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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. 0-8358
MICRO GENERAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-2621545
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
2510 RED HILL AVENUE, SUITE 200 92705
SANTA ANA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (949) 622-4444
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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COMMON STOCK, $.05 PAR VALUE NASDAQ OTC BULLETIN BOARD
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [X]
As of March 20, 2000, 12,922,482 shares of common stock ($.05 par value)
were outstanding, and the aggregate market value of the shares of the common
stock held by non-affiliates of the registrant was $84,793,000.
LOCATION OF EXHIBIT INDEX: The index to exhibits is contained in Part IV
herein on page number 35.
The information in Part III hereof is incorporated herein by reference to
the Registrant's Proxy Statement on Schedule 14A for the fiscal year ended
December 31, 1999, to be filed within 120 days after the close of the fiscal
year that is the subject of this Report.
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TABLE OF CONTENTS
FORM 10-K
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PAGE NO.
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PART I
Item
1. Business.................................................... 1
Item
2. Properties.................................................. 7
Item
3. Legal Proceedings........................................... 7
Item
4. Submission of Matters to a Vote of Security Holders......... 7
PART II
Item
5. Market for Registrant's Common Stock and Related Stockholder
Matters................................................... 7
Item
6. Selected Financial Data..................................... 8
Item
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 9
Item
7A. Quantitative and Qualitative Disclosure About Market Risk... 14
Item
8. Financial Statements and Supplementary Data................. 15
Item
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 35
PART III
Item
10. Directors and Executive Officers of the Registrant.......... 35
Item
11. Executive Compensation...................................... 35
Item
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 35
Item
13. Certain Relationships and Related Transactions.............. 35
PART IV
Item
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 35
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PART I
ITEM 1. BUSINESS
Micro General Corporation ("Micro General" or "the Company") is a
diversified provider of electronic commerce ("eCommerce") business solutions
focused on the financial and real estate markets and also provides other
information technology and telecommunications services. Historically, the
Company's operations consisted of the design, manufacture and sale of
computerized postal and shipping systems, but the Company, with the acquisition
of ACS Systems, Inc. ("ACS") in mid-1998, shifted its focus from that business
into information technology and telecommunication services.
On May 14, 1998, the Company and Fidelity National Financial, Inc. ("FNFI")
completed the merger of Micro General with ACS, a wholly-owned subsidiary of
FNFI. As a result of the merger, all of the outstanding shares of ACS were
exchanged for 4.6 million shares of Micro General common stock. The transaction
was appraised at $1.3 million. Following the merger of Micro General and ACS,
FNFI owned approximately 81.4% of the common stock of the Company on an
undiluted basis. The transaction has been accounted for as a reverse merger,
i.e., Micro General has been acquired by FNFI as a majority-owned subsidiary
through a merger with ACS, with Micro General as the legal surviving entity and
ACS as the surviving entity for accounting purposes. At December 31, 1999, FNFI
owned 69.3% of the outstanding common stock of the Company.
On November 17, 1998, the Company completed the acquisition of
LDExchange.com, Inc. ("LDExchange"), an emerging multinational carrier focused
primarily on the international long distance market. LDExchange is a
facilities-based, wholesale long distance carrier providing low cost
international telecommunications services primarily to U.S. based long distance
carriers. The range of services offered by LDExchange complements the domestic
long distance services offered by ACS. The LDExchange purchase price was $3.1
million, payable $1.1 million in cash and $2.0 million in Micro General
restricted common stock (1,000,000 shares).
SERVICES
The Company offers its customers a portfolio of related services within the
broad categories of eCommerce systems and technology services, business process
management, systems and software development and telecommunications. The Company
provides its clients with a wide range of value-added products and services
within each of the categories, and will continue to respond to market needs and
opportunities.
ACS
ACS was founded in 1985 as a software company specializing in products for
the real estate industry, in particular, escrow software. ACS was acquired by
FNFI in April 1994, and was subsequently merged with the Company as described
above. ACS, through its various divisions, is currently a full-service
enterprise solutions provider that offers total voice, data and systems
integration solutions for small and medium sized businesses, primarily in the
real estate sector. ACS offers a full range of information technology services,
including voice and data network design, implementation and management. ACS also
provides services in the areas of real estate industry applications, eCommerce,
consulting services and telecommunications. ACS offers these products and
services to both affiliated and non-affiliated companies. ACS' revenues during
1999 were $34.4 million, which represents 36% of the Company's total revenues.
During 1999, 1998, and 1997, 36%, 66% and 89%, respectively, of the total
Company's revenue was derived from multiple servicing arrangements between FNFI
and its subsidiaries and ACS.
- Systems and Technology Services
These services encompass systems development, integration, telephony
solutions including computer telephony integration and management. Also
included are desktop services, business process management, consulting
and enterprise software solutions.
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- Electronic Business Services
The services offered include interactive marketing and payment services,
Internet and online services, eCommerce and electronic data interchange.
REALEC
On October 8, 1998, the Company, in conjunction with FNFI, announced the
creation of RealEC, one of the largest real estate electronic commerce networks
in the nation. RealEC commenced operations in mid-1999. RealEC develops,
operates and maintains a secure business-to-business electronic commerce
exchange used to orchestrate real estate settlement services. This open
multi-vendor eCommerce network provides real estate and lender customers the
ability to select products and services necessary to close their transactions,
while at the same time giving them access to over 6,000 issuing locations for
title insurance across the United States.
RealEC is a fifty percent owned joint venture developed by the Company and
Stewart Mortgage Information, a subsidiary of Stewart Information Services
Corporation (NYSE:STC). The RealEC network is an Internet based system providing
leading edge software that connects all parties involved with real estate
transactions. RealEC interfaces with loan origination software systems,
windows-based ordering systems, third party networks, real estate office systems
and the Internet. RealEC also offers on-line access to documents related to real
estate transactions and links with back-end title insurance and escrow
production systems.
TELECOMMUNICATIONS
(The Company offers a full range of telecommunication services, including
digital subscriber lines, frame relay, domestic and international long
distance.) In 1999, the Company had total telecommunications revenues of $61.7
million.
- ACS. The ACS telecommunications business consists primarily of retail
domestic long distance services. ACS is certified to provide long distance
services in most states and currently has customers in 17 states. During
the fiscal year ended December 31, 1999, the ACS telecommunications
services revenue was approximately 5% of the Company's total
telecommunications services revenues.
- LDExchange. LDExchange is a provider of wholesale international long
distance call completion services. These services are provided primarily
to U.S.-based telecommunications companies offering their services to
customers whose calls originate in the U.S. and terminate in foreign
countries. In the fiscal year ended December 31, 1999, LDExchange
contributed 95% of the Company's telecommunication services revenue.
LDExchange obtains the majority of its call completion services through
purchase agreements with other international telecommunications
companies; however, the Company does have direct purchase arrangements
with partners in five foreign countries and is seeking additional direct
purchasing arrangements in other foreign countries. LDExchange leases
satellite facilities in order to transport long distance calls from its
New York and California telecommunications centers to its partners
foreign country locations. LDExchange has one customer that represents a
significant portion of its revenues. In 1999, this customer was 42% of
LDExchange's total revenues (See Risk Factors -- Customer Concentration).
ESCROW.COM
On October 1, 1999, Micro General entered into an Intellectual Property
Transfer Agreement that provided the financing to launch escrow.com as a new
company. Under the agreement, the Company sold the escrow.com name and
trademark, the escrow.com internet URL, a license for the Micro General
proprietary escrow trust accounting software, the Company's computer services
provider business unit and approximately $535,000 of related computer equipment.
Under the terms of the Intellectual Property Transfer Agreement, the Company
received from escrow.com a $4.5 million note with a term of seven years and an
accrued interest rate of three percent. The Company also received a warrant
giving the Company the right to purchase 15.0 million shares of escrow.com
common stock at a price of $0.40 per share.
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Escrow.com offers online escrow-related services designed to provide buyers
and sellers with a safe, secure and easy to use system for managing payment for
and delivery of products and services purchased via the Internet. As an internet
transaction services provider, escrow.com provides for the secure transmission
of funds between a buyer and seller by placing the funds in escrow, confirms and
verifies the receipt of merchandise by the buyer, and releases the funds from
escrow to the seller. While escrow.com will enable any Internet buy/sell
transaction, its primary focus will be in the business-to-business Internet
marketplace.
Because of the start-up nature of escrow.com, the Company has fully
reserved the $4.5 million note receivable on its consolidated balance sheet. The
gain on the sale of assets will be realized at such time that escrow.com has
sufficient funding in place to reasonably ensure the payment of the note. While
the Company has no equity interest in escrow.com at December 31, 1999, the 15.0
million warrants give the Company the opportunity to acquire a substantial
interest in escrow.com. At December 31, 1999, escrow.com had 3,891,304 shares
outstanding. Assuming exercise of the warrants, the Company would have a 79.4%
ownership in escrow.com. Escrow.com is incurring substantial losses and will
need to raise substantial additional funds in order to continue its operations.
The Company's potential ownership in escrow.com may be substantially diluted as
escrow.com issues additional shares to raise the necessary capital.
ACQUISITIONS AND STRATEGIC ALLIANCES
The Company has made certain acquisitions and entered into strategic
alliances in an effort to gain a competitive advantage or to obtain a new or
expanded presence in targeted markets. The Company believes that the
consolidation and convergence of the computing and software, electronic commerce
and telecommunication industries will continue. Therefore, the Company expects
that its strategy to make acquisitions and/or to enter into strategic alliances
will continue in order for the Company to compete effectively.
On March 22, 1999, the Company acquired Interactive Associates, Inc.
("Interactive"), a privately held distributor of computer telephony hardware and
services. This acquisition provided for the purchase of 100% of the common stock
of Interactive in exchange for 50,000 shares of Micro General common stock,
subject to certain conditions, including an earn out provision for up to an
additional 50,000 shares. Interactive's business activities have been merged
with those of ACS. This acquisition has been accounted for using the purchase
method. The financial position and results of operations of Interactive are not
material to the Company.
For additional information related to the Company's operating segments, see
Note 8 of Notes to Consolidated Financial Statements.
REGULATION
Various aspects of the Company's business are subject to Federal, state and
foreign regulation, noncompliance with which, depending on the nature of the
noncompliance, could result in the suspension or revocation of any license or
registration at issue, civil fines or criminal penalties. The Company has not
experienced material difficulties in complying with the various laws and
regulations affecting its business (See Risk Factors -- Regulation.
COMPETITION
The Company experiences intense competition in the information technology
and telecommunications industries from large multi-national corporations, as
well as from niche-oriented or geographically focused providers. Technology,
telecommunications and their application within the business enterprise are in a
rapid and continuing state of change as new technologies, products and services
continue to be developed, introduced and implemented.
The Company believes that its ability to compete effectively will depend
upon its ability to develop and market products and services on a timely and
cost effective basis that enable it to meet the changing needs of its customers.
Another key element to the Company's competitiveness is its ability to finance
and acquire the resources necessary to offer such products and service (See Risk
Factors -- Competition).
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SIGNIFICANCE OF FIDELITY NATIONAL FINANCIAL, INC.
Approximately 29% of the Company's total revenue in 1999 was attributable
to FNFI and its affiliates. During 1998 and 1997, 66% and 89%, respectively, of
the Company's revenue was derived from multiple servicing arrangements with FNFI
and its subsidiaries. The Company, through ACS, provides substantially all of
the information technology and telecommunications services for FNFI and its
subsidiaries. The loss of FNFI as a customer of the Company would have a
material adverse effect on the Company. Information technology and
telecommunication services are provided pursuant to various agreements between
the Company and FNFI.
The service agreements between the Company and FNFI specify the terms,
conditions and scope of products and services to be provided by the Company to
FNFI. The length of the contracts are generally one to three years, and are
evaluated, modified and renewed on a regular basis. The Company believes that
the negotiated terms of its contracts with Fidelity National Financial, Inc. are
similar to third party rates and conditions; however, the relationship between
the Company and FNFI should not be considered arm's length. The Company has
recently signed a new three-year contract with FNFI to continue the development
work for new title and escrow production systems and to continue the expansion
of FNFI's technology infrastructure. In addition, after the closing of the
acquisition of Chicago Title Corporation ("Chicago Title") by FNFI on March 20,
2000, the Company will hire approximately 150 former Chicago Title employees.
These information technology support personnel will expand the Company's
commitment to supporting the combined FNFI/Chicago Title technology and
telecommunications requirements. This new business from FNFI will substantially
expand the Company's revenues derived through the ACS products and services over
the next three years.
The Company has relied on FNFI as the primary source of capital to fund its
operations in the form of revenues generated by the Company related to products
and services provided to FNFI, as a source of funds via available financing
arrangements, and as a guarantor of certain of the Company's lending
arrangements. See Note 8 of Notes to Consolidated Financial Statements.
EMPLOYEES
As of March 20, 2000, the Company had 245 full-time employees of which 221
were employed in offices in California, 12 in Texas, 10 in Florida and 2 in New
Jersey. The Company believes that relations with its employees are generally
good.
YEAR 2000 ISSUES
Information technology is an integral part of the Company's business. The
Company also recognizes the critical nature of and the technological challenges
associated with the Year 2000 issue. The Year 2000 ("Y2K") issue results from
computer programs and computer hardware that utilize only two digits to identify
a year in the date field, rather than four digits. If such programs or hardware
are not modified or upgraded, information systems could fail, lock up, or in
general fail to perform according to normal expectations. The Company has
implemented a program and committed both personnel and other resources to
determine the extent of potential Y2K issues. Included within the scope of this
program are systems used in servicing customer obligations, information
technology products and services, telecommunications services, financial
management, human resources, payroll and infrastructure. In addition to a review
of internal systems, the Company has initiated formal communications with third
parties with which it does business in order to determine whether or not they
are Y2K compliant and the extent to which the Company may be vulnerable to third
parties' failure to become Y2K compliant. The Company continues the process of
identifying Y2K compliant issues in its systems, equipment and processes. The
Company will make any necessary changes to such systems, updating or replacing
such equipment, and modifying such processes to make them Y2K compliant.
The Company developed a four phase program to become Y2K compliant. Phase I
is, "Plan Preparation and Identification of the Problem." This is a continuing
phase. Phase II is, "Plan Execution and Remediation." Phase III is, "Testing."
Phase IV is, "Maintaining Y2K Compliance." The status of the Y2K
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compliance program is monitored by senior management of the Company and by the
Audit Committee of the Company's Board of Directors. The costs of the Y2K
related efforts incurred to date have not been material, and the estimate of
remaining costs to be incurred is not considered to be material. These estimates
may be subject to change due to the complexities of estimating the cost of
modifying applications to become Y2K compliant and the difficulties in assessing
third parties' ability to become Y2K compliant.
The Company has not experienced any Y2K compliance related issues to date.
Management of the Company believes that its electronic data processing and
information systems are Y2K compliant; however, there can be no assurance that
all of the Company's systems are Y2K compliant, or that the costs to be Y2K
compliant will not exceed management's current expectations, or that the failure
of such systems to be Y2K compliant will not have a material adverse effect on
the Company's business. The Company believes that functions currently performed
with the assistance of electronic data processing equipment could be performed
manually or outsourced if certain systems were determined not to be Y2K
compliant. The Company has substantially completed a contingency plan in the
event that any systems are not Y2K compliant.
This entire section, "Year 2000 Issues", is hereby designated a "Year 2000
Readiness Disclosure", as defined in the Year 2000 Information and Readiness
Disclosure Act.
RISK FACTORS
Technological Change
Rapid technological change, characterized by the increased processing power
of computers, product obsolescence, evolving industry standards, the
proliferation of networks and the rapid growth in the usage of the Internet and
intranets are all challenges faced by the Company. The Company must react to
these changes by utilizing these new technologies to develop new products and
services as its existing products and services become obsolete. There can be no
assurance that the Company will be successful in adapting to continued rapid
technological change, will be able to develop new products and services, or will
develop new products and services that are both price and feature competitive
with those products and services that may be developed by its competitors. In
addition, there can be no assurance that the Company will continue to be
successful in attracting and retaining key personnel with the technological
skills and expertise necessary to develop new products and services in the
future.
Customer Concentration
As discussed in Item 1. Business -- Significance of Fidelity National
Financial, Inc., FNFI and its affiliates provided approximately 29% of the
Company's revenue in 1999. Various service agreements and arrangements exist
between the Company and FNFI and generally have a length of one to three years.
While the Company has been successful in lessening its revenue from FNFI as a
percentage of the Company's total revenue, FNFI continues to be ACS's major
customer and the loss of FNFI as a customer would have a material adverse effect
on the Company. In addition, LDExchange has one customer that represents 42% of
total 1999 LDExchange revenue. This customer does not have a minimum usage
commitment with the Company and can terminate its usage of the Company's
services at any time. There is no guarantee that the Company can continue to
offer competitive pricing to the customer, or that the customer may not elect to
move its business to another telecommunications carrier. The Company's revenues
and profits could be materially impacted by the loss of this customer.
Competition
The Company experiences intense competition in the information technology
and telecommunications industries. Technology, telecommunications and their
application within the business enterprise are in a rapid and continuing state
of change as new technologies, products and services continue to be developed,
introduced and implemented. Competitors include large, well-financed
multinational corporations as well as niche-oriented or geographically focused
providers. The Company believes that its ability to effectively compete in these
industries will depend on its ability to develop and market new products on a
timely and cost effective basis that enables it to continue to meet the needs of
and retain its existing customers and to develop
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new customers. There can be no assurance that management will be able to
successfully continue to develop such products and services, or will be able to
successfully market such products and services as they are developed.
International Telecommunications
The international telecommunications market is constantly changing as new
long distance resellers emerge and existing providers respond to fluctuating
costs and competitive pressures. The Company primarily engages in the resale of
international capacity and must quickly respond to changes in costs through
pricing adjustments and routing decisions. As a wholesale provider of
international terminations, the business operates on narrow margins, and any
failure on the Company's part to not respond quickly to changing prices and call
routing alternatives could result in substantial losses. There can be no
assurance that the Company will be able to continue to monitor and quickly adapt
to these conditions. In addition, the Company is highly dependent on its foreign
partners in the five countries to which traffic is routed directly. The Company
may have limited recourse if its foreign partners do not perform under their
contractual arrangements, and the Company may be burdened with satellite lease
obligations of up to 12 months if a foreign partner is unable to fulfill its
obligations.
Regulation
The Company's interstate and international telecommunication services
offerings generally are subject to the regulatory jurisdiction of the FCC, state
Public Utility Commissions ("PUCs") and foreign national authorities. Certain
states have laws and regulations which include prior certification,
notification, registration and/or tariff requirements. The Company believes it
has made the filings with the FCC and the appropriate state PUCs, and has taken
the actions it believes are necessary to engage in the interstate
telecommunications services it currently provides. However, should the FCC or
any state PUC determine to revoke the Company's authority to provide
telecommunications services in that jurisdiction, it may have a material
negative impact on the Company's telecommunications revenues.
As the international telecommunications markets have become deregulated,
service providers have developed alternative arrangements to reduce their
terminating costs. The Company utilizes resale arrangements which provide
multiple options for routing traffic to the destination country. The Company
purchased capacity from 69 vendors in 1999. A substantial portion of this
capacity is obtained through variable, per-minute short-term purchase
arrangements. This leaves the Company exposed to the negative impact of
unanticipated price increases and service cancellations. In addition, the
Company has partners in five different foreign countries with which it has
arrangements to terminate telecommunications traffic directly to the partners
switching facilities in that country via satellite transmission facilities which
the Company leases. The FCC or foreign regulatory agencies may take the view
that certain of the Company's partners terminating arrangements do not comply
with current rules and policies. The Company is seeking to substantially grow
the amount of revenue derived through direct partnering arrangements. As this
revenue source becomes a significant portion of the Company's overall revenue,
the loss of such arrangements, whether as a result of regulatory actions, or
otherwise, could have a material adverse effect on the Company's business,
operating results and financial condition.
