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 August 1, 1996
CONVERTIBLE NOTE
DUE JULY 31, 2001
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 5
Section 107. Legal Holidays 5
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 7
Section 205. Commitment Fee 7
Section 206. Security for the Note 7
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 8
Section 305. Corporate Existence; Foreign Qualification 8
Section 306. Books, Records and Inspections 8
Section 307. Compliance with Laws 8
Section 308. Maintenance of Permits 9
Section 309. Capital Expenditures/Debt 9
Article IV - Representations and Warranties 9
Section 401. Customer Contracts 9
Section 402. Board of Directors 9
Section 403. Organization, Etc 9
Section 404. Capital Stock; Stock Options 9
Section 405. Corporate Authority 10
Section 406. Notes and Accounts Receivable 10
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 12
Section 412. Personal Property Leases 12
Section 413. Intellectual Property 12
Section 414. Trade Secrets 13
Section 415. Software and Information Systems 13
Section 416. Insurance 13
Article V - Defaults; Remedies 13
Section 501. Events of Default 13
Section 502. Acceleration of Maturity, Rescission and Annulment;
Other Remedies 15
Section 503. Collection of Indebtedness and Suits for Enforcement 15
Section 504. Lender May File Proofs of Claim 16
Section 505. Application of Money Collected 16
Section 506. Rights and Remedies Cumulative 17
Section 507. Delay or Omission Not Waiver 17
Section 508. Waiver of Stay or Extension Laws 17
Article VI - Reports by Company 17
Section 601. Annual Statement 17
Section 602. Reports by Company 17
Section 603. Quarterly Financial Reports 18
Article VII - Consolidation, Merger, Conveyance, Transfer , Sale or
Lease 18
Section 701. Company May Consolidate. etc., on Certain Terms 18
Section 702. Right of First Refusal of Lenders 18
Article VIII - Redemption of Note by the Company 19
Section 801. Right to Redeem 19
Section 802. Notice of Redemption 19
Article IX - Right to Convert Note and/or Right to Purchase Stock 20
Section 901. Rights Granted 20
Section 902. Anti-Dilution Rights of Lender 20
Section 903. Manner of Exercise of Conversion Privilege 20
Section 904. Notice to Lender Prior to Certain Corporate Actions 21
Section 905. Reservation of Shares of Common Stock 21
Section 906. Taxes Upon Conversion 22
Section 907. Covenants as to Common Stock 22
Section 908. Piggyback Registration Rights 22
Article X - Conditions Precedent 23
Section 1001. Conditions Precedent 23
CONVERTIBLE NOTE PURCHASE AGREEMENT
This CONVERTIBLE NOTE PURCHASE AGREEMENT (the "Agreement") is made and
effective as of August 1, 1996, 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 0000
Xxxx Xxxxxxxx Xxxxxxxxx, Xxxxx Xxx, Xxxxxxxxxx 00000, 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 $1,000,000.00 and one in the
principal amount of $2,000,000.00, 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 $2,000,000.00, and the Lender has agreed to purchase said
Note; and
WHEREAS, in order to set forth the terms and conditions upon which the
Note is to be issued by the Company and purchased by the Lender, the Company
and Lender have duly authorized the execution and delivery of this Agreement;
and
WHEREAS, as an inducement to Lender to purchase the Note, whether or not
the Company borrows the full amount of the Note, the Company has agreed to
give Lender the right, but not the obligation, throughout the five (5) year
term of the Note, to either convert all or a portion of the principal of the
Note into, or to purchase directly from the Company, an aggregate of 896,292
shares of the Company's common stock five cent ($.05) par value common capital
stock (the "Common Stock"), the cost of which in either event shall be
calculated as follows: 333,332 shares of Common Stock at $2.00 per share;
296,294 shares of Common Stock at $2.25 per share; and 266,666 shares of
Common Stock at $2.50 per share;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements hereinafter set forth, and intending to be legally bound hereby,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND
OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation; and
(3) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Administrative Agent" means CalWest Service Corporation, a California
corporation, which shall act as agent for the Lenders.
"Agreement" means this instrument as originally executed or, if amended
or supplemented as herein provided, as so amended or supplemented.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of the board of directors of the Company.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in the City of Los Angeles,
California are authorized or required to close.
"Commitment Fee" has the meaning set forth in Section 205 hereof.
"Common Stock" means the five cent ($.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.
"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, the Note or the Security Agreement, 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.
"Postage Meter Project" means that certain long-term project of the
Company for the development of electronic postage meters, built to USPS
Service specifications as recently propounded by the USPS, with the ability to
interface to electronic scales at the low-to-mid-range market and with the
high range of the market geared to computerized postage, utilizing personal
computers or USPS manifesting; and, as a concurrent project, the Company will
develop the mailing machine bases.
"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.
"Security Agreement" has the meaning specified in Section 206 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.
"USPS" means the United States Postal Service.
