrower's fiscal year ending on the last day of such
period, all in reasonable detail and reasonably acceptable to Bank,
in accordance with generally accepted accounting principles on a
basis consistently maintained by Borrower and certified by an
appropriate officer of Borrower, or (ii) copies of the Borrower's
Form 10-Q Quarterly concurrent with the date of filing with the
Securities and Exchange Commission."
E. Subsection 4.05(c) of the Agreement is hereby deleted in its
entirety and replaced with the following:
"(c) ANNUAL FINANCIAL STATEMENT - BORROWER. As soon as
available, and in any event within ninety (90) days after and as of
the dose of each fiscal year of Borrower, either: (i) a consolidated
report of audit of Borrower, all in reasonable detail, by an
independent certified public accountant selected by Borrower and
reasonably acceptable to Bank, in accordance with generally
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accepted accounting principles on a basis consistently maintained by
Borrower and certified by an appropriate officer of Borrower; or
(ii) copies of the Borrower's Form 10-K Annual Report concurrent
with the date of filing with the Securities and Exchange
Commission."
F. Section 4.05 of the Agreement is hereby amended by adding the
following new subsection at the end thereof:
"(h) INTELLECTUAL PROPERTY. Within thirty (30) days of the
last day of each month, a report signed by Borrower, in form
reasonably acceptable to Bank, listing any applications or
registrations that Borrower has made or filed in respect of any
Patents, Copyrights or Trademarks and the status of any outstanding
applications or registrations, as well as any material change in
Borrower's Intellectual Property Collateral, including but not
limited to any subsequent ownership right of Borrower in or to any
Trademark, Patent or Copyright not specified in Exhibits A, B, and C
of the intellectual property security agreement entered into by
Borrower in connection with this Agreement."
G. Section 4.06 of the Agreement is hereby deleted in its entirety
and replaced with the following:
"4.06 OUT OF DEBT PERIOD. To repay any advances in full, and
not to draw any additional advances on its Revolving Line of Credit,
for a period of at least 30 consecutive days in each line-year.
"Line-year" means the period between the date of this Modification
and July 1, 2002, and each subsequent one-year period (if any). For
the purposes of this paragraph, "advances" does not include undrawn
amounts of outstanding letters of credit."
H. Article 4 of the Agreement is hereby amended by adding the
following new sections at the end thereof:
"4.12 TANGIBLE NET WORTH. Maintain at all times a Tangible Net
Worth (defined as stockholder's equity less any value for goodwill,
trademarks, patents, copyrights, leaseholds, organization expense
and older similar intangible items, and any amounts due from
stockholders, officers and affiliates) of not less than Fourteen
Million Dollars ($14,000,000).
4.13 WORKING CAPITAL. Maintain at all times working capital,
meaning current assets minus current liabilities of not less than
Two Million Dollars ($2,100,000).
4.14 DEBT TO TANGIBLE NET WORTH. Maintain at all times a ratio
of total liabilities to Tangible Net Worth of not greater than 3.00
to 1.00.
4.15 DEBT SERVICE COVERAGE RATIO. Maintain at all times, a
ratio of (a) EBITDA, meaning the sum of the Borrower's net income
before taxes, interest expense, accrued federal and state income
taxes, and accrued depreciation and amortization expense, to (b) the
sum of current portion of long term debt, capital lease expense, and
interest expense, of not less than 1.20 to 1.00. This ratio will be
calculated at the end of each fiscal quarter, using the results of
that quarter and each of the three immediately preceding fiscal
quarters. The current portion of tong term liabilities will be
measured as of the last day of the calculation period.
4.16 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
(a) Register or cause to be registered on an expedited basis
(to the extent not already registered) with the United States Patent
and Trademark Office or the United States Copyright Office, as
applicable: (i) those intellectual property rights listed on
Exhibits A, B and C to the intellectual property security agreement
entered into by Borrower In connection with this Agreement, within
30 days of the date hereof, (ii) all registerable intellectual
property rights Borrower has developed as of the date of this
Agreement but heretofore failed to register, within 30 days of the
date of this Agreement, and (iii) those additional intellectual
property rights developed or acquired by Borrower from time to time
in connection with any product, prior to the sale or licensing of
such product to any third party, and prior to Borrower's use of such
product (including without limitation major revisions or additions
to the Intellectual property rights listed on such Exhibits A, B and
C). Borrower shall give Bank notice of all such applications or
registrations.
(b) Execute and deliver such additional Instruments and
documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property
Collateral.
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MICRO GENERAL CORPORATION IMPERIAL BANK
By: /s/ XXXXXX X. XXXX By: /s/ XXXXX XXXXXX
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Xxxxxx X. Xxxx Xxxxx Xxxxxx
First Vice President
Title: Senior Vice President
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