Need For Additional Capital to Finance Growth and Capital Requirements
The Company has a history of losses and has relied on FNFI as the primary
source of capital to fund its operations. A key element in the Company's growth
and competitiveness will be its ability to either finance the development of new
products and services, or to have capital sufficient to acquire the necessary
products and services. The Company believes that it can meet all anticipated
cash requirements from internally generated funds, from existing lines of credit
and from potential offerings of its shares; however, there can be no assurance
that unanticipated events could not result in substantial additional funds being
required to continue the Company's operations. In the event that the Company
does require additional capital, there is no assurance that FNFI will make those
funds available, that additional borrowing arrangements from non-
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affiliated parties will be available or that the Company can successfully issue
its shares into the capital markets in order to raise additional equity.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
The Company wishes to caution readers that the forward-looking statements
contained in this Form 10-K under "Item 1. Business," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-K involve known and unknown risks and uncertainties
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by any forward-looking statements made by or on behalf of
the Company. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is filing the following
cautionary statements identifying important factors that in some cases have
affected, and in the future could cause the Company's actual results to differ
materially from those expressed in any such forward-looking statements.
The factors that could cause the Company's results to differ materially
include, but are not limited to, general economic and business conditions; the
impact of competitive products and pricing; rapidly changing technology; success
of operating initiatives; adverse publicity; changes in business strategy or
development plans; quality of management; availability, terms, and deployment of
capital; the results of financing efforts; business abilities and judgment of
personnel; availability of qualified personnel; employee benefit costs and
changes in, or the failure to comply with government regulations.
ITEM 2. PROPERTIES
The Company's principal offices are located in Santa Ana, California. Two
facilities provide an aggregate of approximately 28,400 square feet of office
space; 22,000 square feet are leased through August 2007, with the remaining
6,400 square feet leased through October 2007. The Santa Ana property is
sub-leased from Fidelity National Financial, Inc. Additional office space
consists of approximately 8,600 square feet of office and warehouse space
located in Tustin, California leased through June 2007, 2,270 square feet of
office space in Ft. Lauderdale, Florida leased through November 2000, 1,500
square feet of office space in Parsippany, New Jersey leased through September
2001, 3,370 square feet of office space in Houston, Texas leased through April
2001, an additional 2,000 square feet of office space in San Diego, California
leased through March 2002 and 1,100 square feet of telecommunications switching
space located in Los Angeles, California and leased through January 2003.
The Company believes that the material terms of its leases are commercially
reasonable terms typically found in each of the respective areas in which the
Company leases space. The Company believes that its facilities are adequate to
support its current needs and that additional facilities will be available at
competitive rates as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
fourth quarter of 1999.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRINCIPAL MARKET AND PRICES
On January 14, 1997, the Company elected to have its common stock delisted
from the NASDAQ SmallCap Market. The stock is now listed on the OTC Bulletin
Board. The Company currently has an application pending to obtain a listing on
the NASDAQ National Market System. The following table sets
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forth the range of high and low closing bid quotations per share of the
Company's common stock for the fiscal quarters indicated.
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Year Ended December 31, 1999
First Quarter............................................. $ 4.63 $3.31
Second Quarter............................................ 4.63 3.25
Third Quarter............................................. 4.97 2.88
Fourth Quarter............................................ 18.00 4.25
Year Ended December 31, 1998
First Quarter............................................. $ 2.94 $1.63
Second Quarter............................................ 6.06 2.50
Third Quarter............................................. 5.75 3.50
Fourth Quarter............................................ 5.00 2.50
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On March 20, 2000, the last reported sale price of common stock was $34.00
per share. As of March 20, 2000, the Company had approximately 799 stockholders
of record.
DIVIDEND POLICY AND RESTRICTIONS ON DIVIDEND PAYMENTS
The Company intends to continue its policy of retaining all earnings for
reinvestment in the business operations of the Company. Under Delaware law, the
Company's Board of Directors may declare and pay dividends on its outstanding
shares in cash or property only out of the unreserved and unrestricted earned
surplus. Delaware law prohibits the Company from paying cash dividends except to
the extent that the Company has net profits in any fiscal year or the preceding
fiscal year. There were no accumulated dividends as of December 31, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The historical operating results data, per share data and balance sheet
data set forth below are derived from the historical financial statements of the
Company, certain of which have been restated to reflect the ACS Systems, Inc.
acquisition and the related reverse merger accounting treatment (See note 1 of
notes to consolidated financial statements). The balance sheet data includes the
accounts of ACS and LDExchange as of December 31, 1999 and 1998; and only the
accounts of ACS as of December 31, 1997, 1996 and 1995. Operating results and
per share data for the year ended December 31, 1999 include the results of
operations for ACS and LDExchange for the entire year and the results of
operations of the postage meter and scale division for a short period in early
1999 until the operations were ceased. Operating results and per share data for
the year ended December 31, 1998 include the results of operations for ACS for
the year ended December 31, 1998, the results of operations for the postage
scale and meter division for the period May 14, 1998 through December 31, 1998
and the results of operations for LDExchange for the period November 17, 1998
through December 31, 1998. Operating results and per share data for the years
ended December 31, 1997, 1996 and 1995, include only the results of operations
of ACS for the years then ended. Consolidated balance sheets at December 31,
1999 and 1998 and consolidated statements of operations, stockholders' equity
and cash flows for the years ended December 31, 1999, 1998 and 1997, together
with the related notes and the report of KPMG LLP, independent certified public
accountants, are included elsewhere herein and should be
8
<PAGE> 11
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS DATA:
Hardware and software sales and
maintenance revenues........... $15,506,386 $16,248,425 $10,232,371 $ 6,422,557 $4,302,056
Telecommunication service
revenues....................... 65,293,493 9,834,555 862,814 -- --
Service and license revenues..... 14,286,972 7,933,084 2,728,449 449,043 301,043
----------- ----------- ----------- ----------- ----------
Total revenues.......... 95,086,851 34,016,064 13,823,634 6,871,600 4,603,099
----------- ----------- ----------- ----------- ----------
Hardware, software and
maintenance cost of sales...... 14,029,205 15,893,689 8,452,283 5,323,851 3,893,813
Telecommunication service cost of
sales.......................... 58,636,140 8,652,054 587,905 -- --
Service and license cost of
sales.......................... 3,875,445 3,421,741 1,279,557 525,253 272,476
----------- ----------- ----------- ----------- ----------
Total cost of sales..... 76,540,790 27,967,484 10,319,745 5,849,104 4,166,289
----------- ----------- ----------- ----------- ----------
Gross profit............ 18,546,061 6,048,580 3,503,889 1,022,496 436,810
Operating Expenses:
Selling, general and
administrative................. 20,518,097 9,142,574 2,984,812 1,513,319 1,041,572
Amortization of cost in excess of
net assets acquired and
capitalized software
development costs.............. 3,214,940 1,083,621 808,274 638,462 --
----------- ----------- ----------- ----------- ----------
Total operating
expenses.............. 23,733,037 10,226,195 3,793,086 2,151,781 1,041,572
----------- ----------- ----------- ----------- ----------
Operating loss.......... (5,186,976) (4,177,615) (289,197) (1,129,285) (604,762)
Joint venture loss............... (42,189) -- -- -- --
Interest income (expense), net... (1,913,274) (666,788) 15,130 6,675 --
----------- ----------- ----------- ----------- ----------
Loss before income
taxes................. (7,142,439) (4,844,403) (274,067) (1,122,610) (604,762)
Income tax expense (benefit)..... 4,000 2,400 (64,126) (417,747) --
----------- ----------- ----------- ----------- ----------
Net loss................ $(7,146,439) $(4,846,803) $ (209,941) $ (704,863) $ (604,762)
=========== =========== =========== =========== ==========
PER SHARE DATA:
Loss per share -- basic and
diluted........................ $ (.92) $ (.81) $ (.05) $ (.15) $ (.13)
Number of shares used in per
share computations -- basic and
diluted........................ 7,806,660 5,954,000 4,597,000 4,597,000 4,597,000
BALANCE SHEET DATA:
Cash and cash equivalents........ $ 1,400,874 $ 914,796 $ 830,784 $ -- $ 576,780
Total assets..................... 26,843,114 23,080,061 9,864,129 7,168,200 3,733,366
Amounts and notes payable to
affiliates..................... 5,265,408 16,729,411 5,431,417 3,741,380 --
Total liabilities................ 14,211,379 22,495,473 7,732,738 4,828,868 777,433
Stockholders' equity............. 12,631,735 584,588 2,131,391 2,341,332 2,995,933
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is intended to provide information to facilitate
the understanding and assessment of significant changes and trends related to
the financial condition and results of operations of the Company. The discussion
and analysis below includes the results of operations of ACS Systems, Inc. for
each of the years ended December 31, 1999, 1998 and 1997, as the acquisition of
ACS Systems, Inc. has been accounted for as a reverse merger. The 1999 results
of operations also include the results of LDExchange for the entire year and the
results of operations of the postage meter and scale division for a short period
in early 1999. The results of operations for the year ended December 31, 1998,
include, in addition to the ACS results of operations for the entire year, the
results of operations of the postage meter and scale division for the period
from May 14, 1998 through December 31, 1998 and the results of operations of
LDExchange for the period November 17, 1998
9
<PAGE> 12
through December 31, 1998. This discussion and analysis should be read in
conjunction with the Company's consolidated financial statements and notes
thereto appearing elsewhere herein.
OVERVIEW
During the year ended December 31, 1997 the Company's operations consisted
of the operations of ACS Systems, Inc., formerly a wholly-owned subsidiary of
FNFI. ACS was acquired by FNFI in April 1994, and was subsequently merged with
the Company as described in Note 1 of the Notes to Consolidated Financial
Statements. During 1999, 1998 and 1997, 29%, 66% and 89%, respectively, of the
total Company's revenue was derived from multiple servicing arrangements between
FNFI and its subsidiaries and ACS.
ACS, through its various divisions, is a full-service enterprise solutions
provider that offers total voice, data and systems integration solutions for
small and medium sized businesses, primarily in the real estate sector. ACS
offers a full range of information technology services, including voice and data
network design, implementation and management. ACS also provides services in the
areas of real estate industry applications, eCommerce, consulting services and
telecommunications.
The reverse merger with Micro General Corporation in May 1998, added a
postage meter and scale division, which was deemphasized as a product concurrent
with the ACS merger. The acquisition of LDExchange in November 1998 added to the
Company's revenues a multinational telecommunications carrier focused primarily
on the international long distance market. The Company's primary focus today is
information technology, eCommerce and telecommunication services. ACS remained
the primary business unit during 1999.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenue
Revenues increased $61.1 million, or 180%, to $95.1 million in 1999 from
$34.0 million in 1998. ACS contributed $8.6 million of the increase while
LDExchange contributed $52.4 million of the increase. The LDExchange revenue
growth resulted from its acquisition on November 17, 1998, which produced a full
year of LDExchange operations in 1999 as compared to one and one-half months of
results in 1998. ACS experienced growth in all forms of revenue during 1999.
FNFI is ACS's major source of revenue. See Note 6 to Notes to Consolidated
Financial Statements. In 1999, FNFI continued to utilize ACS's technological
expertise and expanded its commitment to state of the art technology and
processes, and continued to increase the installation and upgrade of its various
information technology systems, with ACS as the primary vendor. During 1999, the
Company was also able to increase the level of products and services provided to
non-affiliates, primarily in telecommunications services.
Gross Profit
Gross profit increased $12.5 million, or 207%, to $18.5 million,
representing a gross profit margin of 19%, in 1999, from $6.0 million and a
gross profit margin of 18% in 1998. The increase in total gross profit and gross
profit margin as a percentage of revenue results from the substantial increase
in total revenues. There was a substantial increase in gross profits on
hardware, software and maintenance sales, as gross profit as a percentage of
revenue increased to 10% in 1999 from 2% in 1998. This results from the
transition in 1999 from the low margin postage meter and scale business and into
the technology hardware and software business. Offsetting this improvement was
the additional $52.4 million of LDExchange international telecommunications
revenue in 1999, which revenue has substantially lower margins than the ACS
products and service revenues.
Expenses
Selling, general and administrative expenses ("S,G&A") increased $11.4
million, or 124%, to $20.5 million in 1999 from $9.1 million in 1998. The
LDExchange business is not labor intensive, as such, significant growth in the
LDExchange telecommunications revenues does not require a corresponding
significant increase in personnel. The ACS SG&A expenses generally trend
consistently with revenues. This is because increases
10
<PAGE> 13
in product and service revenues cause a corresponding increase in personnel
expenses. This is reflected in the fact that SG&A expenses in 1999 were 22% of
total revenues while SG&A expenses in 1998 were 27% of total revenues. Total
employee count was increased by 20 when comparing December 31, 1999 with
December 31, 1998.
The amortization of cost in excess of net assets acquired and capitalized
software development costs is a function of the characteristics of the
intangible assets recorded during a particular period and the estimated useful
life of the intangible assets. Fluctuations in the amortization of cost in
excess of net assets acquired and capitalized software result from the amount,
mix and characteristics of the intangible assets recorded as well as the
circumstances surrounding the Company's estimate of the appropriate useful life.
During 1999 the Company recorded amortization of $3.2 million, a 197% increase
as compared to amortization of $1.1 million in 1998. The substantial increase in
amortization is due to the goodwill created in the Micro General and ACS merger
on May 14, 1998, which resulted in approximately seven and one-half months of
amortization in 1998 versus 12 months of amortization in 1999, and also the
goodwill from the LDExchange acquisition on November 17, 1998, which resulted in
approximately one and one-half months amortization in 1998 versus twelve months
amortization in 1999.
Interest income (expense), net, is related to the use of the Company's
available working capital, which is in the form of available cash and lines of
credit. The year over year fluctuation in interest income (expense) can be
attributed to the increase in average borrowings outstanding during 1999
compared to previous years. In 1999, interest expense was $1,913,000, an
increase of $1,246,000 or 187% over the interest expense of $667,000 in 1998.
The increase in 1999 is related to debt assumed in the Micro General/ACS merger
on May 14, 1998 and also to borrowings under the $15 million convertible note
that the Company entered into on October 27, 1998. While notes and leases
payable decreased from $16.7 million at December 31, 1998 to $5.3 million at
December 31, 1999, there were an additional $18 million in notes that were
outstanding for most of 1999 which were converted into shares of the Company's
common stock on December 15, 1999 (see Recent Developments).
Income tax expense (benefit) is recorded based on the amounts that the
Company estimates, based on the Company's taxation structure, will be due to
federal and state taxation authorities. During 1997, ACS was included in the
FNFI consolidated tax returns and income tax expense (benefit) was calculated as
such. During 1999 and 1998, ACS was included in the Micro General consolidated
group, which pays only minimum taxes based on current operating results due to
the fact that Micro General has not historically generated earnings.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenue
Revenues increased $20.2 million, or 146%, to $34.0 million in 1998 from
$13.8 million in 1997, primarily as a result of continued growth in products and
services provided to FNFI, including an increase in telecommunication services
provided by ACS, the acquisition of the postage scale and meter division and the
acquisition of LDExchange. See note 10. FNFI, as the result of favorable market
conditions, continued expansion and a commitment to implement state of the art
technology, increased the installation and upgrade of its various information
technology systems using ACS as its primary vendor during 1997 that continued
through 1998. See note 6 to the consolidated financial statements regarding
related party transactions and note 8 regarding segment information. The
increased utilization of ACS by FNFI led to an increase in all forms of revenue.
During 1997 and 1998, ACS was able to increase the level of products and
services provided to non-affiliates, introduced new products and services and
provided telecommunication services.
Gross Profit
Gross profit increased $2.5 million, or 73%, to $6.0 million, representing
a gross profit margin of 18%, in 1998 from $3.5 million, a gross profit margin
of 25%, in 1997. The increase in absolute dollars is consistent with the
increase in revenues. Gross profit margin as a percentage has decreased in 1998
compared to 1997 primarily as a result of the addition of the new segments. The
postage meter and scale division and
11
<PAGE> 14
LDExchange segments represent lower margin businesses than the information
technology and telecommunication businesses of ACS.
Expenses
Generally, selling, general and administrative expenses ("S,G & A") trend
consistently with revenues. S,G & A expenses increased $6.2 million, or 206%, to
$9.1 million in 1998 from $3.0 million in 1997. The increase is primarily a
result of the growth of ACS, which occurred in response to the increased demand
for its products and services; the acquisition of the postage scale and meter
division and the acquisition of LDExchange. The expansion in the amount of
products and services provided to FNFI required additional personnel and S,G & A
in order to meet the demand and provide an adequate level of service and
support. As ACS began to offer additional information technology services and
telecommunication services, additional personnel were required and S,G & A
related to the new offerings was incurred. The acquisition of the postage scale
and meter division and the acquisition of LDExchange also resulted in the
addition of personnel and S,G & A related to the operation of these new
segments.
The amortization of cost in excess of net assets acquired and capitalized
software development costs is a function of the characteristics of the
intangible assets recorded during a particular period and the estimated useful
life of the intangible assets. Fluctuations in the amortization of cost in
excess of net assets acquired and capitalized software result from the amount,
mix and characteristics of the intangible assets recorded as well as the
circumstances surrounding the Company's estimate of the appropriate useful life.
Interest income (expense), net, is related to the use of the Company's
available working capital, which is in the form of available cash and lines of
credit. The year over year fluctuation in interest income (expense) can be
attributed to the increase in average borrowings outstanding during 1998
compared to prior years.
Income tax expense (benefit) is recorded based on the amounts that the
Company estimates, based on the Company's taxation structure, will be due to
Federal and state taxation authorities. During 1997, ACS was included in the
FNFI consolidated tax returns and income tax expense (benefit) was calculated as
such. During 1998 ACS was included in the Micro General consolidated group,
which pays only minimum taxes based on current operating results due to the fact
that Micro General has not historically generated earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current cash requirements include debt service, personnel and
other operating expenses, capital expenditures and capital for acquisitions and
expansion. Internally generated funds fluctuate in a pattern generally
consistent with revenues. Since the Company has repositioned itself as a result
of the merger with ACS Systems, Inc. and the acquisition of LDExchange, the
revenue, and therefore, cash flow base has stabilized. The Company believes that
as a result of its current revenue base and the anticipated availability of
funds in the form of existing lines of credit, all cash requirements will be met
for at least the next twelve months.
The Company has suffered losses and negative cash flows from operations for
each of the years in the three-year period ended December 31, 1999. The Company
has historically relied on FNFI as the primary source of capital to fund its
operations in the form of revenues generated by the Company related to products
and services provided to FNFI, as a source of funds via available financing
arrangements, and as a guarantor of certain of the Company's lending
arrangements. In December 1999, three significant transactions occurred that
substantially improved both the Company's liquidity and its capital resources.
First, on December 15, 1999, $18.0 million of the Company's debt was converted
into common stock pursuant to a conversion election contained in the notes and
exercised by the note holders. This $18.0 million addition to stockholders'
equity has resulted in $12.6 million in stockholders' equity at December 31,
1999 as compared to $0.6 million at December 31, 1998. The retirement of this
debt will also substantially reduce the Company's debt service requirements in
the coming year. Second, also on December 15, 1999, the Company entered into a
new $5.4 million five-year convertible note with FNFI. During 1999, the Company
had exceeded the borrowings available under the FNFI note agreement. With the
conversion of the $18.0 million of notes on December 15,
12
<PAGE> 15
1999, the Company's borrowing arrangements no longer existed. The Company
negotiated this new note to address the amounts borrowed in excess of the note
limit. There are no other borrowings available or contemplated between the
Company and FNFI, with the exception of a $2.0 million lease commitment from FNF
Capital, Inc., a wholly owned subsidiary of FNFI. Such lease will be used to
finance anticipated equipment purchases by the Company in 2000. Another balance
sheet improvement is working capital at $2.9 million at December 31, 1999 as
compared to $2.5 million at December 31, 1998. Finally, on December 22, 1999,
the Company entered into a one-year $5.0 million revolving line of credit with
Imperial Bank. As of March 20, 2000, the Company has borrowed $2.2 million under
this line of credit.