"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, the Note and the
Security Agreement 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 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
0000 Xxxx Xxxxxxxx Xxxxxxxxx
Xxxxx Xxx, Xxxxxxxxxx 00000
Attn: President
Facsimile: 714/667-5052
To Lender: Dito Caree L.P.
0000 Xxxxxx Xxxxxx Xxxxxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxx 00000
Attn: Xxxxx X. Xxxx, President of Gamebusters,
Inc., General
Partner
Facsimile: 714/ 759-9539
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 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 One
Million Dollars ($1,000,000.00) and the other in the face amount of Two
Million Dollars ($2,000,000.00); provided, however, that disbursements of
principal under the Note shall be limited to no more than $500,000.00 per
quarter during the term of the Note, 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 nine and one-half percent
(9.5%) 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 two (2) years of the term thereof commencing
August 1, 1996 (each, an "Interest Payment Date"). Thereafter, commencing
August 1, 1998, the Note shall be payable in equal quarterly installments of
principal and accrued interest thereon (each, a "Principal Payment Date")
until the principal balance and all accrued but unpaid interest thereon is
paid in full on or before July 31, 2001, at which time the entire unpaid
balance of the Note, including principal and accrued but unpaid interest,
shall be due and payable.
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.
SECTION 205. Commitment Fee. Contemporaneously with the execution and
delivery of this Agreement and the Note, the Company shall pay to the Lender a
commitment fee (the "Commitment Fee") in an amount equal to one percent (1%)
of the original principal balance of the Note.
SECTION 206. Security for the Note. In order to secure the prompt
repayment of principal and interest on the Note, the right of Lender to
convert the Note into Common Stock, and the full performance of the Company
under the Note and this Agreement, the Company shall grant Lender a security
interest in all of its inventory, accounts receivable, Intellectual Property
and any other of its significant assets, and agrees to execute a General
Assignment and Security Agreement (the "Security Agreement") in favor of
Lender in substantially the form attached hereto as Exhibit "C." The Company
agrees to execute such documents and to take any other actions reasonably
necessary to grant and perfect the security interest of Lender in the property
described above, including the execution of UCC financing statements and any
amendments to the Security Agreement, as shall be necessary to perfect
Lender's security interest. The Administrative Agent shall file a UCC
financing statement for each Note issued.
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.
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
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
1,948,166 shares are issued and outstanding, 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 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, bin
ding 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 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 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) application of eighty-five percent (85%) of all
advances under the Note to any use other than the Postage Meter Project and in
a manner materially different from that set forth in the Officer's Certificate
to which such proceeds relate and the passage of seven (7) days following
written notice thereof to the Company; or
(4) 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;
(5) 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
(6) 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
(7) 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 specific
ally 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.
(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 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 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 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.
(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 July 31, 2001.
(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 July 31, 2001, 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 July 31, 2001, to convert the principal
amount of the Note up to a value of $2,000,000.00 into, or to pay in cash in
an amount up to $2,000,000.00 for, an aggregate of 896,292 shares of Common
Stock, calculated as follows: 333,332 shares of Common Stock at a price of
$2.00 per share; 296,294 shares of Common Stock at a price of $2.25 per share;
and 266,666 shares of Common Stock at a price of $2.50 per share (the
"Conversion Price").
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 July
31, 2001. 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
896,292 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;
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 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 is limited as follows: (A) an amount equal to 85% thereof shall be
dedicated to the Postage Meter Project, and (B) the remaining 15% thereof
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, the Note
or the Security Agreement.
(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
(c) Full compliance by the Company with each and every provision
of the Security Agreement, including the delivery of all documents, data and
other materials required thereunder.
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: /s/ Xxxxx Xxxxxx
Name: Xxxxx Xxxxxx
Title: Corporate Secretary
DITO CAREE L.P. ("Lender")
By: /s/ Xxxxx X.Xxxx
Title: President, Gamebusters Inc.
General Partner
Schedules
Schedule 401 is a list of all contracts and agreements between the
Company and purchasers of its goods and services (whether payable in cash or
in kind).
Schedule 402 is a list of all the members of the Company's Board of
Directors.
Schedule 404(b) is a list of any exceptions with respect to any
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 of the Company's stock or
issuance of any company securities of any description.
Schedule 406 is a list of all notes receivable and accounts receivable of
the Company and exceptions to any valid offset or counterclaim.
Schedule 408 is 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 by which it is 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.
Schedule 409 is a list of any indebtedness, liability or obligation of
any nature, whether absolute, accrued, contingent or otherwise, related to or
arising from the operation of the Company's business or the ownership,
possession or use of any assets.
Schedule 411 is 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").
Schedule 412 is 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").
Schedule 413 is 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"), and contains
an accurate, correct and complete list and summary description of all licenses
and other agreements relating to any Intellectual Property, together with a
list of exceptions to the following statements:
(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.
Schedule 414 is 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").
Schedule 415 is an accurate, correct and complete summary description of
all Software used by the Company (other than non-proprietary commercially
available Software).
Schedule 416 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.