The Company must comply with certain affirmative and negative covenants
related to its outstanding debt and notes payable. The Company was in compliance
with these covenants at December 31, 1999.
The Company has experienced negative cash flow from operations in each of
the last three years. In addition, the Company has spent approximately $6.1
million on property and equipment in the last three years. The Company believes
that its cash flow will turn positive in 2000 as the result of several factors.
First, the postage meter and scale division, which used cash in 1998 and 1999,
has been phased out and the Company is focusing its efforts on the higher margin
technology business. Second, the LDExchange losses of $2.6 million in 1999
should be reduced or show a positive cash flow in 2000. LDExchange expended
significant funds purchasing and installing equipment, implementing its
international direct arrangements and on building the revenue base. The Company
believes that with these costs now behind it, and the majority of the capital
costs now completed, year 2000 will show significant improvement in the
LDExchange operating results. Finally, the Company is hiring approximately 150
employees from Chicago Title as a result of the FNFI acquisition of Chicago
Title on March 20, 2000. This new business is expected to generate substantial
new revenues and profits for the Company. As a result of the above positive
developments, the Company believes that it will have sufficient cash and
borrowing resources to meet its operating and growth requirements.
While the Company believes it has funds on hand and funds available through
existing lines of credit sufficient to meet its projected needs for the next
twelve months, the Company also believes it may have the option of raising
additional funds through an offering of its common stock. If undertaken, the
proceeds from an offering would be used to pay down existing debt, finance the
development of potential new business opportunities and potential acquisitions,
and also for general working capital purposes. There can be no guarantee that
the Company will undertake an offering of its capital stock, or that if
undertaken it will be successful in raising additional funds.
SEASONALITY AND INFLATION
The effects of seasonality and inflation on consolidated operating results
have, historically, been insignificant.
RECENT DEVELOPMENTS
On October 1, 1999, Micro General entered into an Intellectual Property
Transfer Agreement that provided the financing to launch escrow.com as a new
company. Under the agreement, the Company sold the escrow.com name and
trademark, the escrow.com internet URL, a license of the Micro General
proprietary escrow trust accounting software, the Company's computer services
provider business unit and approximately $535,000 of related computer equipment.
Under the terms of the Intellectual Property Transfer Agreement, the Company
received from escrow.com a $4.5 million note with a term of seven years and an
accrued interest rate of three percent. The Company also received a warrant
giving the Company the right to purchase 15.0 million shares of escrow.com
common stock at a price of $0.40 per share. Because of the start-up nature of
escrow.com, the Company has fully reserved the $4.5 million note receivable on
its consolidated balance sheet. The gain on the sale of assets will be realized
at such time that escrow.com has sufficient funding in place to reasonably
ensure the payment of the note.
On November 17, 1999, the 1999 Stock Incentive Plan ("Plan") was adopted by
the Company's Board of Directors. Under the Plan, the Company has reserved 2.0
million shares of the Company's common stock. The Company may issue incentive
stock options to its employees for up to 2.0 million shares of its common
13
<PAGE> 16
stock, with the exercise price of the options being not less than 100% of the
trading price of the Company's common stock at the close of business on the date
that the options are granted.
On December 15, 1999 the holders of $18.0 million of the Company's
convertible debt, which was the entire amount of the Company's convertible debt
outstanding on that date, exercised their conversion rights and exchanged the
debt for newly issued shares of the Company's common stock. There were 4,677,771
shares of common stock issued at an average conversion price of approximately
$3.85 per share.
Also on December 15, 1999, the Company entered into with FNFI a new
$5,265,000 five-year convertible note having an accrued interest rate of ten
percent. During 1999, the Company had exceeded the borrowings available under
the note agreements. With conversion of these notes on December 15, 1999, the
Company's borrowing arrangements no longer existed. The Company negotiated this
new note to address the amounts borrowed in excess of the note limits. The new
note is convertible into common shares of the Company at a rate of $10.00 per
share at any time during the five-year term. FNFI also received warrants to
purchase 250,000 shares of the Company's common stock at a price of $10.00 per
share. The Company recognized a $280,000 expense in regard to the warrants.
On December 22, 1999, the Company entered into a one-year $5.0 million
revolving line of credit with Imperial Bank, guaranteed by FNFI. The interest
rate under the credit line will be, at the Company's election, either the
Imperial Bank Prime Rate or 1.4 percentage points over LIBOR. As of March 20,
2000, the Company has borrowed $2.2 million under this line of credit.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's consolidated balance sheets include liabilities whose fair
values are subject to market risks. The following sections address the
significant market risks associated with the Company's financial activities as
of year end 1999.
Interest Rate Risk
The Company's borrowings are subject to interest rate risk. Increases and
decreases in prevailing interest rates generally translate into decreases and
increases in fair values of those instruments. Additionally, fair values of
interest rate sensitive instruments may be affected by the creditworthiness of
the issuer, prepayment options, relative values of alternative investments, the
liquidity of the instrument and other general market conditions.
Caution should be used in evaluating the Company's overall market risk from
the information below, since actual results could differ materially because the
information was developed using estimates and assumptions as described below.
See note 7 of notes to consolidated financial statements.
The fair value of the Company's notes payable approximate their carrying
value at December 31, 1999 as the interest rates paid approximate the market
value of borrowings of a similar nature.
The hypothetical effects of changes in market rates or prices on the fair
values of financial instruments would be an increase (decrease) of the fair
value approximately $100,000, if interest rates increased (decreased) 100 basis
points.
14
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MICRO GENERAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Independent Auditors' Report................................ 16
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 17
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... 18
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. 19
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 20
Notes to Consolidated Financial Statements.................. 21
Schedule II -- Valuation and Qualifying Accounts and
Reserves.................................................. 38
</TABLE>
All other schedules are omitted because the required information is not
applicable or the information is presented in the consolidated financial
statements or notes thereto.
15
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
Board of Directors
Micro General Corporation:
We have audited the consolidated financial statements of Micro General
Corporation and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in notes 1, 5, 6, 7 and 8 to the consolidated financial
statements, the Company's financial position, results of operations and cash
flows are materially affected by and are dependent on certain transactions and
agreements with Fidelity National Financial, Inc. (FNFI), the Company's majority
owner, and FNFI's subsidiaries.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Micro
General Corporation and subsidiaries as of December 31, 1999 and 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
Los Angeles, California
March 28, 2000
16
<PAGE> 19
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,400,874 $ 914,796
Trade accounts receivable, less allowance for doubtful
accounts of $2,265,601 in 1999 and $485,936 in 1998.... 3,391,824 1,835,968
Trade accounts receivable due from affiliates............. 3,020,908 4,350,790
Inventories............................................... 438,728 785,204
Prepaid expenses and other assets......................... 1,594,600 359,884
------------ -----------
Total current assets.............................. 9,846,934 8,246,642
Notes receivable............................................ -- 29,850
Property and equipment, net................................. 7,038,858 3,321,005
Capitalized software development costs, less accumulated
amortization of $3,540,854 in 1999 and $2,794,275 in
1998...................................................... 747,680 1,505,719
Cost in excess of net assets acquired, less accumulated
amortization of $3,329,898 in 1999 and $872,996 in 1998... 8,570,704 9,976,845
Investment in joint venture................................. 638,938 --
------------ -----------
$ 26,843,114 $23,080,061
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 5,796,031 $ 4,916,314
Income and other taxes payable............................ 252,545 138,647
Deferred tax liabilities.................................. 361,726 361,726
Deferred revenue.......................................... 167,000 349,375
Current portion of capital leases with affiliate.......... 387,765 --
------------ -----------
Total current liabilities......................... 6,965,067 5,766,062
Capital leases with affiliate............................... 1,834,837 --
Amounts and notes payable to affiliates..................... 5,265,408 16,729,411
Other long term liabilities................................. 146,067 --
------------ -----------
Total liabilities................................. 14,211,379 22,495,473
------------ -----------
Commitments and contingencies...............................
Subsequent events...........................................
Stockholders' equity:
Preferred stock, $.05 par value. Authorized 1,000,000
shares; none issued and outstanding.................... -- --
Common stock, $.05 par value. Authorized 20,000,000
shares; issued and outstanding 12,535,638 and 7,546,666
shares at December 31, 1999 and 1998, respectively..... 626,782 377,333
Additional paid-in capital................................ 25,301,745 6,357,608
Accumulated deficiency.................................... (13,296,792) (6,150,353)
------------ -----------
Total stockholders' equity........................ 12,631,735 584,588
------------ -----------
$ 26,843,114 $23,080,061
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 20
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Hardware and software sales and maintenance
revenues.......................................... $15,506,386 $16,248,425 $10,232,371
Telecommunication service revenues.................. 65,293,493 9,834,555 862,814
Service and license revenues........................ 14,286,972 7,933,084 2,728,449
----------- ----------- -----------
Total revenues (related party revenues,
see note 6)............................. 95,086,851 34,016,064 13,823,634
----------- ----------- -----------
Hardware, software and maintenance cost of sales.... 14,029,205 15,893,689 8,452,283
Telecommunication service cost of sales............. 58,636,140 8,652,054 587,905
Service and license cost of sales................... 3,875,445 3,421,741 1,279,557
----------- ----------- -----------
Total cost of sales....................... 76,540,790 27,967,484 10,319,745
----------- ----------- -----------
Gross profit.............................. 18,546,061 6,048,580 3,503,889
----------- ----------- -----------
Operating expenses:
Selling, general and administrative expenses...... 20,518,097 9,142,574 2,984,812
Amortization of cost in excess of net assets
acquired and capitalized software development
costs.......................................... 3,214,940 1,083,621 808,274
----------- ----------- -----------
Total operating expenses.................. 23,733,037 10,226,195 3,793,086
----------- ----------- -----------
Operating loss............................ (5,186,976) (4,177,615) (289,197)
Joint venture loss.................................. (42,189) -- --
Interest income (expense), net...................... (1,913,274) (666,788) 15,130
----------- ----------- -----------
Loss before income taxes.................. (7,142,439) (4,844,403) (274,067)
Income tax expense (benefit)........................ 4,000 2,400 (64,126)
----------- ----------- -----------
Net loss.................................. $(7,146,439) $(4,846,803) $ (209,941)
=========== =========== ===========
Loss per share -- basic and diluted................. $ (.92) $ (.81) $ (.05)
=========== =========== ===========
Number of shares used in per share
computations -- basic and diluted................. 7,806,660 5,954,000 4,597,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 21
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIENCY EQUITY
---------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996
(Restated)...................... 6,546,666 $327,333 $ 3,107,608 $ (1,093,609) $ 2,341,332
Net loss.......................... -- -- -- (209,941) (209,941)
---------- -------- ----------- ------------ ------------
Balance at December 31, 1997
(Restated)...................... 6,546,666 327,333 3,107,608 (1,303,550) 2,131,391
Equity issued in connection with
merger (note 1)................. -- -- 1,300,000 -- 1,300,000
Shares issued to acquire
LDExchange.com, Inc............. 1,000,000 50,000 1,950,000 -- 2,000,000
Net loss.......................... -- -- -- (4,846,803) (4,846,803)
---------- -------- ----------- ------------ ------------
Balance at December 31, 1998...... 7,546,666 $377,333 6,357,608 (6,150,353) 584,588
Note conversion................... 4,677,771 233,889 18,046,111 -- 18,280,000
Acquisition of Interactive
Associates...................... 50,000 2,500 191,500 -- 194,000
Shares issued in connection with
stock purchase plan............. 50,000 2,500 117,766 -- 120,266
Stock options exercised........... 211,201 10,560 588,760 -- 599,320
Net Loss.......................... -- -- -- (7,146,439) (7,146,439)
---------- -------- ----------- ------------ ------------
Balance at December 31, 1999...... 12,535,638 $626,782 $25,301,745 $(13,296,792) $(12,631,735)
========== ======== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 22
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (7,146,439) $(4,846,803) $ (209,941)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 4,311,690 1,423,959 812,262
Provision for doubtful accounts............... 2,258,585 247,437 63,683
Changes in assets and liabilities:
Trade accounts receivable................... (3,789,514) (463,207) (599,700)
Inventories................................. 158,763 90,745 (288,559)
Prepaid expenses and other assets........... (1,234,716) (157,452) (66,936)
Accounts payable and accrued expenses....... 429,717 261,802 158,468
Income and other taxes payable.............. 113,898 85,739 --
Deferred revenue............................ (182,375) 329,789 --
Other long term liabilities................. 146,067 -- --
Amounts due from affiliates................. 1,329,882 (116,025) (81,872)
------------ ----------- -----------
Net cash used in operating activities.... (3,604,442) (3,144,016) (212,595)
------------ ----------- -----------
Cash flows from investing activities:
Acquisition...................................... (176,341) -- --
Joint venture in RealEC.......................... (638,938) -- --
Acquisition of LDExchange.com, Inc............... -- 717,000 --
Merger of Micro General and ACS.................. -- 403,175 --
Purchase of property and equipment............... (2,659,634) (2,768,119) (702,404)
Decrease (increase) in notes receivable.......... 29,850 1,926 (29,776)
Capitalization of software development costs..... -- (64,326) (610,098)
------------ ----------- -----------
Net cash used in investing activities.... (3,445,063) (1,710,344) (1,342,278)
------------ ----------- -----------
Cash flows from financing activities:
Net increase in borrowings from affiliates....... 6,815,997 4,938,372 2,385,657
Exercise of stock options........................ 719,586 -- --
------------ ----------- -----------
Net cash provided by financing
activities............................. 7,535,583 4,938,372 2,385,657
------------ ----------- -----------
Net increase in cash and cash
equivalents............................ 486,078 84,012 830,784
Cash and cash equivalents at beginning of year..... 914,796 830,784 --
------------ ----------- -----------
Cash and cash equivalents at end of year........... $ 1,400,874 $ 914,796 $ 830,784
============ =========== ===========
Supplemental Disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... -- 103,050 --
Income taxes..................................... 4,000 2,400 --
Supplemental schedule of noncash investing and
financing activities:
Acquisition of Interactive Associates for
stock......................................... 194,000 -- --
Acquisition of LDExchange for stock.............. -- 2,000,000 --
Conversion of long-term debt to common stock..... 18,280,000 -- --
Assets acquired through capital lease............ 2,222,602 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 23
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS
ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Historically, the operations of Micro General Corporation and subsidiaries
("Micro General") consisted of the design, manufacture and sale of computerized
parcel shipping systems, postal scales and piece-count scales. These operations
were performed through the Company's postage meter and scale division. Following
the acquisition of ACS Systems, Inc. ("ACS") in mid-1998, which is described
below, Micro General (together with ACS, the "Company") shifted its primary
focus to information technology and telecommunication services.
On May 14, 1998, the Company and Fidelity National Financial, Inc. ("FNFI")
completed the merger of Micro General with ACS, a wholly owned subsidiary of
FNFI. As a result of the merger, all of the outstanding shares of ACS were
exchanged for 4.6 million shares of Micro General common stock. The transaction
was appraised at $1.3 million. Following the merger of Micro General and ACS,
FNFI owned approximately 81.4% of the common stock of the Company on an
undiluted basis. The transaction has been treated as a reverse merger, i.e.,
Micro General has been acquired by FNFI as a majority-owned subsidiary through a
merger with ACS, with Micro General as the surviving legal entity and ACS as the
surviving entity for accounting purposes. As a result, the consolidated
financial statements of Micro General previously issued prior to the year ended
December 31, 1998 have been restated to reflect only the balance sheets,
operations and cash flows of ACS prior to the merger with Micro General and to
reflect ACS as the acquiror for accounting purposes. The cost of $1.3 million
was allocated to the fair value of the assets acquired and liabilities assumed
relating to Micro General. The results of Micro General have been included in
the Company's results of operations since the merger on May 14, 1998. At
December 31, 1999, FNFI owned 69.3% of the outstanding common stock of the
Company (see note 10).
ACS was founded in 1985 as a software development company specializing in
products for the real estate industry, in particular, escrow software. ACS was
acquired by FNFI in April 1994, and was subsequently merged with the Company as
described above. ACS is a full-service enterprise solutions provider that offers
total voice, data and systems integration solutions for small and medium sized
businesses, primarily in the real estate sector.
The Company generated 29%, 66% and 89% of its revenue during the years
ended December 31, 1999, 1998 and 1997, respectively, from multiple servicing
arrangements with FNFI and its subsidiaries. In addition, LDExchange has one
customer that represents 42% of LDExchange's total revenue (26% of the Company's
total revenues).
In addition, as a result of the acquisition of LDExchange.com, Inc.
("LDExchange"), which closed on November 17, 1998, the Company has been able to
enter the international telecommunications and Internet telephony markets, which
complements the range of services offered by ACS. The LDExchange purchase price
was $3.1 million, payable $1.1 million in cash and $2.0 million in Micro General
restricted common stock (1,000,000 shares). The acquisition was accounted for as
a purchase and the results of operations of LDExchange have been included in the
Company's results of operations since November 17, 1998. (see note 10).
(b) Principles of Consolidation
The accompanying financial statements include the consolidated accounts of
the Company and its wholly owned subsidiaries: All significant intercompany
transactions and balances have been eliminated in consolidation.
21
<PAGE> 24
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit with banks with original
maturities of three months or less.
(d) Accounts Receivable
The carrying amounts reported in the consolidated balance sheets for
accounts receivable approximate their fair value.
(e) Inventories
Inventories are stated at the lower of cost or market (net realizable
value) under the first-in, first-out method of accounting for inventories.
(f) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over estimated useful lives which range from three to seven
years. Amortization of leasehold improvements is charged to expense on a
straight-line basis over the shorter of the estimated useful lives of the assets
or the term of the underlying lease.
(g) Capitalized Software Development Costs
Software development costs incurred after the establishment of
technological feasibility are capitalized and later amortized using the greater
of the straight-line method or based on the estimated revenue distribution over
the remaining estimated economic life of the products. Such policy results in
the Company amortizing its capitalized software development costs over an
estimated economic life of three to seven years. During 1998, the Company
capitalized software development costs of $64,326. During 1999 and 1998, the
Company amortized software development costs of $746,579 and $728,679,
respectively. The Company periodically assesses the recoverability of the cost
of its capitalized software development costs based on an analysis of the cash
flows generated by the underlying assets. In the opinion of management, no
impairment of capitalized software development costs has occurred at December
31, 1999.
(h) Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired is the excess of the purchase price
paid over the fair value of the net assets of the acquired company at the date
of acquisition. Cost in excess of net assets acquired is amortized on a
straight-line basis over 5 years. The Company periodically assesses the
recoverability of its cost in excess of net assets acquired based on an analysis
of the cash flows generated by the underlying assets. In the opinion of
management, no impairment of cost in excess of net assets acquired has occurred
at December 31, 1999 (see note 10).
(i) Capital Lease Obligations
All capital lease obligations are with affiliates and are recorded at the
present value of the minimum lease payments at the beginning of the lease terms.
The monthly payments under the leases are allocated between a reduction of the
obligation and interest expense so as to produce a constant periodic rate of
interest on the remaining balance of the obligation. In 1999, the Company sold
approximately $1.5 million in capital assets and entered into a five year lease
on those assets. This transaction was entered into with an affiliate of the
Company.
22
<PAGE> 25
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Revenue Recognition
The Company has adopted the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," for the years ended December 31, 1999, 1998 and 1997. Under SOP
97-2, if a software sales arrangement does not require significant modification
or customization of the software, revenue from the sale of the software is
recognized when evidence of an arrangement exists, the fee is fixed and
determinable, the license agreement has been delivered and collection of any
resulting receivable is probable.
In December 1998, the AICPA issued SOP 98-9, which amends paragraphs of SOP
97-2 to require recognition of revenue using the residual method under certain
circumstances, and is effective for fiscal years beginning after March 15, 1999.
The Company does not expect the adoption of this SOP to have a material impact
on the Company's consolidated financial statements.
Revenue from the sales of hardware and other products is recognized when
delivery has occurred, the fee is fixed and determinable and collection of any
resulting receivable is probable. Revenue from maintenance, servicing and
consulting is recognized as the related services are performed.
(k) Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. ("Statement") 109, "Accounting for Income
Taxes." Statement 109 provides that deferred tax assets and liabilities be
recognized for temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities and expected benefits of
utilizing net operating loss and credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The impact on deferred taxes of changes in tax rates and
laws, if any, are applied to the years during which temporary differences are
expected to be settled and reflected in the financial statements in the period
enacted.
(l) Management Estimates
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(m) Earnings Per Share
Basic earnings per share is based on the weighted-average number of shares
outstanding and excludes any dilutive effects of options and convertible
securities. Diluted earnings per share gives effect to assumed conversions of
potentially dilutive securities. Shares used in the earnings per share
calculations for 1998 are the weighted-average shares of Micro General
outstanding during 1998, assuming the shares issued in connection with the
merger of ACS and Micro General were outstanding since January 1, 1998. Shares
used in the earnings per share calculation for 1997 represent the shares issued
to FNFI in connection with the merger of ACS and Micro General. All outstanding
options and warrants (see notes 7 and 9) have been excluded from the
calculations of diluted loss per share as their inclusion would be antidilutive.
23
<PAGE> 26
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Computer equipment.......................................... $313,221 $482,106
Telecommunications equipment................................ 125,507 303,098
-------- --------
$438,728 $785,204
======== ========
</TABLE>
(3) INCOME TAXES
The income tax provision (benefit) for the years ended December 31, 1999,
1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ --------
<S> <C> <C> <C>
Current:
Federal.............................................. $ -- $ -- $(16,528)
State................................................ 4,000 2,400 (2,833)
------ ------ --------
4,000 2,400 (19,361)
------ ------ --------
Deferred:
Federal.............................................. -- -- (33,740)
State................................................ -- -- (11,025)
------ ------ --------
-- -- (44,765)
------ ------ --------
$4,000 $2,400 $(64,126)
====== ====== ========
</TABLE>
The provision for income taxes differed from the amounts computed by
applying the U.S. Federal income tax rate of 34% to the loss before income taxes
as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
Computed "expected" tax benefit............... $(2,429,789) $(1,647,097) $(93,183)
State taxes, net of Federal income tax
benefit..................................... (277,273) (62,681) (9,008)
Amortization of cost in excess of net assets
acquired.................................... 835,347 177,633 33,461
Nondeductible expenses........................ 21,126 29,505 4,604
Net operating loss utilized by affiliated
group....................................... 260,304 781,366 --
Valuation allowance........................... 1,594,285 723,674 --
----------- ----------- --------
$ 4,000 $ 2,400 $(64,126)
=========== =========== ========
</TABLE>
24
<PAGE> 27
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred tax assets and liabilities at December 31, 1999 consist of the
following:
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
------------ ------------
<S> <C> <C>
Book over tax provision for bad debts...................... $ 902,489 $ --
Reserve for notes receivable............................... 1,792,548 --
Reserves and accruals not recognized for income tax
purposes................................................. 394,002 --
Net operating loss carryover............................... 2,165,073 --
Acquired assets adjustment to fair value................... -- 208,657
Other liabilities.......................................... -- 300,656
----------- --------
5,254,112 509,313
Valuation allowance........................................ (5,106,525) --
----------- --------
$ 147,589 $509,313
=========== ========
</TABLE>
The deferred tax assets and liabilities at December 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
------------ ------------
<S> <C> <C>
Book over tax provision for bad debts...................... $ 193,570 $ --
Reserves and accruals not recognized for income tax
purposes................................................. 218,218 --
Acquired assets adjustment to fair value................... 919,402 --
Net operating loss carryover............................... 2,185,868 --
Other...................................................... 1,087 --
Accelerated depreciation................................... -- 2,482
Acquired assets adjustment to fair value................... -- 365,149
----------- --------
3,518,145 367,631
Valuation allowance........................................ (3,512,240) --
----------- --------
$ 5,905 $367,631
=========== ========
</TABLE>
Statement 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The Company has established a valuation
allowance of $1,956,416 principally associated with net operating loss
carryforwards and other deferred tax assets recorded from acquisitions and an
additional allowance of $3,150,109 to cover the majority of the other deferred
tax assets. Any tax benefits subsequently recognized for deferred tax assets
related to these acquisitions will be allocated to goodwill.
ACS was included as an affiliate in the consolidated income tax returns of
FNFI through mid-November 1998. Prior to May 1998, ACS paid taxes or received
such tax benefits as it contributed to the consolidated tax position of FNFI.
Micro General was included as an affiliate in the consolidated income tax
returns of FNFI from May 14, 1998 through mid-November 1998. FNFI utilized
$3,232,207 of losses generated by the Company during this period for which Micro
General will not be reimbursed by FNFI. The Company has available Federal and
state net operating loss carryforwards of $6,146,828 expiring in years 2000 to
2018 and $1,288,090 expiring in years 2000 through 2003, respectively.
25
<PAGE> 28
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Telecommunications equipment................................ $4,963,018 $1,557,150
Computer equipment.......................................... 810,525 1,158,642
Furniture and fixtures...................................... 1,704,635 605,864
Office equipment............................................ 197,673 59,571
Leasehold improvements...................................... 453,991 232,956
---------- ----------
8,129,842 3,614,183
Less accumulated depreciation and amortization.............. 1,090,984 293,178
---------- ----------
$7,038,858 $3,321,005
========== ==========
</TABLE>
(5) COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company leases facilities and equipment under various leases. Future
minimum noncancelable lease commitments, due primarily to affiliates, are as
follows:
<TABLE>
<S> <C>
Year ending December 31:
2000...................................................... $1,586,621
2001...................................................... 1,361,712
2002...................................................... 1,281,892
2003...................................................... 1,240,241
2004...................................................... 1,123,535
Thereafter.................................................. 1,693,804
----------
Total minimum lease payments................................ $8,287,805
==========
</TABLE>
Rent expense was $1,365,634, $913,059 and $238,721 for the years ended
December 31, 1999, 1998 and 1997, respectively. Included in rent expense for
1999, 1998 and 1997 was $972,332, $721,515 and $235,316, respectively, paid to
affiliates.
(b) Litigation
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
26
<PAGE> 29
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) RELATED PARTY TRANSACTIONS
As described in note 1, the Company's primary source of revenue is fees
resulting from sales and services to affiliated companies. Revenues generated
from sales and services to affiliates for the years ended December 31, 1999,
1998 and 1997 are presented in the following table:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Hardware and software sales and maintenance..... $22,390,456 $18,396,153 $ 9,885,155
Telecommunications service...................... 2,811,055 1,871,954 --
Service and license............................. 2,337,423 2,211,935 2,471,289
----------- ----------- -----------
Total affiliated revenues............. $27,538,934 $22,480,042 $12,356,444
=========== =========== ===========
</TABLE>
The Company has utilized funds available under the former Convertible Note
Purchase Agreement, described below, to fund its operations.
In addition, the Company has long-term amounts and notes payable to
affiliates amounting to $5,265,408 and $16,729,411 at December 31, 1999 and
1998, respectively (see note 7).
The Company also leases facilities from FNFI subsidiaries (see note 5).
Additionally, the Company has a $2 million lease commitment with FNF Capital,
Inc., a wholly owned subsidiary of FNFI, which is used to finance equipment
purchases. As of December 31, 1999, the company had capital leases outstanding
with FNF Capital Inc. of $2 million, of which $207,002 represented a utilization
of this $2 million lease commitment.
On October 1, 1999, Micro General entered into an Intellectual Property
Transfer Agreement that provided the financing to launch escrow.com as a new
company. Under the agreement, the Company sold the escrow.com name and
trademark, the escrow.com internet URL, a license for the Micro General
proprietary escrow trust accounting software, the Company's computer services
provider business unit and approximately $535,000 of related computer equipment.
Under the terms of the Intellectual Property Transfer Agreement, the Company
received from escrow.com a $4.5 million note with a term of seven years and an
accrued interest rate of three percent. The Company also received a warrant
giving the Company the right to purchase 15.0 million shares of escrow.com
common stock at a price of $0.40 per share.
Because of the start-up nature of escrow.com, the Company has fully
reserved the $4.5 million note receivable on its consolidated balance sheet. The
gain on the sale of assets will be realized at such time that escrow.com has
sufficient funding in place to reasonably ensure the payment of the note. While
the Company has no equity interest in escrow.com at December 31, 1999, the 15.0
million warrants give the Company the opportunity to acquire a substantial
interest in escrow.com. At December 31, 1999, escrow.com had 3,891,304 shares
outstanding. Assuming exercise of the warrants, the Company would have a 79.4%
ownership in escrow.com. Escrow.com is incurring substantial losses and will
need to raise substantial additional funds in order to continue its operations.
The Company's potential ownership in escrow.com may be substantially diluted as
escrow.com issues additional shares to raise the necessary capital.
The Company has a 50% ownership in Real EC, a joint venture developed by
the Company and an independent party. Real EC is a real estate electronic
commerce network. The Company accounts for it's investment in Real EC on the
equity method, and at December 31, 1999 the Company had recorded on its books an
investment in joint venture of $638,938. Operating results for 1999 were not
material.
(7) NOTES PAYABLE
On August 1, 1996, Micro General entered into a $3 million financing
agreement which provided additional funding, primarily for the retirement of
bank debt, operations and to fund Micro General's
27
<PAGE> 30
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
development of a series of high level security postage meters designed to comply
with the new United States Postal Service proposed regulations. Two 9.5%,
five-year convertible notes were issued, one in the amount of $1 million and one
in the amount of $2 million, and issued, respectively, to Cal West Service
Corporation ("Cal West"), a subsidiary of FNFI, which owned 38% of the
outstanding Micro General common stock when the Cal West note was issued and
Dito Caree L.P. Holding ("Dito Caree"), which owned 5% of the outstanding common
stock of Micro General when the Dito Caree note was issued.
Repayment of the notes was on an interest-only basis for the first two
years, with principal and interest payments for the remaining three years of the
term. The debt, secured by the assets of Micro General, was convertible into
1,344,438 shares of the Company's common stock at prices ranging from $2.00 to
$2.50 per share. At December 31, 1998, there was $3,000,000 outstanding on these
notes. These notes were converted to common stock on December 15, 1999.
On November 25, 1997, Micro General entered into a $600,000 financing
agreement, which provided additional funding to be used by Micro General for
operating cash flow purposes. Two 9.0% notes were issued in the amount of
$200,000 and $400,000, to Cal West and Dito Caree, respectively. Interest on the
two notes was to be paid quarterly. The Company had the right to prepay all or a
portion of the interest and principal due on the notes at any time prior to the
original due date of May 31, 1998. The amount payable under the note payable to
Dito Caree was refinanced in connection with the Convertible Note Purchase
Agreement discussed below.
In conjunction with these short-term notes, Micro General issued to the
note holders, two detachable warrant certificates, one in the amount of 50,000
shares to Cal West and one in the amount of 100,000 shares to Dito Caree, giving
the note holders the right to purchase 150,000 shares of the Company's common
stock at $1.50 per share. The warrants can be exercised at any time between
November 25, 1997 and November 25, 2002. No warrants have been exercised by the
holders. The outstanding amount on this note at December 31, 1998 was
$2,000,000. This note was converted into equity in 1999 as described below.
Micro General entered into a third financing agreement to provide
additional funding to be used by Micro General for operational cash flow
purposes. On April 8, 1998, two 9.0% notes were issued, one in the amount of
$250,000 and one in the amount of $500,000, to Cal West Service Corporation and
Dito Caree, respectively. Interest on the notes was to be paid quarterly. Micro
General had the right to prepay all or a portion of the interest and principal
due on the notes at any time prior to the due date of October 31, 1998. The
amount payable under the note payable to Dito Caree was refinanced in connection
with the Convertible Note Purchase Agreement discussed below.
In conjunction with the notes, Micro General issued to the note holders,
two detachable warrant certificates, one in the amount of 62,500 shares to Cal
West and one in the amount of 125,000 shares to Dito Caree, giving the note
holders the right to purchase 187,500 shares of the Company's common stock at
$1.50 per share. The warrants can be exercised at any time between April 8, 1998
and April 8, 2003. The amount outstanding at December 31, 1998 was $250,000.
These notes were converted into equity in 1999 as described below.
On October 27, 1998, the Company entered into a $15 million Convertible
Note Purchase Agreement with FNFI, which replaced a $5 million financing
agreement between the Company and a subsidiary of FNFI dated May 14, 1998,
entered into in connection with the merger with ACS. Two 10.0%, five-year
convertible notes were issued, one in the amount of $14.1 million and one in the
amount of $900,000, held by Cal West and Dito Caree, respectively.
Interest on these notes was to be paid quarterly. The entire unpaid balance
of the notes, including principal and accrued but unpaid interest, was due and
payable on October 27, 2003. The note holders had the right to convert all or a
portion of the principal to be repaid on the payment date into shares of the
Company's
28
<PAGE> 31
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock at the conversion price. The debt was secured by the assets of the
Company and was convertible into 3,133,333 shares of the Company's $.05 par
value common stock at a price of $4.50 per share. The note holders retain the
right to acquire shares until note maturity on October 27, 2003.
On December 15, 1999 the holders of $18.0 million of the Company's
convertible debt, which was the entire amount of the Company's convertible debt
outstanding on that date, exercised their conversion rights and exchanged the
debt for newly issued shares of the Company's common stock. There were 4,677,771
shares of common stock issued at an average conversion price of approximately
$3.85 per share.
Also on December 15, 1999, the Company entered into with FNFI a new
$5,265,000 five-year convertible note purchase agreement having an accrued
interest rate of ten percent, payable quarterly. During 1999, the Company had
exceeded the borrowings available under its notes payable. With conversion of
these notes on December 15, 1999, the Company's borrowing arrangements no longer
existed. The Company negotiated this new note to address the amounts borrowed in
excess of the note limits. The new note is convertible into common shares of the
Company at a rate of $10.00 per share at any time during the five-year term.
FNFI also received warrants to purchase 250,000 shares of the Company's common
stock at a price of $10.00 per share. In 1999, the Company recognized a $280,000
expense in regard to these warrants.
On December 22, 1999, the Company entered into a one-year $5.0 million
revolving line of credit with Imperial Bank, guaranteed by FNFI. The interest
rate under the credit line will be, at the Company's election, either the
Imperial Bank Prime Rate or 1.4 percentage points over LIBOR. At December 31,
1999, the Company had not borrowed any funds under this line of credit and was
not in default of any of the Imperial loan covenants.
The carrying value of notes payable to affiliates approximates fair value
at December 31, 1999 due to the fact that the interest rates paid on the notes
payable to affiliates approximate market rates for similar notes.
Principal maturities of the notes payable and long-term debt at December
31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ --
2001........................................................ --
2002........................................................ --
2003........................................................ --
2004........................................................ 5,265,408
----------
$5,265,408
==========
</TABLE>
29
<PAGE> 32
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) SEGMENT INFORMATION
The Company's Consolidated Financial Statements as of December 31, 1999 and
1998 and for the years ended December 31, 1999 and 1998 include three reportable
segments. Prior to 1998, the Company consisted only of ACS.
As of and for the year ended December 31, 1999:
<TABLE>
<CAPTION>
CORPORATE AND
POSTAGE METER
AND SCALE
ACS LDEXCHANGE DIVISION TOTAL
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Total revenue....................... $34,489,244 $59,610,796 $ 986,811 $95,086,851
=========== =========== =========== ===========
Operating income (loss)............. $ 424,154 $(2,431,095) $(3,180,035) $(5,186,976)
Interest expense, net............... (1,247,512) (274,590) (391,172) (1,913,274)
----------- ----------- ----------- -----------
Loss before income taxes.......... $ (841,255) $(2,729,977) $(3,571,207) $(7,142,439)
=========== =========== =========== ===========
Depreciation and amortization....... $ 1,705,304 $ 371,122 $ 2,235,264 $ 4,311,690
=========== =========== =========== ===========
Assets.............................. $ 6,147,902 $ 3,305,956 $17,389,256 $26,843,114
=========== =========== =========== ===========
</TABLE>
As of and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
CORPORATE AND
POSTAGE METER
AND SCALE
ACS LDEXCHANGE DIVISION TOTAL
----------- ---------- ------------- -----------
<S> <C> <C> <C> <C>
Total revenue........................ $25,938,067 $7,203,340 $ 874,657 $34,016,064
=========== ========== ========== ===========
Operating loss....................... $(3,192,833) $ (97,962) $ (886,820) $(4,177,615)
Interest expense, net................ (398,375) 2,462 (270,875) (666,788)
----------- ---------- ---------- -----------
Loss before income taxes........... $(3,591,208) $ (95,500) $(1,157,695) $(4,844,403)
=========== ========== ========== ===========
Depreciation and amortization........ $ 1,099,773 $ 18,084 $ 306,102 $ 1,423,959
=========== ========== ========== ===========
Assets............................... $13,837,703 $2,401,050 $6,841,308 $23,080,061
=========== ========== ========== ===========
</TABLE>
The activities of the three reportable segments include the following:
- ACS: A computer hardware and software development sales and support
division and a telecommunication division, which provides comprehensive
data network systems support, including selling computer hardware and
software products and developing integrated title and escrow computer
applications for the title and real estate related industries. $27.5
million of the ACS revenues were derived from FNFI. Also provides
telecommunications hardware and long-distance reselling, technical and
consulting services, and Internet access and services. The long-distance
telecommunications services portion of this business was transferred to
LDExchange during 1999.
- LDExchange: A provider of international telecommunication services with
access to the international long-distance market for the rapidly growing
wholesale telecommunications service sector. LDExchange had sales of
$59.6 million in 1999 and $7.2 million in 1998. $25.0 million of the
LDExchange revenues were derived from one customer.
- Micro General: Corporate and the postage meter and scale division, which
was deemphasized as a product concurrent with the ACS merger.
30
<PAGE> 33
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. There were no intersegment sales
during the years ended December 31, 1999 and 1998. In 1999, the ACS
long-distance telecommunications business was transferred to LDExchange.
(9) EMPLOYEE BENEFIT PLANS
Employee benefits include an employee stock purchase plan, four stock
option plans and a 401(k) plan.
In 1998, the Company's Board of Directors approved the adoption of an
Employee Stock Purchase Plan ("ESPP"). Under the terms of the ESPP, there are
800,000 shares of the Company's common stock available for purchase at current
market prices by Company employees who meet certain vesting requirements. The
authorized number of shares is subject to adjustment in the event of stock
splits, stock dividends or certain other similar changes in the capital
structure of the Company. Pursuant to the ESPP, Company employees may contribute
an amount between 5% and 15% of their base salary and certain commissions. The
Company contributes varying amounts as specified in the ESPP.
In 1987, stockholders also approved the adoption of a Stock Option Plan
("1987 Option Plan"). Under the terms of the 1987 Option Plan, the Company may
grant stock options to certain key employees and nonemployee directors or
officers. The number of shares issuable under the 1987 Option Plan is 220,000
shares of common stock at not less than fair market value on the date of grant.
All options granted become exercisable at the discretion of the Board of
Directors and expire five years from the date of grant. Options that lapse or
are canceled prior to exercise are added to the shares authorized for future
grants. The 1987 Option Plan expired in 1991, but was renewed by stockholders in
1993. There were no remaining shares available for grant at December 31, 1999
under the 1987 Option Plan.
In 1995, stockholders approved the adoption of the 1995 Stock Option Plan
("1995 Option Plan"). The number of shares reserved for issuance under the 1995
Option Plan is 132,000 shares of common stock. All 132,000 shares were available
for grant at December 31, 1999 under the 1995 Option Plan.
During 1998, stockholders approved the adoption of the 1998 Stock Incentive
Plan ("1998 Plan"). The 1998 Plan authorizes up to 1,500,000 shares of common
stock, plus an additional 300,000 shares of common stock on the date of each
annual meeting of the stockholders of the Company, for issuance under the terms
of the 1998 Plan. The authorized number of shares is subject to adjustment in
the event of stock splits, stock dividends or certain other similar changes in
the capital structure of the Company. The 1998 Plan provides for grants of
"incentive stock options" as defined in Section 422 of the Internal Revenue Code
of 1986, as amended, nonqualified stock options and rights to purchase shares of
common stock ("Purchase Rights"). Incentive stock options, nonqualified stock
options and Purchase Rights may be granted to employees of the Company and its
subsidiaries and affiliates. Nonqualified stock options and Purchase Rights may
be granted to employees of the Company and its subsidiaries and affiliates,
nonemployee directors and officers, consultants and other service providers.
The Board of Directors, or a committee consisting of two or more members of
the Board of Directors, will administer the 1998 Plan (the "Administrator"). The
Administrator will have the full power and authority to interpret the 1998 Plan,
select the recipients of options and Purchase Rights, determine and authorize
the type, terms and conditions of, including vesting provisions, and the number
of shares subject to grants under the 1998 Plan, and adopt, amend and rescind
rules relating to the 1998 Plan. The term of options may not exceed 10 years
from the date of grant (5 years in the case of a person who owns or is deemed to
own more than 10% of the total combined voting power of all classes of stock of
the Company). The option exercise price for each share granted pursuant to an
incentive stock option may not be less than 100% of the fair market value of a
share of common stock at the time such option is granted (110% of fair market
value in the case of an incentive stock option granted to a person who owns more
than 10% of the combined voting power of all
31
<PAGE> 34
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
classes of stock of the Company). There is no minimum purchase price for shares
of common stock purchased pursuant to a Purchase Right, and any such purchase
price shall be determined by the Administrator. The maximum number of shares for
which options may be granted to any one person during any one calendar year
under the 1998 Plan is 1,500,000 and in no event shall the aggregate number of
shares subject to incentive stock options exceed 1,500,000. The aggregate fair
market value of the common stock (determined as of the date of grant) with
respect to incentive stock options granted under the 1998 Plan or any other
stock option plan of the Company that become exercisable for the first time by
any optionee during any calendar year may not exceed $100,000. At December 31,
1999, 782,500 shares were available for grant under the 1998 Option Plan. In
1999, 50,000 shares were issued under the Plan.
In 1999, the Board of Directors approved the adoption of the 1999 Stock
Incentive Plan ("1999 Plan"). The 1999 Plan authorizes up to 2,000,000 shares of
common stock for issuance under the terms of the 1999 Plan. The authorized
number of shares is subject to adjustment in the event of stock splits, stock
dividends or certain other similar changes in the capital structure of the
Company. The 1999 Plan provides for grants of "incentive stock options" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended,
nonqualified stock options and rights to purchase shares of common stock
("Purchase Rights"). Incentive stock options, nonqualified stock options and
Purchase Rights may be granted to employees of the Company and its subsidiaries
and affiliates. Nonqualified stock options and Purchase Rights may be granted to
employees of the Company and its subsidiaries and affiliates, nonemployee
directors and officers, consultants and other service providers.
The 1999 Plan will be administered by the Board of Directors or a committee
consisting of two or more members of the Board of Directors (the
"Administrator"). The Administrator will have the full power and authority to
interpret the 1999 Plan, select the recipients of options and Purchase Rights,
determine and authorize the type, terms and conditions of, including vesting
provisions, and the number of shares subject to grants under the 1999 Plan, and
adopt, amend and rescind rules relating to the 1999 Plan. The term of options
may not exceed 10 years from the date of grant (5 years in the case of a person
who owns or is deemed to own more than 10% of the total combined voting power of
all classes of stock of the Company). The option exercise price for each share
granted pursuant to an incentive stock option may not be less than 100% of the
fair market value of a share of common stock at the time such option is granted
(110% of fair market value in the case of an incentive stock option granted to a
person who owns more than 10% of the combined voting power of all classes of
stock of the Company). There is no minimum purchase price for shares of common
stock purchased pursuant to a Purchase Right, and any such purchase price shall
be determined by the Administrator. The maximum number of shares for which
options may be granted to any one person during any one calendar year under the
1999 Plan is 500,000 and in no event shall the aggregate number of shares
subject to incentive stock options exceed 2,000,000. At December 31, 1999,
1,030,450 shares were available for grant under the 1999 Option Plan.
32
<PAGE> 35
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity and related information
for the years ended December 31, 1999 and 1998 is as follows. Prior to 1998, the
Company's stock option activity was immaterial.
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 1,438,916 $4.35 227,166 $1.93
Granted............................... 2,628,050 4.00 1,226,250 4.80
Exercised............................. (211,201) 2.79 -- --
Canceled.............................. (392,669) 4.55 (14,500) 1.86
--------- ---------
Outstanding at end of year.............. 3,463,096 4.25 1,438,916 4.35
========= ===== ========= =====
Options exercisable at year-end......... 2,241,143 $4.10 985,750 $4.28
========= ===== ========= =====
</TABLE>
The following table sets forth options outstanding and exercisable by price
range at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ------------------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED- -----------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF AS OF CONTRACTUAL EXERCISE AS OF EXERCISE
EXERCISE PRICES 12/31/99 LIFE PRICE 12/31/99 PRICE
- --------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.25 - $3.00 410,667 9.08 $2.83 402,334 $2.84
$3.13 - $3.88 1,147,713 9.30 3.62 740,392 3.63
$4.00 - $4.81 922,333 8.85 4.71 772,661 4.76
$4.88 - $9.99 982,383 9.88 5.16 326,040 5.16
------------- --------- ---- ----- --------- -----
$1.25 - $9.94 3,463,096 9.32 $4.25 2,241,437 $4.10
============= ========= ==== ===== ========= =====
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("Opinion 25"), and related
Interpretations in accounting for its employee stock options. As discussed
below, in management's opinion, the alternative fair value accounting provided
for under Statement 123, "Accounting for Stock Based Compensation," requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under Opinion 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that do not have vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the value of an estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Pro forma information regarding net earnings and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option-pricing model with the following weighted-average
assumptions. The risk-free interest rate used in the calculation is the rate on
the date the options were granted. The risk-free interest rate used for options
granted during 1999 and 1998 was 6.35% and 5.7%, respectively. Volatility
factors for the expected
33
<PAGE> 36
MICRO GENERAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market price of the common stock of 53.2% and 50% were used for options granted
in 1999 and 1998, respectively. No dividends are paid by the Company; as a
result, its expected dividend yield is 0.0%. A weighted-average expected life of
9.32 years was used in all years for 1999, and 7 years was used in all years,
for 1998.
The impact of applying the provisions of Statement 123 on the consolidated
results of operations is not material for the years ended December 31, 1999 and
1998.
The Company also offers a 401(k) profit sharing plan, a qualified voluntary
contributory savings plan, available to substantially all employees. Eligible
employees may contribute up to 15% of their pretax annual compensation, up to
the amount allowed pursuant to the Internal Revenue Code. The Company may elect
to make matching contributions. The Company has historically not made matching
contributions.
(10) ACQUISITIONS
As discussed in note 1, Micro General and ACS merged in May 1998 and
LDExchange was acquired in November 1998.
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the Micro General/ACS merger were as follows:
<TABLE>
<S> <C>
Tangible assets acquired at fair value...................... $ 305,000
Cost in excess of net assets acquired....................... 5,709,000
Liabilities assumed at fair value........................... (4,717,000)
-----------
Total purchase price.............................. $ 1,297,000
===========
</TABLE>
The assets acquired, including cost in excess of net assets acquired, and
liabilities assumed in the LDExchange acquisition were as follows:
<TABLE>
<S> <C>
Tangible assets acquired at fair value...................... $ 1,592,000
Cost in excess of net assets acquired....................... 3,707,000
Liabilities assumed at fair value........................... (2,199,000)
-----------
Total purchase price.............................. $ 3,100,000
===========
</TABLE>
Selected unaudited pro forma combined results of operations for the years
ended December 31, 1998 and 1997, assuming the Micro General/ACS merger and
LDExchange acquisitions occurred on January 1, 1998 and 1997, respectively, are
presented as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Total revenue............................................. $60,565,000 $17,049,000
Net loss.................................................. (5,225,549) (2,544,931)
Loss per share -- basic and diluted....................... (.69) (.34)
</TABLE>
On March 22, 1999, the Company acquired Interactive Associates, Inc., a
privately held distributor of computer telephony hardware and services. This
acquisition provided for the purchase of 100% of the common stock of Interactive
Associates, Inc. in exchange for 50,000 shares of Micro General common stock,
subject to certain conditions, including an earn out provision for up to an
additional 50,000 shares. The closing price of the Company common stock on March
22, 1999, according to the NASDAQ Bulletin Board, was $3.88. This acquisition
was accounted for using the purchase method. The financial position and results
of operation of Interactive are not material to the Company.
34
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. THROUGH 13.
Within 120 days after the close of its fiscal year, the Company intends to
file with the Securities and Exchange Commission a definitive proxy statement
pursuant to Regulation 14A of the Securities Exchange Act of 1934 as amended,
which will include the election of directors, the report of compensation
committee on annual compensation, certain relationships and related transactions
and other business.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following is a list of the Consolidated
Financial Statements of Micro General Corporation and its subsidiaries included
in Item 8 of Part II.
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997.
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997.
Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules. The following is a list of financial
statement schedules filed as part of this annual report on Form 10-K.
Schedule II: Valuation and Qualifying Accounts.
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the Consolidated
Financial Statements or notes thereto.
(a)(3) The following exhibits are incorporated by reference or are set
forth on pages to this Form 10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Articles of Incorporation of the Company,
incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 25, 1988, as
amended.
3.11 Restated Articles of Incorporation of the Company -- Article
Fourth of the Certificate of Incorporation, incorporated by
reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
3.2 Bylaws of the Company, incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended
December 25, 1988, as amended.
10 Material Contracts
10.1 Incentive Stock Option Plan and form of Incentive Stock
Option Agreement in use prior to 1987, incorporated by
reference to Exhibit 10.1 from the Company's Annual Report
on Form 10-K for the year 1984; Option Plan and form of
Incentive Stock Option Agreement in use commencing in 1987,
incorporated by reference to Exhibit 10 from the Company's
Annual Report on Form 10-K for the year ended December 28,
1986.
10.1.1 1998 Stock Incentive Plan and 1998 Employee Stock Purchase
Plan, incorporated by reference from Form S-8, registration
number 333-64289.
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1.2 1999 Stock Incentive Plan incorporated by reference from
Form S-8, registration number 333-95913.
10.18 Convertible Note Purchase Agreement between Micro General
Corporation and Cal West Service Corporation dated August 1,
1996, incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
10.19 Convertible Note Purchase Agreement between Micro General
Corporation and Dito Caree L.P. dated August 1, 1996,
incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
10.20 Loan Agreement and Agreement to issue Detachable Warrants
between Micro General Corporation and Cal West Service
Corporation and Dito Caree L.P. Holding dated November 25,
1997, incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
10.22 Agreement and Plan of Reorganization dated as of May 14,
1998, among ACS Systems, Inc., Micro General Corporation,
ACS Merger, Inc. and Fidelity National Financial, Inc., a
Delaware corporation, incorporated by reference from the
Company's report on Form 8-K dated as of May 14, 1998.
10.22.1 Agreement of Merger dated May 14, 1998 by and among ACS
Systems, Inc., a California Corporation, a Delaware
corporation, Micro General Corporation, a Delaware
corporation and Fidelity National Financial, Inc., a
Delaware corporation, incorporated by reference from the
Company's report on Form 8-K dated as of May 14, 1998.
10.23 Convertible Note Purchase Agreement between Micro General
Corporation and Cal West Service Corporation and Dito Caree
L.P. Holding dated October 27, 1998, incorporated by
reference from the Company's report on Form 10-K for the
year ended December 1998.
10.24 Agreement and Plan of Reorganization dated November 17, 1998
by and among Micro General Corporation, a California
corporation, LDExchange.com, Inc. Joseph L. Putegnant, III,
Carolyn Hallinan and Europa Telecommunications, incorporated
by reference from the Company's report on Form 8-K dated as
of November 23, 1998.
10.25 Inducement Agreement and Agreement to Transfer and Reissue
Detachable Warrants and Convertible Notes, by and between
John Snedegar, Cal West Service Corporation and Micro
General Corporation, dated March 30, 1999, incorporated by
reference from the Company's report on Form 10-K for the
year ended December 31, 1998.
10.26 Employment Agreement effective as of April 15, 1999 between
Micro General Corporation and John Snedegar, the President
and Chief Executive Officer of the Corporation
10.27 Intellectual Property Transfer, Right of First Refusal, and
Warrant Purchase Agreement by and between Micro General
Corporation and escrow.com, Inc. dated October 1, 1999.
10.28 Promissory Note payable to Micro General Corporation from
escrow.com, Inc. in the amount of $4,500,000 dated October
1, 1999.
10.29 Convertible Note Purchase Agreement by and between Micro
General Corporation and Cal West Service Corporation dated
as of December 15, 1999
10.30 Credit Agreement and Promissory Note in an amount not to
exceed $5,000,000 by and between Micro General Corporation
and Imperial Bank entered into on December 22, 1999.
21 List of Subsidiaries
23.1 Consent of KPMG LLP
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K. The Company filed reports on Form 8-K during the
fourth quarter of 1999 as follows:
None
36
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
MICRO GENERAL CORPORATION,
A DELAWARE CORPORATION
By: /s/ JOHN SNEDEGAR
------------------------------------
John Snedegar
Chief Executive Officer President
(Principal Executive Officer)
Date: March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PATRICK F. STONE Chairman of the Board March 28, 2000
- ---------------------------------------------------
Patrick F. Stone
/s/ WILLIAM P. FOLEY Director March 28, 2000
- ---------------------------------------------------
William P. Foley
/s/ CARL A. STRUNK Director March 28, 2000
- ---------------------------------------------------
Carl A. Strunk
/s/ RICHARD H. PICKUP Director March 28, 2000
- ---------------------------------------------------
Richard H. Pickup
/s/ JOHN SNEDEGAR Director March 28, 2000
- ---------------------------------------------------
John Snedegar
/s/ DWAYNE WALKER Director March 28, 2000
- ---------------------------------------------------
Dwayne Walker
/s/ DALE W. CHRISTENSEN Chief Financial Officer March 28, 2000
- --------------------------------------------------- (Principal Financial and
Dale W. Christensen Accounting Officer)
</TABLE>
37
<PAGE> 40
SCHEDULE II
MICRO GENERAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND AMOUNTS BALANCE AT
CLASSIFICATION OF PERIOD EXPENSES WRITTEN-OFF END OF
-------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful accounts........... $485,936 $2,258,585 $478,920 $2,265,601
Year ended December 31, 1998:
Allowance for doubtful accounts........... 321,844 247,437 83,345 485,936
Year ended December 31, 1997:
Allowance for doubtful accounts........... 314,419 63,683 56,258 321,844
</TABLE>
38
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Restated Articles of Incorporation of the Company,
incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 25, 1988, as
amended.
3.11 Restated Articles of Incorporation of the Company -- Article
Fourth of the Certificate of Incorporation, incorporated by
reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
3.2 Bylaws of the Company, incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended
December 25, 1988, as amended.
10 Material Contracts
10.1 Incentive Stock Option Plan and form of Incentive Stock
Option Agreement in use prior to 1987, incorporated by
reference to Exhibit 10.1 from the Company's Annual Report
on Form 10-K for the year 1984; Option Plan and form of
Incentive Stock Option Agreement in use commencing in 1987,
incorporated by reference to Exhibit 10 from the Company's
Annual Report on Form 10-K for the year ended December 28,
1986.
10.1.1 1998 Stock Incentive Plan and 1998 Employee Stock Purchase
Plan, incorporated by reference from Form S-8, registration
number 333-64289.
10.1.2 1999 Stock Incentive Plan incorporated by reference from
Form S-8, registration number 333-95913.
10.18 Convertible Note Purchase Agreement between Micro General
Corporation and Cal West Service Corporation dated August 1,
1996, incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
10.19 Convertible Note Purchase Agreement between Micro General
Corporation and Dito Caree L.P. dated August 1, 1996,
incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
10.20 Loan Agreement and Agreement to issue Detachable Warrants
between Micro General Corporation and Cal West Service
Corporation and Dito Caree L.P. Holding dated November 25,
1997, incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
10.22 Agreement and Plan of Reorganization dated as of May 14,
1998, among ACS Systems, Inc., Micro General Corporation,
ACS Merger, Inc. and Fidelity National Financial, Inc., a
Delaware corporation, incorporated by reference from the
Company's report on Form 8-K dated as of May 14, 1998.
10.22.1 Agreement of Merger dated May 14, 1998 by and among ACS
Systems, Inc., a California Corporation, a Delaware
corporation, Micro General Corporation, a Delaware
corporation and Fidelity National Financial, Inc., a
Delaware corporation, incorporated by reference from the
Company's report on Form 8-K dated as of May 14, 1998.
10.23 Convertible Note Purchase Agreement between Micro General
Corporation and Cal West Service Corporation and Dito Caree
L.P. Holding dated October 27, 1998, incorporated by
reference from the Company's report on Form 10-K for the
year ended December 1998.
10.24 Agreement and Plan of Reorganization dated November 17, 1998
by and among Micro General Corporation, a California
corporation, LDExchange.com, Inc. Joseph L. Putegnant, III,
Carolyn Hallinan and Europa Telecommunications, incorporated
by reference from the Company's report on Form 8-K dated as
of November 23, 1998.
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.25 Inducement Agreement and Agreement to Transfer and Reissue
Detachable Warrants and Convertible Notes, by and between
John Snedegar, Cal West Service Corporation and Micro
General Corporation, dated March 30, 1999, incorporated by
reference from the Company's report on Form 10-K for the
year ended December 31, 1998.
10.26 Employment Agreement effective as of April 15, 1999 between
Micro General Corporation and John Snedegar, the President
and Chief Executive Officer of the Corporation
10.27 Intellectual Property Transfer, Right of First Refusal, and
Warrant Purchase Agreement by and between Micro General
Corporation and escrow.com, Inc. dated October 1, 1999.
10.28 Promissory Note payable to Micro General Corporation from
escrow.com, Inc. in the amount of $4,500,000 dated October
1, 1999.
10.29 Convertible Note Purchase Agreement by and between Micro
General Corporation and Cal West Service Corporation dated
as of December 15, 1999
10.30 Credit Agreement and Promissory Note in an amount not to
exceed $5,000,000 by and between Micro General Corporation
and Imperial Bank entered into on December 22, 1999.
21 List of Subsidiaries
23.1 Consent of KPMG LLP
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is effective as of April
15,1999 (the "Effective Date"), by and between MICRO GENERAL CORPORATION, a
Delaware corporation (the "Company"), and JOHN SNEDEGAR (the "Employee"), and
supersedes any and all prior employment agreements or understandings entered
into between the parties; provided, however, this Agreement shall not supersede
or otherwise affect (i) any Company options or other securities previously
granted the Employee or (ii) the terms and conditions of that certain Inducement
Agreement, dated August 11, 1998. In consideration of the mutual covenants and
agreements set forth herein, the parties agree as follows:
1. Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs the Employee to serve in an executive and
managerial capacity as the President and Chief Executive Officer of the Company,
and the Employee accepts such employment and agrees to perform such reasonable
responsibilities and duties commensurate with the aforesaid positions as
lawfully directed by the Company's Board of Directors (the "Board"), or as set
forth in the Bylaws of the Company.
2. Term. The term of this Agreement shall commence on the Effective Date
and shall continue for a period of three (3) years ending April 14, 2002,
subject to prior termination as set forth in Section 7, below (the "Term"). The
Term may be extended at any time upon mutual agreement of the parties.
3. Salary. During the Term, the Company shall pay the Employee a minimum
base annual salary of Two Hundred Fifty Thousand Dollars ($250,000), payable at
the times and in the manner dictated by the Company's standard payroll policies
(the "Base salary"). The Base Salary shall be periodically reviewed and
increased at the discretion of the Board to reflect, among other matters, cost
of living increases and performance results.
4. Other Compensation and Fringe Benefits. During the Term, as
additional compensation, the Employee shall be entitled to receive and
participate in the following:
(a) Incentive Bonus. A year-end bonus equal to ten percent (10%)
of the "audited pre-tax profits" of the Company for each calendar year during
the Term of this Agreement (the "Incentive Bonus"). For calendar year 1999 only,
the Incentive Bonus calculation shall be pro-rated for the period from the
Effective Date through December 31, 1999, but shall in no event be less than One
Hundred Fifty Thousand Dollars ($150,000). For calendar year 2002 only, he
Incentive Bonus calculation shall be pro-rated for the period from January 1,
2002 through the end of the Term. As used herein, "audited pre-tax profits"
shall mean the audited pre-tax profits of the Company determined by the
Company's outside accounting firm in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis and will include
the results of the Company and its subsidiaries on a consolidated basis. In
addition, "audited pre-tax profits" shall be determined only after the amount of
the Employee's year-end Incentive Bonus has been taken into account by the
Company and shall be adjusted by deduction of supplementary bonuses and/or
advances paid to other "key" employee's of the Company for the applicable year
(which employees shall be designated and agreed upon by the Employee and the
Board). The accrual of the Incentive Bonus shall commence as of the Effective
Date. Although the Incentive Bonus is deemed earned on December 31 of the year
for which such bonus is being calculated, if the Employee's employment with the
Company is terminated pursuant to Section 7 below, whether voluntarily or
involuntarily, prior to December 31 of the year to which the Incentive
<PAGE> 2
Bonus relates, then the Company's obligation to pay the Employee all or a
portion of the Incentive Bonus for the year in which termination occurs shall be
governed by the appropriate provision of Section 7 below; provided, however,
that expiration of the Term shall not constitute a voluntary or involuntary
termination of employment. Any Incentive Bonus due for a given year of the term
shall be paid no later than April 15th of the following year (including no later
than April 15, 2003 for the pro-rated bonus earned in 2002); and
(b) Transaction Bonus. In connection with the sale or transfer to
a person or entity other than Fidelity National Financial Inc. ("FNFI") or its
"affiliates" (as defined in Section 21 below) of (i) all or a majority of the
outstanding capital stock or other equity interest of any subsidiary of the
Company; or (ii) all or substantially all of the assets of any material division
of the Company or any of its subsidiaries, the Company shall pay the Employee a
bonus (the "Transaction Bonus") equal to five percent (5%) of "Net Transaction
Proceeds." For purposes of this subsection (b), the term "Net Transaction
Proceeds" shall mean (A) the value of the consideration actually received by the
Company in connection with such transaction, less (B) the sum of (i) the
Company's cost basis, as determined by the Company's outside accounting firm in
accordance with GAAP, in the securities or assets being sold (the "Company's
Investment"), plus (ii) an amount equal to a ten percent (10%) cumulative
annualized rate of return on the Company's Investment. Notwithstanding anything
to the contrary above, the Transaction Bonus shall not apply to a sale or
transfer by the Company of the assets comprising the postal meter and/or postal
scale division of the Company. The Transaction Bonus shall be paid to the
Employee within ninety (90) days of the later of (i) the closing of the
applicable transaction; or (ii) the date on which the Company actually receives
at least eighty percent (80%) of the total consideration to be received in
connection with such transaction. In addition, the Transaction Bonus will be due
and payable to the Employee notwithstanding the termination of this Agreement if
(i) this Agreement is terminated (a) as a result of the failure by the Company
to extend the Term, (b) after the first full year of this Agreement, by either
the Company pursuant to Section 7(b) or the Employee for Good Reason pursuant to
Section 7(b), (c) as a result of the Employee's disability or death pursuant to
Sections 7(c) and 7(d), respectively and (ii) prior to such termination, the
transaction giving rise to the Transaction Bonus was reduced to a definitive
written agreement and the transaction closes within six (6) months of the date
of termination in substantial accordance with the terms of the written
agreement. Moreover, if this Agreement is terminated by the Employee under
Section 7(b) for any reason other than Good Reason, then the Transaction Bonus
will be due and payable to the Employee notwithstanding the termination of this
Agreement, provided the transaction in question formally closed prior to the
date of termination.
(c) Options. A grant on the Effective Date under the Company's
Executive Stock Option Plan of options to purchase Fifty Thousand (50,000)
shares of the Company's Common Stock. The exercise price for such options shall
be the closing price on the Effective Date of the Company's publicly traded
Common Stock. In addition, all such options shall vest options the Effective
Date, after which the Employee shall have ten (10) years to exercise the
options, subject to any terms to the contrary in the Company's Executive Stock
Option Plan; and
(d) Standard Benefits. The standard Company benefits enjoyed by
the Company's other senior executives; and
(e) Club Membership. Payment by the Company of the Employee's
membership dues in a social and/or recreational club as deemed necessary and
appropriate by the Employee (and pre-approved by the Company) to maintain
various business relationships on behalf of the Company;
<PAGE> 3
provided, however, that the Company shall not be obligated to pay for any of the
Employee's personal purchases and expenses at such club; and
(f) Medical Insurance. Provision by the Company during the Term
and any extensions thereof to the Employee and his dependents of the medical and
other insurance coverage provided by FNFI to its senior executives; and
(g) Life Insurance. The procurement of insurance on the
Employee's life in the amount of one million dollars ($1,000,000). The premiums
of such policy shall be paid by the Company and the Employee shall be entitled,
in his sole discretion, to designate the beneficiary of such policy. At the
Employee's request at the end of the Term, the Company will assign the insurance
policy to the Employee and the Employee shall have no obligation to the Company
in respect of premiums previously paid.
The Company shall deduct from all compensation payable under this Agreement to
the Employee any taxes or withholdings the Company is required to deduct
pursuant to applicable state and federal laws or by mutual agreement between the
parties.
5. Vacation. For and during each year of the Term and any extensions
thereof, the Employee shall be entitled to reasonable paid vacation periods
consistent with his position with the Company and in accordance with the
Company's standard policies, or such greater entitlement as the Board may
approve. In addition, the Employee shall be entitled to such holidays consistent
with the Company's standard policies or such greater entitlement as the Board
may approve.
6. Expense Reimbursement. In addition to the compensate and benefits
provided herein, the Company shall, upon receipt of appropriate documentation,
reimburse the Employee each month for his reasonable travel, lodging,
entertainment, promotion and other ordinary and necessary business expenses. The
arrangement set forth in this Section 6 is intended to constitute an accountable
plan within the meaning of Section 162 of the Internal Revenue Code, as amended
(the "Code"), and the accompanying regulations, and the Employee agrees to
comply with all reasonable guidelines established by the Company from time to
time to meet the requirements of Section 162 of the Code and the accompanying
regulations.
7. Termination.
(a) For Cause. Notwithstanding anything to the contrary contained
herein, the Company may terminate this Agreement immediately for "cause" upon
written notice to the Employee, in which event the Company shall be obligated to
pay the Employee that portion of the Base Salary due him through the date of
termination, and accrued and unpaid expense reimbursement pursuant to Section 6
hereof. For purposes of this Agreement, "cause" shall mean (i) a material breach
by the Employee of this Agreement, which breach is not cured within thirty (30)
days after written notice thereof from the Company to the Employee; (ii) the
repeated failure of the Employee to comply with the Company's lawful corporate
policies to the extent set forth in writing; (iii) misconduct, dishonesty,
insubordination, or any other act by the Employee that in any way has a direct
and substantial adverse effect on the Company's business or reputation, or its
relationship with its customers or employees, including, without limitation (a)
the use of alcohol such as to materially interfere with the Employee's
obligations hereunder, (b) the use of illegal drugs, or (c) conviction of a
felony or of any crime involving moral turpitude or theft; or (iv) the failure
by the Employee to comply with applicable laws or governmental regulations
pertaining to his employment hereunder which non-compliance has a material
adverse effect on the Company.
<PAGE> 4
(b) Without Cause. Either party may terminate this Agreement
immediately without cause by giving written notice to the other. If the Company
terminates under this Section 7(b) within the first (1st) full year of this
Agreement, then the Company shall only be obligated to pay to the Employee that
portion of the Base Salary due him through the date of termination, and accrued
and unpaid expense reimbursement pursuant to Section 6 hereof. If, after the
first (1st) full year of this Agreement, the Company terminates under this
Section 7(b) or if the Employee resigns for "Good Reason" (as defined below),
then the Company shall pay to the Employee an amount equal to the Base Salary in
effect as of the date of termination multiplied by the greater of (A) the number
of years (including partial years) remaining in the Term, or (B) the number two
(2); (ii) any pro-rated Incentive Bonus earned by the Employee through the date
of termination; (iii) any Transaction Bonus due the Employee in accordance with
the terms of Section 4(b); and (iv) accrued and unpaid expense reimbursement
pursuant to Section 6 hereof Such payment shall be made in a lump sum on or
before the fifth (5th) day following the date of termination, or as otherwise
directed by the Employee; provided, however, that the pro-rated Incentive Bonus
and the Transaction Bonus, if any, shall be paid in accordance with Sections
4(a) and 4(b), respectively. For purposes of this Section 4(b), the term "Good
Reason" shall mean a material and substantial reduction in the Employee's
responsibilities and duties hereunder, which reduction was not preapproved in
writing by the employee. If the Employee terminates under this Section 7(b)
other than for Good Reason, then the Company shall only be obligated to pay the
Employee (i) the Base Salary due him through the date of termination; (ii)
accrued and unpaid expense reimbursement pursuant to Section 6 hereof, and (iii)
any Transaction Bonus, provided the transaction in question formally closed
prior to the date of termination.
(c) Disability. If the Employee fails to perform his duties
hereunder on account of illness or other incapacity for a period of four (4)
consecutive months, then the Company shall have the right upon written notice to
the Employee to terminate this Agreement without further obligation by paying
the Employee (1) the Base Salary, without offset, for the remainder of the Term
in a lump sum or as otherwise directed by the Employee; (ii) any pro-rated
Incentive Bonus earned by the Employee through the date of termination; (iii)
any Transaction Bonus due the Employee in accordance with the terms of Section
4(b); and (iv) accrued and unpaid expense reimbursement pursuant to Section 6
hereof Such payment shall be made in a lump sum on or before the fifth (5th) day
following the date of termination, or as otherwise directed by the Employee;
provided, however, that the pro-rated Incentive Bonus and the Transaction Bonus,
if any, shall be paid in accordance with Sections 4(a) and 4(b), respectively.
(d) Death. If the Employee dies during the Term, then this
Agreement shall terminate immediately and the Employee's legal representatives
shall be entitled to receive (i) the Base Salary through the date of death (ii)
any pro-rated Incentive Bonus earned by the Employee through the date of death;
(iii) any Transaction Bonus due the Employee in accordance with the terms of
Section 4(b); and (iv) accrued and unpaid expense reimbursement pursuant to
Section 6 hereof. Such payment shall be made in a lump sum on or before the
fifth (5th) day following the date of death, or as otherwise directed by the
Employee's legal representative; provided, however, that the pro-rated Incentive
Bonus and the Transaction Bonus, if any, shall be paid in accordance with
Sections 4(a) and 4(b), respectively.
(e) Effect of Termination. Termination for any reason or for no
reason shall not constitute a waiver of the Company's or the Employee's rights
under this Agreement nor a release of the Employee from any obligation hereunder
except his obligation to perform his day-to-day duties as an employee. The
Company's payment obligations to the Employee under Section 7 shall survive any
such termination.
<PAGE> 5
8. Severance Payment.
(a) The Employee may terminate his employment hereunder in the
event of a if change in control of the Company," which, for purposes of this
Agreement, shall be deemed to have occurred if (i) there shall be consummated
(x) any consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation, or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock of the surviving corporation immediately
after the merger, or (y) any sale, lease exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (ii) the stockholders of the Company approve
any plan or proposal for the liquidation or dissolution of the Company, or (iii)
any "person" (such as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")), other than the Company,
FNFI or any "person" who, on the date hereof, is a director or officer of the
Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities, unless such
"person" acquires such securities from FNFI. The Employee may only terminate
this Agreement due to a change in control of the Company during the period
commencing 60 days and expiring 365 days after such change in control.
(b) If, after a change in control of the Company, the Company
terminates the Employee's employment in breach of this Agreement or pursuant to
Section 7(b), or the Employee resigns for Good Reason pursuant to Section 7(b),
then:
(i) the Company shall pay the Base Salary due him through
the date of termination;
(ii) in lieu of any further salary and bonus payments or
other payments due to the Employee for periods subsequent to the date of
termination, the Company shall pay, as severance to the Employee, an amount
equal to the product of (A) the Employee's Base Salary in effect as of the date
of termination plus the total Incentive Bonus paid or payable to the employee
for the most recently ended calendar year, multiplied by (B) the number 2, such
payment to be made in a lump sum on or before the fifth (5th) day following the
date of termination; and
(iii) the Company shall maintain in full force and effect,
for the continued benefit of the Employee for the number of years (including
partial years) remaining in the Term, all employee benefit plans and programs in
which the Employee was entitled to participate immediately prior to the date of
termination, provided that the Employee's continued participation is possible
under the general terms and provisions of such plans and programs. In the event
that the Employee's participation in any such plan or program is prohibited, the
Company shall, at it's expense, arrange to provide the Employee with benefits
substantially similar to those which the Employee would otherwise have been
entitled to receive under such plans and programs from which his continued
participation is prohibited.
(c) The Employee shall not be required to mitigate the amount of
any payment provided for in this Section 8 or Section 7(b), above, by seeking
other employment or otherwise, nor
<PAGE> 6
shall any compensation or other payments received by the Employee after the date
of termination reduce any payments due under this Section 8 or Section 7(b),
above.
(d) Notwithstanding anything to the contrary herein, if any
payment pursuant to this Section 8 would be a "parachute payment" (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended), such payment
shall be limited to the largest portion of such payment as can be paid without
being deemed a "parachute payment."
9. Non-Delegation of Employee's Rights. The obligations, rights and
benefits of the Employee hereunder are personal and may not be delegated,
assigned or transferred in any manner whatsoever, nor are such obligations,
rights or benefits subject to involuntary alienation, assignment or transfer.
10. Confidential Information. The Employee acknowledges that 'n his
capacity as an employee of the Company he will occupy a position of trust and
confidence and he further acknowledges that he will have access to and learn
substantial information about the Company and its "affiliates" (as defined in
Section 21 below) and their respective operations that is confidential or not
generally known in the industry including, without limitation, information that
relates to purchasing, sales, customers, marketing, and the Company's and its
affiliates' financial position and financing arrangements (the "Confidential
Information"). The Employee agrees that all such Confidential Information is
proprietary or confidential, or constitutes trade secrets and is the sole
property of the Company and/or its affiliates. The Employee will keep
confidential, and will not reproduce, copy or disclose to any other person or
entity, any such Confidential Information, nor will the Employee advise, discuss
with or in any way assist any other person or entity in obtaining or learning
about any such Confidential Information; provided, however, that the Employee
(i) shall be able to use the Confidential Information in the course of
performing his duties hereunder; and (ii) may disclose any Confidential
Information pursuant to any law, subpoena or regulation. Accordingly, the
Employee agrees that during the Term and at all times thereafter he will not
disclose, or permit or encourage anyone else to disclose, any such information,
nor will he utilize any such information, either alone or with others, outside
the scope of his duties and responsibilities with the Company. The term
"Confidential Information" shall not include (i) any information available to
the general public; or (ii) any information known by the Employee prior to the
date he became a member of the Board which was obtained from a source who was
not bound by a confidentiality obligation to the Company.
11. Non-Competition During Employment Term. The Employee agrees that,
during the Term and any extensions thereof, he will devote substantially all his
business time and effort, and give undivided loyalty, to the Company.
Notwithstanding anything to the contrary in the preceding sentence, the Employee
shall be entitled to (i) be on the Board of Directors of the companies that are
disclosed on Schedule I hereto; and (ii) spend time on charitable and community
organizations that do materially not interfere with the Employee's perfon-nance
of his obligations hereunder. During the Term, the Employee will not engage in
any way whatsoever, directly or indirectly (other than being on the Board of
Directors of the companies set forth on Schedule I hereto), in any business that
is competitive with the Company or its affiliates, nor solicit, or in any other
manner work for or assist any business which is competitive with the Company or
its affiliates. In addition, during the Tenn and any extensions thereof, the
Employee will undertake no planning for or organization of any business activity
competitive with the work he perfon-ns as an employee of the Company, and the
Employee will not combine or conspire with any other employee of the Company or
any other person for the purpose of organizing any such competitive business
activity.
<PAGE> 7
12. Non-Solicitation After Employment Term. The parties acknowledge that
the Employee will acquire substantial knowledge and information concerning the
business of the Company and its affiliates as a result of his employment. The
parties further acknowledge that the scope of business in which the Company is
engaged as of the Effective Date is national and very competitive and one in
which few companies can successfully compete. The solicitation of the Company's
customers or employees by the Employee after this Agreement is terminated would
severely injure the Company. Accordingly, for a period of one (1) year after
this Agreement is terminated or the Employee leaves the employment of the
Company for any reason whatsoever, the Employee agrees not to solicit any person
or business that was at the time of such termination and remains a customer or
prospective customer, or an employee of the Company or any of its affiliates,
except for the Employee's administrative assistant.
13. Return of Company Documents. Upon termination of this Agreement,
Employee shall return promptly to the Company all records and documents of or
pertaining to the Company and shall not make or retain any copy or extract of
any such record or document.
14. Improvements and Inventions. Any and all improvements or inventions
which the Employee may conceive, make or participate in during the period of his
employment, which are based upon or relate to such employment, shall be the sole
and exclusive property of the Company. The Employee will, whenever requested by
the Company, at the sole cost and expense of the Company, execute and deliver
any and all documents which the Company shall deem appropriate in order to apply
for and obtain patents for such improvements or inventions or in order to assign
and convey to the Company the sole and exclusive right, title and interest in
and to such improvements, inventions, patents or applications.
15. Actions. The parties agree and acknowledge that the rights conveyed
by this Agreement are of a unique and special nature and that the Company will
not have an adequate remedy at law in the event of a failure by the Employee to
abide by its terms and conditions nor will money damages adequately compensate
for such injury. It is therefore agreed between the parties that, in the event
of a breach by the Employee of any of his obligations contained in this
Agreement, the Company shall have the right, among other rights, to damages
sustained thereby and to obtain an injunction or decree of specific performance
from any court of competent jurisdiction to restrain or compel the Employee to
perform as agreed herein. The Employee agrees that this Section 14 shall survive
the termination of his employment and he shall be bound by its ten-ns at all
times subsequent to the termination of his employment for so long a period as
Company continues to conduct the same business or businesses as conducted during
the Ten-n or any extensions thereof Nothing herein contained shall in any way
limit or exclude any other right granted by law or equity to the Company.
16. Indemnification. For the period commencing on the Effective Date and
continuing for five (5) years following the expiration or prior termination of
this Agreement, regardless of the reason therefor, the Employee shall be
indemnified under the Company's Articles of Incorporation and Bylaws, and the
Employee shall be covered by the directors' and officers' liability insurance,
the fiduciary liability insurance and the professional liability insurance
policies that are the same as, or provide coverage at least equivalent to, those
applicable or made available by the Company to the senior management of the
Company. Independent of the above provisions, if at any time the Employee is
made, or threatened to be made, a party to any legal action or proceeding,
whether civil or criminal, by reason of the fact that the Employee is or was a
director or officer of the Company, then the Employee shall be indemnified by
the Company, and the Company pay the Employee's related expenses (including,
<PAGE> 8
without limitation, reasonable attorneys' fees and costs) when and as incurred,
all to the fullest extent permitted by law.
17. Amendment. This Agreement contains, and its terms constitute, the
entire agreement of the parties, and it may be amended only by a written
document signed by both parties to this Agreement.
18. Governing Law. California law shall govern the construction and
enforcement of this Agreement and the parties agree that any litigation
pertaining to this Agreement shall be adjudicated in courts located in
California.
19. Severability. If any section, subsection or provision hereof is
found for any reason whatsoever to be invalid or inoperative, that section,
subsection or provision shall be deemed severed and shall not affect the force
and validity of any other provision of this Agreement. If any covenant herein is
determined by a court to be overly broad thereby making the covenant
unenforceable, the parties agree and it is their desire that such court shall
substitute a reasonable judicially enforceable limitation in place of the
offensive part of the covenant and that as so modified the covenant shall be as
fully enforceable as if set forth herein by the parties themselves in the
modified form. The covenants of the Employee in this Agreement shall each be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of the Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of the covenants in this Agreement.
20. Notices. Any notice, request, or instruction to be given hereunder
shall be in writing and shall be deemed given when personally delivered or three
(3) days after being sent by United States certified mail, postage prepaid, with
return receipt requested, to the parties at their respective addresses set for
the below:
To the Company: Micro General Corporation
2510 North Red Hill Avenue
Santa Ana, CA 92705
With a copy to: Gregory S. Lane, Esq.
3916 State Street, Suite 300
Santa Barbara, CA 93105
To the Employee: John Snedegar
--------------------------------------
--------------------------------------
With a copy to: Martin Eric Weisberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
20. Waiver of Breach. The waiver by any party of any provisions of this
Agreement shall not operate or be construed as a waiver of any prior or
subsequent breach by the other party.
<PAGE> 9
21. Definition of "Affiliate". For purposes of this Agreement, the term
"affiliate" shall mean a person or entity that directly or indirectly, through
one or more intermediaries, controls, or is controlled by, or is under common
control with, the Company.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS VMEREOF the parties have executed this Agreement to be
effective as of the date first set forth above.
MICRO GENERAL CORPORATION
By:
------------------------------------------
Its:
-----------------------------------------
JOHN SNEDEGAR
---------------------------------------------
<PAGE> 1
EXHIBIT 10.27
INTELLECTUAL PROPERTY TRANSFER, RIGHT OF FIRST REFUSAL,
AND WARRANT PURCHASE AGREEMENT
THIS INTELLECTUAL PROPERTY TRANSFER, RIGHT OF FIRST REFUSAL AND WARRANT
PURCHASE AGREEMENT (the "Agreement") is entered into as of October 1, 1999 (the
"Effective Date"), by and between Micro General Corporation, a Delaware
corporation ("Assignor"), and escrow.com, Inc., a Delaware corporation
("Assignee").
RECITALS
A. Assignor desires to assign to Assignee the entire right, title, and
interest in the Intellectual Property (as hereinafter defined).
B. Assignee desires to sell to Assignor, and Assignor desires to
purchase from Assignee, a warrant to purchase 15,000,000 shares of Common Stock
of Assignee.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Definitions.
(a) "Copyrights" shall mean any and all copyrights and copyright
applications, whether or not registration for any such copyright exists or is
pending, that Assignor or any subsidiary of Assignor may own or have the right
to sublicense hereunder, currently held by Assignor, and any renewal or
extension thereof, together with all other copyright interests accruing by
reason of international copyright conventions and any moral rights pertaining
thereto, including the right to sue for, settle, or release any past, present,
or future infringement thereof, developed for or acquired in connection with the
escrow.com website and the escrow.com business, including, without limitation,
those copyrights and copyright registrations set forth on Exhibit A hereto.
(b) "Excluded Technology" means the technology set forth on
Exhibit B hereto, provided, however, that such technology is limited in all
instances to standard routines, development tools, programming techniques and
other code or content that are non-specific to the escrow.com website and the
escrow.com business plan and that existed prior to and independent of any
development of the Intellectual Property and Software.
(c) "Intellectual Property" shall mean all Copyrights,
Trademarks, Patents, the Website, business plans, financial data, marketing
plans, supplier or customer lists, forecasts, the agreements set forth on
Exhibit A hereto, know-how, concepts, inventions, techniques, system designs,
prototypes, ideas or other intellectual property or proprietary rights of
Assignor or any subsidiary of Assignor, developed for or acquired in connection
with the escrow.com website and the escrow.com business, other than the Software
and the Excluded Technology.
(d) "Patents" shall mean all patents, patent applications and
patents pending that Assignor or any subsidiary of Assignor owns or has the
right to sublicense hereunder, including, without limitation,
<PAGE> 2
those patents, patent applications and patents pending set forth on Exhibit A
hereto, developed for or acquired in connection with the escrow.com website and
the escrow.com business.
(e) "Software" shall mean the software commonly referred to as
the "Escrow Trust Accounting System," in object code and source code, and all
documentation, derivative works, copies and licenses thereof, and all
intellectual property underlying such software.
(f) "Trademarks" shall mean all United States and foreign
registered and common law trademarks, trade names, service marks and logos, or
applications therefore, whether or not registration for such mark exists or is
pending, that Assignor or any subsidiary of Assignor may own, or have the right
to sublicense hereunder, together with all other trademark, trade name, service
mark or logo interests accruing by reason of international trademark
conventions, accompanied by the goodwill of all business connected with the use
of and symbolized by such marks including the right to sue for, settle, or
release any past, present, or future infringement thereof or unfair competition
involving the same, which were developed for or acquired in connection with the
escrow.com website and the escrow.com business, including, without limitation,
those marks set forth on Exhibit A hereto.
(g) "Website" shall mean all images, text, graphics, Internet
domain names (together with all foreign, state or national registrations thereof
and accompanied by the goodwill of all business connected with the use of and
symbolized by such domain names, including the right to sue for, settle, or
release any past, present, or future infringement thereof or unfair competition
involving the same), computer code, website designs and processes, uniform
resource locators and other technology of Assignor, developed for or acquired in
connection with the escrow.com website and the escrow.com business.
2. Assignment. Assignor hereby assigns, grants, transfers, and sets over
to Assignee all right, title, and interest in and to the Intellectual Property
and all goodwill associated with such Intellectual Property, including, without
limitation, (a) the right to use, copy, modify, exploit, license, assign, convey
and pledge the Intellectual Property, (b) the right to exclude others from using
the Intellectual Property, (c) the right to sue others and collect damages for
past present and future infringement of the Intellectual Property, (d) the right
to create derivatives of the Intellectual Property and retain full ownership
thereof, and (e) the right to file and prosecute applications for registration,
now pending or hereinafter initiated, to protect any rights in the Intellectual
Property.
3. Irrevocable License. Assignor hereby grants to Assignee a worldwide,
royalty-free, perpetual, nonexclusive, transferable, sublicensable and
irrevocable license to use and otherwise exploit the Software and Excluded
Technology in any manner and for any purpose.
4. Covenant Not to Compete.
(a) For a period of five (5) years after the date hereof,
Assignor shall not, for itself or any third party, directly or indirectly engage
in the business of Assignee as now conducted or proposed to be conducted,
including without limitation providing escrow services as defined in Section
17003 of the California Financial Code, as amended, anywhere in the world.
<PAGE> 3
(b) The parties hereto intend that the covenant not to compete
under this Section 4 shall be construed as a series of covenants, one in each
county, state, country, province or territory in the world. If in any judicial
proceedings a court shall refuse to enforce any of the separate covenants deemed
included in this Section 4, then such unenforceable covenant shall be deemed
eliminated from this Section 4 for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.
(c) Assignor acknowledges and agrees (i) that the covenants and
agreements of Assignor in this Section 4 are reasonably necessary to protect the
interests of Assignee in whose favor such covenants and agreements are imposed,
(ii) the restrictions imposed by this Section 4 are not greater than are
'necessary for the protection of Assignee in light of the harm that Assignee
will suffer if Assignor breaches this Agreement, (iii) the period, nature, kind
and character of the restrictions are reasonably required to protect the
interests of Assignee, (iv) the geographical restrictions are reasonable in
light of Assignee's world-wide business, and (v) Assignee would not have
otherwise entered into this Agreement without the protection afforded under this
Section 4.
5. Further Assurances. Assignor agrees to execute such additional
documents, complete such other formalities, and extend such other cooperation as
may be reasonably requested or required to perfect Assignee's interest in the
Intellectual Property and to permit Assignee to be duly recorded as the
registered owner and proprietor of the rights hereby conveyed, including,
without limitation, any appropriate instruments required to be filed in the
applicable national trademark, copyright or patent offices or other appropriate
offices.
6. Issuance of Warrant and Note. Assignee hereby agrees to issue to
Assignor, and Assignor agrees to purchase from Assignee, for the purchase price
of Ten Thousand Dollars ($10,000), a warrant to purchase up to 15,000,000 shares
of Assignee's common stock at an exercise price per share of $.40 in
substantially the form attached hereto as Exhibit C (the "Warrant"). The shares
of Common Stock issued upon exercise of the Warrant shall be subject to
registration and other investor rights granted to investors in the Company's
next round of Series A financing managed by Madison Securities. In addition, as
consideration for the assignment of the Intellectual Property as described in
Section 2 hereof and the irrevocable licenses in Section 3 hereof, Assignee
shall issue to Assignor a promissory note in the amount of $4,500,000 bearing
interest at a rate of 3% per annum, with principal and accrued interest payable
on October 1, 2006 in substantially the form attached hereto as Exhibit D.
7. Right of First Refusal.
(a) Pro Rata Right. Assignee hereby grants to Assignor the right
of first refusal to purchase a pro rata share of all New Securities (as defined
in paragraph 7(b) below) which Assignee may, from time to time, propose to sell
and issue. Assignor's pro rata share, for purposes of this right of first
refusal, is a ratio, (A) the numerator of which is the number of shares of
common stock held by Assignor or issuable upon exercise of the Warrant then held
by Assignor on the date of the Company's written notice pursuant to paragraph
7(c) below; and (B) the denominator of which is the total number of shares of
common stock then outstanding (assuming full conversion and exercise of all
securities convertible or exercisable into shares of common stock).
<PAGE> 4
(b) Definition of New Securities. "New Securities" shall mean any
capital stock of Assignee whether now authorized or not, and rights, options or
warrants to purchase capital stock, and securities of any type whatsoever that
are, or may become, convertible into or exercisable for shares of capital stock.
New Securities, however, shall not include any of the following issuances or
sales:
(i) securities to employees, consultants, officers or
directors pursuant to any stock purchase plan or arrangement, stock option plan
or other stock incentive plan or agreement approved by the Board of Directors;
(ii) securities pursuant to or after consummation of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
securities to the general public for the account of Assignee;
(iii) securities pursuant to the conversion or exercise of
convertible or exercisable securities;
(iv) one or more warrants to purchase up to 15,000,000
shares of Common Stock issued to MicroGeneral Corporation, a Delaware
corporation, or the issuance of such Common Stock upon exercise of such warrants
as contemplated herein;
(v) up to 500,000 shares of Common Stock issued and sold
to ShopNow.com, Inc., a Washington Corporation ("ShopNow.com");
(vi) up to 2,000,000 shares of Series A Preferred Stock
issued and sold to ShopNow.com;
(vii) one or more warrants to purchase up to 500,000
shares of Common Stock issued to ShopNow.com, and the issuance of such Common
Stock upon exercise of such warrants;
(viii) up to 1,400,000 shares of Common Stock issued and
sold in the next round of private financing following the date of filing of this
Restated Certificate at a price per share of not less than $0.25;
(ix) up to 5,600,000 shares of Series A Preferred Stock
issued and sold in the Corporation's next round of private financing following
the date of filing of this Restated Certificate at a price per share of not less
than $2.00;
(x) Common Stock issued in connection with the acquisition
of all or part of another company by the Corporation by merger or other
reorganization, or by purchase of all or part of the assets of another company,
pursuant to a plan or arrangement approved by the Board of Directors, and
(xi) Common Stock issued in connection with equipment
lease or bank financings, as approved by the Board of Directors of the
Corporation.
<PAGE> 5
(c) Required Notices. In the event Assignee proposes to undertake
an issuance of New Securities, it shall give Assignor written notice of the
proposed issuance, describing the type of New Securities, the price, the general
terms upon which Assignee proposes to issue the same and the pro rata portion of
such New Securities Assignor is entitled to purchase. Assignor shall have thirty
(30) days after the date of receipt of such notice to agree to purchase
Assignor's pro rata share of such New Securities for the price and upon the
general terms specified in the notice by giving written notice to Assignee and
stating therein the quantity of New Securities to be purchased.
(d) Assignee's Right to Sell. In the event Assignor fails to
exercise the right of first refusal within the 30 day period, Assignee shall
have sixty (60) days after the expiration of such period to sell or enter into
an agreement (pursuant to which the sale of New Securities covered thereby shall
be closed, if at all, within sixty (60) days from the date of said agreement)
and to sell all such New Securities respecting which the Holders' options were
not exercised, at a price and upon general terms no more favorable in any
material respect to the purchasers thereof than specified in Assignee's notice.
In the event Assignee has not sold within said sixty (60) day period or entered
into an agreement to sell all such New Securities within said sixty (60) day
period (or sold and issued all such New Securities in accordance with the
foregoing within sixty (60) days from the date of said agreement), Assignee
shall not thereafter issue or sell any New Securities, without first offering
such securities to Assignor in the manner provided above.
(e) Assignment. The right of first refusal set forth in this
Section 7 is transferable by Assignor provided that any such transferee executes
any agreement to be bound by the terms and conditions hereof.
8. Representations and Warranties of Assignee. Assignee hereby
represents and warrants to Assignor as follows:
(a) Authorization. The execution and delivery by Assignee of this
Agreement and the issuance of the Warrant (and the Common Stock issuable upon
exercise thereof) by Assignee, as contemplated herein, have been duly authorized
by all requisite corporate action of Assignee.
(b) Valid Issuance of Stock. The Warrant (and the Common Stock
issuable upon exercise thereof) have been duly and validly authorized and, when
issued and paid for in accordance with the terms hereof and thereof, will be
validly issued securities of Assignee.
9. Representations and Warranties of Assignor. Assignor hereby
represents and warrants to Assignee as follows:
(a) Investment Representations.
(i) Assignor, understands that the Warrant (and the Common
Stock issuable upon exercise thereof) will be issued by Assignee without
registration under the Securities Act of 1933 ("Securities Act") and without
qualification or registration under applicable state securities laws ("Blue Sky
Laws") pursuant to exemptions from registration or qualification contained in
the Securities Act and in the Blue Sky Laws. Assignor understands that the
Warrant
<PAGE> 6
(and the Common Stock issuable upon exercise thereof) must be held indefinitely
unless subsequently registered or qualified under the Securities Act and under
the Blue Sky Laws unless exemptions from the registration or qualification
requirements under the Securities Act and under the Blue Sky Laws are available
in connection with any proposed transfer of the Warrant (and the Common Stock
issuable upon exercise thereoo by Assignor.
(ii) Assignor agrees that none of the Warrant (and the
Common Stock issuable upon exercise thereof), nor any interest in the Warrant
(and the Common Stock issuable upon exercise thereof), will be resold or
otherwise transferred by Assignor without registration or qualification under
the Securities Act and the Blue Sky Laws unless Assignor first demonstrates to
the satisfaction of Assignee that specific exemptions from such registration or
qualification requirements are available with respect to the proposed transfer
and provides Assignee an opinion of counsel satisfactory to Assignee that the
proposed transfer may be made without violation of the Securities Act or the
Blue Sky Laws and will not affect the exemptions relied upon by Assignee in
connection with the original issuance of the Warrant (and the Common Stock
issuable upon exercise thereof).
(iii) Assignor is aware of Assignee's business affairs and
financial condition and has acquired sufficient information about Assignee to
reach an informed and knowledgeable decision regarding the merits and risks of
investing in the Warrant (and the Common Stock issuable upon exercise thereof).
Assignor has had ample opportunity to review information regarding Assignee and
to ask questions of Assignee and its representatives and to seek independent
investment, tax, and legal advice prior to investing in the Warrant (and the
Common Stock issuable upon exercise thereof). THE ASSIGNOR RECOGNIZES THAT THE
WARRANT (AND THE COMMON STOCK ISSUABLE UPON EXERCISE THEREOF) ARE A SPECULATIVE
INVESTMENT INVOLVING A HIGH DEGREE OF RISK OF LOSS BY THE ASSIGNOR AND THAT THE
ASSIGNOR COULD LOSE THE ENTIRE AMOUNT OF THE ASSIGNOR'S INVESTMENT. THE ASSIGNOR
IS ABLE TO BEAR THE ECONOMIC RISK OF SAID INVESTMENT AND AT THE PRESENT TIME
COULD AFFORD A COMPLETE LOSS OF SAID INVESTMENT.
(iv) The Warrant (and the Common Stock issuable upon
exercise thereof) are being acquired for private investment for Assignor's own
account and not with a view to or for sale in connection with any distribution
of the Warrant (and the Common Stock issuable upon exercise thereof) to others.
(v) The sale of the Warrant (and the Common Stock issuable
upon exercise thereof) to Assignor was not accompanied by the publication of any
written or printed communication or any communication by means of recorded
telephone messages or spoken on radio, television, or similar communications
media.
(vi) Assignor is duly organized in the State of Delaware.
(vii) Assignor is an "Accredited Investor" as defined
under Section 501(a) of the Securities Act of 1933, as amended.
<PAGE> 7
(viii) Assignor acknowledges that the certificates
representing the Warrant (and the Common Stock issuable upon exercise thereof)
will bear the legends set forth herein:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER
FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE
SECURITIES ACT OF 1933, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.
(ix) Assignor understands that the Warrant (and the Common
Stock issuable upon exercise thereof) constitute "restricted securities" for the
purposes of Rule 144 promulgated under the Securities Act.
(x) Assignor understands that Assignee will rely upon the
foregoing for the purposes of issuing the Warrant (and the Common Stock issuable
upon exercise thereof). Assignor hereby agrees to indemnify Assignee and its
officers, directors, agents, and counsel and hold them harmless from and against
any and all damages suffered and liabilities incurred by them (including costs
of investigation, defense, and attorneys' fees) arising out of any breach by
Assignor of the agreements or inaccuracy in the representations and warranties
which Assignor has made herein.
(b) Intellectual Property Warranties.
(i) To the best of Assignor's knowledge, the Intellectual
Property assigned and the Software and Excluded Technology licensed hereunder
shall be sufficient in all respects for the operation of the business of
Assignee as now conducted and as proposed to be conducted.
(ii) The Intellectual Property has been independently
created and developed solely by Assignor, and Assignor owns or has obtained all
rights, licenses, releases, assignments, or other rights, and made all payments
and satisfied all obligations to any third party or employee, necessary to make
the assignment set forth in Section 2 hereof. No third party or employee shall
have any right, title or interest in and to the Intellectual Property. Each
employee, consultant or contractor of Assignor who has contributed to the
development of the Intellectual Property has entered into an agreement requiring
such employee, consultant or contractor to assign to Assignor forever all right,
title and interest that such employee, consultant or contractor may have accrued
in the Intellectual Property, and Assignee shall not incur any liability or
obligation, including payment or other compensation, to such employee,
consultant, contractor or other third party by reason of the assignment in
Section 2 hereof
(iii) Assignee has the full corporate power to enter into
this Agreement and to carry out its obligations under this Agreement. Assignor
has not previously granted, and will not grant, any right, license or interest
in, to or under the Intellectual Property, Software or Excluded Technology, or
any portion thereof, which is inconsistent with the rights and licenses granted
to
<PAGE> 8
Assignee herein or that will adversely affect any exercise by Assignee of its
rights under this Agreement. There are no actions, suits, investigations, claims
or proceedings pending or, to the knowledge of Assignor, threatened in any way
relating to the Intellectual Property, Software or Excluded Technology.
(iv) The Intellectual Property, Software or Excluded
Technology do not and will not infringe or misappropriate any patents,
copyrights, trade secrets, trade names or other intellectual or proprietary
rights of any third-party, and Assignor is not aware of any claims or basis for
such infringement.
(v) The Software will function correctly when dealing with
dates, times, and date/time (including calculating, comparing and sequencing)
from, into and between the twentieth and twenty-first centuries, and the years
1999 and 2000 and leap year calculations, and with respect to the processing of
date/time data, the Software will neither contain nor create any logical or
mathematical inconsistency, will not malfunction, and will not cease to
function.
10. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California.
11. Entire Agreement; Waiver, Amendment. This Agreement shall constitute
the entire agreement between the parties pertaining to the subject matter
hereof, and shall supersede all prior and contemporaneous oral negotiations,
agreements, commitments, representations, and understandings relating to the
subject matter hereof. No supplement, modification, waiver, or amendment to this
Agreement shall be binding on any party unless in writing and signed by the
party against whom enforcement is sought.
12. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns.
13. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which together shall constitute
one and the same document.
IN WITNESS THEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
MICROGENERAL CORPORATION, ESCROW.COM,INC.
A DELAWARE CORPORATION A DELAWARE CORPORATION
By: By:
-------------------------------- ----------------------------------
Name: Name:
------------------------------ --------------------------------
Title: Title:
----------------------------- -------------------------------
<PAGE> 9
EXHIBIT A
1. Assigned Contracts
2. Copyrights and Copyright Registrations
All graphics, text and interfaces relating to the Website.
3. Trademarks
"escrow.com," and all Trademarks containing such word or words of
similar import.
4. Patents
5. Website
escrow.com URL, Internet site at escrow.com URL, database and business
model
<PAGE> 10
EXHIBIT B
EXCLUDED TECHNOLOGY
None.
<PAGE> 11
EXHIBIT C
WARRANT
<PAGE> 12
EXHIBIT D
NOTE
<PAGE> 13
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), HAVE BEEN
TAKEN FOR INVESTMENT, AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF AS MAY BE AUTHORIZED UNDER THE 1933
ACT OR THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
WARRANT NO. 1
WARRANT TO PURCHASE COMMON STOCK
OF
ESCROW.COM, INC.
VOID AFTER OCTOBER 1, 2006
This certifies that MicroGeneral Corporation or its registered assigns
("Holder"), for valuable consideration received, is entitled, on the terms set
forth below, at any time or from time-to-time during the period beginning on
October 1, 1999 and ending at 5:00 P.M., Pacific Daylight Time, ending on the
earlier of, seven (7) years thereafter, or the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
securities to the general public for the account of the Company ("IPO") (the
"Exercise Period"), to purchase from escrow.com, Inc., a Delaware corporation
(the "Company"), up to 15,000,000 shares of the Common Stock of the Company (the
"Warrant Shares") at a price per share equal to Forty Cents ($0.40) (the
"Exercise Price"). The term "Warrant" as used herein shall include this Warrant
and any warrants delivered in substitution or exchange therefor as provided
herein.
1. EXERCISE AND PAYMENT. This Warrant may be exercised at any time in
full for the maximum number of Warrant Shares called for hereby, or from
time-to-time for any lesser number thereof, on any business day during the
Exercise Period, by delivering to the principal office of the Company the
subscription in the form attached hereto as Exhibit A duly executed along with
payment equal to the product of (i) the number of Warrant Shares then being
purchased under this Warrant multiplied by (ii) the Exercise Price (the
"Purchase Price"). The Purchase Price may be paid by delivery of cash or check,
wire transfer, the cancellation of all or a portion of the then outstanding
principal and accrued interest under that certain Promissory Note issued by the
Company to Holder on the date hereof, or as provided in Section 2 below. Upon
any partial exercise of this Warrant, this Warrant shall be surrendered, and a
new Warrant of the same tenor and for the purchase of the number of such shares
not purchased upon such exercise shall be issued by the Company to Holder. A
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above, and the
person entitled to receive the Warrant Shares shall be treated for all purposes
as the holder of such shares of record as of the close of business on such date.
As soon as practicable on or after such date, the Company shall issue and
deliver to the person or persons
<PAGE> 14
entitled to receive the same a certificate or certificates for the number of
full Warrant Shares issuable upon such exercise, together with cash, in lieu of
any fraction of a share, equal to such fraction of the current market value of
one full share.
2. NET ISSUANCE. In lieu of payment of all or a portion of the Purchase
Price described in Section 1, the Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares equal to the value
of this Warrant or any portion hereof by the surrender of this Warrant or such
portion to the Company. Upon such election, the Company shall issue to the
Holder such number of fully paid and nonassessable shares of Common Stock as is
computed using the following formula:
where: X = Y (A-B)
-------
A
X = the number of shares to be issued to the Holder
pursuant to this Section 2.
Y = the number of shares covered by this Warrant in
respect of which the net issuance election is made pursuant to this Section 2.
A = the fair market value of one share of Common Stock, as
determined in accordance with the provisions of this Section 2.
B = the Exercise Price in effect under this Warrant at the
time the net issuance election is made pursuant to this Section 2.
For purposes of this Section 2, the "fair market value"
per share of the Common Stock shall mean that price determined in good faith by
the Board of Directors of the Company.
3. PAYMENT OF TAXES. All Warrant Shares issued upon the exercise of a
Warrant shall be validly issued, fully paid and non-assessable, and the Company
shall pay all taxes and other governmental charges that may be imposed in
respect of the issue or delivery thereof, except any transfer taxes that may be
payable in respect of any transfer involved in the issuance of any certificate
for shares in a name other than that of the Holder or Holder's transferee.
4. TRANSFER AND EXCHANGE. Subject to such restrictions on transfer as
may be contained in this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, on the books of the Company maintained for
such purpose at its principal office referred to above by the Holder in person
or by duly authorized attorney, upon surrender of this Warrant properly
endorsed. Upon any partial transfer, the Company will issue and deliver to the
Holder a new Warrant or Warrants with respect to the portion of the Warrant not
so transferred. This Warrant is exchangeable at the principal office of the
Company for Warrants for the same
<PAGE> 15
aggregate number of Warrant Shares, each new Warrant to represent the right to
purchase such number of Warrant Shares as Holder shall designate at the time of
such exchange.
5. MERGERS, CONSOLIDATIONS, ASSET SALES AND DISSOLUTIONS. If at any time
there shall be any consolidation or merger of the Company with another
corporation, a sale of all or substantially all of the Company's assets to
another corporation, a voluntary or involuntary dissolution, liquidation or
winding-up of the Company or an IPO, then the Company shall give, by certified
or registered mail, postage prepaid, addressed to the registered Holder of this
Warrant at the address of such Holder as shown on the books of the Company, at
least thirty (30) days prior written notice of the date when the same shall take
place. Upon receipt of such notice, the Holder shall have the right to exercise
this Warrant, either in full or in any lesser amount prior to the occurrence of
an event described above. If the Holder of this Warrant does not exercise this
Warrant prior to the occurrence of an event described above, this Warrant shall
expire and be of no effect to the extent that it has not been exercised by the
Holder prior to the occurrence of the event.
6. FRACTIONAL SHARES. The Company shall not issue any fractional shares
or script representing fractional shares upon the exercise or exchange of this
Warrant. With respect to any fraction of a share resulting from the exercise or
exchange hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current fair market value per share of Common
Stock, be the then current fair market value determined in such reasonable
manner as may be prescribed by the Company's Board of Directors in good faith
but in no event less than book value.
7. NON-IMPAIRMENT. The Company will not, by amendment of its Certificate
of Incorporation or through reorganization, consolidation, merger, dissolution,
issue or sale of securities, sale of assets or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of the
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of the Warrant against
dilution or other impairment.
8. ANTIDILUTION ADJUSTMENTS. The number of Warrant Shares purchasable
upon the exercise of this Warrant and the Exercise Price shall be subject to
adjustment as follows:
(a) Stock Dividends. If at any time prior to the exercise of this
Warrant in full (i) the Company shall fix a record date for the issuance of
any stock dividend payable in shares of Common Stock or (ii) the number of
shares of Common Stock shall have been increased by a subdivision or
split-up of shares of Common Stock, then, on the record date fixed for the
determination of holders of Common Stock entitled to receive such dividend
or immediately after the effective date of subdivision or split-up, as the
case may be, the number of shares of Common Stock to be delivered upon
exercise of this Warrant will increased so that Holder will be entitled to
receive the number of shares of Common Stock that such Holder would have
owned immediately following such action had this Warrant been exercised
immediately prior thereto, and the Exercise Price will be adjusted as
provided below in paragraph (d).
<PAGE> 16
(b) Combination of Stock. If at any time prior to the exercise of this
Warrant in full the number of shares of Common Stock outstanding shall have
been decreased by a combination of the outstanding shares of Common Stock,
then, immediately after the effective date of such combination, the number
of shares of Common Stock to be delivered upon exercise of this Warrant will
be decreased so that the Holder thereafter will be entitled to receive the
number of shares of Common Stock that such Holder would have owned
immediately following such action had this Warrant been exercised
immediately prior thereto, and the Exercise Price will be adjusted as
provided below in paragraph (d).
(c) Carryover. Notwithstanding any other provision of this Section 8,
no adjustment shall be made to the number of shares of Common Stock to be
delivered to the Holder (or to the Exercise Price) if such adjustment
represents less than 1% of the number of shares to be so delivered, but any
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any
adjustments so carried forward shall amount to 1% or more of the number of
shares to be so delivered.
(d) Exercise Price Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein
provided, the Exercise Price payable upon the exercise of this Warrant shall
be adjusted by multiplying such Exercise Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of
Warrant Shares purchasable upon the exercise of the Warrant immediately
prior to such adjustment, and of which the denominator shall be the number
of Warrant Shares purchasable immediately thereafter.
(e) No Duplicate Adjustments. Notwithstanding anything else to the
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 8 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an
adjustment having substantially the same effect to the Holder as any
adjustment that otherwise would be made under the provisions of this Section
8 is made by the Company for any such event to the number of shares of
Common Stock (or other securities) issuable upon exercise of this Warrant.
(f) Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the Holder,
notice of such adjustment or adjustments and a certificate of the chief
financial officer of the Company setting forth the number of Warrant Shares
and the Exercise Price of such Warrant Shares after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting
forth the computation by which such adjustment was made.
9. LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it (in the exercise of reasonable discretion) of the ownership
of and the loss, theft, destruction or mutilation of any Warrant, the Company
will execute and deliver in lieu thereof a new Warrant of like tenor.
<PAGE> 17
10. RESERVATION OF COMMON STOCK. The Company shall at all times reserve
and keep available for issue upon the exercise of Warrant such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of this Warrant.
11. RESTRICTIVE LEGEND. Each certificate representing (i) this Warrant
or (ii) Warrant Shares shall (unless such securities have been registered under
the 1933 Act or sold under Rule 144 promulgated under the 1933 Act) be stamped
or otherwise imprinted with a legend substantially in the following form (in
addition to any other legend required under any applicable state securities
law):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), HAVE BEEN
TAKEN FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER
THE 1933 ACT OR THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
12. NOTICES. Unless otherwise provided, all notices and other
communications required or permitted under this Agreement shall be in writing
and shall be mailed by United States first-class mail, postage prepaid, sent by
facsimile or delivered personally by hand or by a courier addressed to the party
to be notified at the address or facsimile number furnished to the Company in
writing by the last Holder of this Warrant who shall have furnished an address
to the Company in writing.
13. CHANGE; WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated except by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
14. TITLES AND SUBTITLES. The headings in this Warrant are for
convenience only and are not to be considered in construing or interpreting this
Warrant.
15. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
<PAGE> 18
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of October 1,
1999.
ESCROW.COM, INC.
By:
---------------------------------------
John Snedegar, Chief Executive Officer
By:
---------------------------------------
Mark Attaway, President
<PAGE> 19
Exhibit A
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant and purchases____________ shares of Common Stock (the "Common
Stock") of ESCROW.COM, INC., purchasable with this Warrant, and herewith makes
payment therefor, all at the price and on the terms and conditions specified in
this Warrant.
The undersigned hereby represents and warrants that the undersigned is acquiring
such stock for its own account and not for resale or with a view to, or for
resale in connection with, the distribution of any part thereof, and accepts
such shares subject to the restrictions of contained in the Warrant.
DATED:
-----------------
-----------------------------------------
(Signature of Registered Owner)
-----------------------------------------
(Street Address)
-----------------------------------------
(City) (State) (Zip)
-----------------------------------------
Social Security No. or Federal Tax I.D.
Number
<PAGE> 1
EXHIBIT 10.28
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, IN
RELIANCE ON EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION FOR NONPUBLIC
OFFERINGS. ACCORDINGLY, THE SALE, TRANSFER OR OTHER DISPOSITION OF SUCH
SECURITIES OR ANY PORTION THEREOF MAY NOT BE ACCOMPLISHED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND QUALIFICATION UNDER
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
PROMISSORY NOTE
$4,500,000 Santa Ana, California
October 1, 1999
1. FOR VALUE RECEIVED, ESCROW.COM, INC., a Delaware corporation (the
"Borrower"), promises to pay to the order of MICROGENERAL CORPORATION, a
Delaware corporation (the "Lender") at Lender's offices (or such other place as
Lender may direct from time to time), in lawful money of the United States, the
principal sum of Four Million Five Hundred Thousand Dollars ($4,500,000). This
note shall bear interest at the rate of three percent (3%) per annum. All
principal and accrued interest shall be due and payable on October 1, 2006.
2. The principal of this Note is payable only to the registered holder
of this Note. With the prior written consent of Lender, the Borrower may at any
time and without penalty prepay all or any portion of the principal owing
hereunder.
3. This Note is unsecured, full recourse and shall be governed by the
laws of the State of California.
4. In the event of (i) a material default by Borrower under that certain
Intellectual Property Transfer, Right of First Refusal and Warrant Purchase
Agreement of even date herewith by and between Borrower and Lender or that
certain Warrant to purchase Common Stock of Borrower of even date herewith
issued by Borrower to Lender, and such default is not cured within thirty (30)
days of notice thereof or (ii) a Bankruptcy of Borrower, Lender may declare the
entire principal and unpaid accrued interest immediately due and payable by
written notice to Borrower. As used herein, "Bankruptcy" means (Y) the
institution by Borrower of proceeding to be adjudicated as bankrupt or
insolvent, or consent by it to the institution of bankruptcy or insolvency
proceedings against it or the filing by it of a petition or answer or consent
seeking reorganization or release under the federal Bankruptcy Act, or any other
applicable federal or state law, or the consent by it to the filing of any such
petition or the appointment of a receiver, liquidator, assignee, trustee or
other similar official of Borrower, or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the taking
of corporate action by Borrower in furtherance of any such action, or, (Z) if,
within sixty (60) days after the commencement of an action against Borrower (and
service of process in connection therewith on Borrower), seeking any bankruptcy,
insolvency,
<PAGE> 2
reorganization, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such action shall not have been resolved in
favor of Borrower or all orders or proceedings thereunder affecting the
operations or the business of Borrower stayed, or if the stay of any such order
or proceeding shall thereafter be set aside, or if, within sixty (60) days after
the appointment without consent or acquiescence of Borrower or of all or any
substantial part of the properties of Borrower, such appointment shall not have
been vacated.
IN WITNESS WHEREOF, this Note is executed as of the date first written
above.
ESCROW.COM, INC
A Delaware corporation
By:
---------------------------------------
Mark Attaway, President
<PAGE> 1
EXHIBIT 10.29
CONVERTIBLE NOTE PURCHASE AGREEMENT
by and between
MICRO GENERAL CORPORATION,
a Delaware corporation,
and
CALWEST SERVICE CORPORATION,
a California corporation
Dated as of December 15, 1999
CONVERTIBLE NOTE
DUE DECEMBER 14, 2004
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
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 - Issuance of Detachable Warrants................................................7
Section 301. Warrants Issued...........................................................7
Section 302. Form of Warrant and Notice of Exercise....................................7
Section 303. Anti-Dilution Rights......................................................7
Section 304. Manner of Exercise of Warrants............................................7
Section 305. Notice to Lender Prior to Certain Corporate Actions.......................8
Section 306. Reservation. of Shares of Common Stock....................................8
Section 307. Taxes Upon Exercise.......................................................9
Section 308. Covenants as to Common Stock..............................................9
Section 309. Piggyback Registration Rights.............................................9
Article IV - Covenants of the Company.......................................................10
Section 401. Payment of Principal and Interest........................................10
Section 402. Corporate Existence......................................................10
Section 403. Payment of Taxes and Other Claims........................................10
Section 404. Dividends/Compensation...................................................10
Section 405. Corporate Existence; Foreign Qualification...............................11
Section 406. Books, Records and Inspections...........................................11
Section 407. Compliance with Laws.....................................................11
Section 408. Maintenance of Permits...................................................11
Section 409. Capital Expenditures/Debt................................................11
Article V -Representations and Warranties...................................................11
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
Section 501. Customer Contracts.......................................................11
Section 502. Board of Directors.......................................................12
Section 503. Organization, Etc........................................................12
Section 504. Capital Stock; Stock Options.............................................12
Section 505. Corporate Authority......................................................12
Section 506. Notes and Accounts Receivable............................................12
Section 507. Actions, Suits, Etc......................................................13
Section 508. Material Contracts.......................................................13
Section 509. Absence of Undisclosed Liabilities.......................................14
Section 510. Accuracy of Information..................................................14
Section 511. Real Estate Leases.......................................................14
Section 512. Personal Property Leases.................................................14
Section 513. Intellectual Property....................................................14
Section 514. Trade Secrets............................................................15
Section 515. Software and Information Systems.........................................15
Section 516. Insurance................................................................15
Article VI - Defaults; Remedies.............................................................16
Section 601. Events of Default........................................................16
Section 602. Acceleration of Maturity, Rescission and Annulment;
Other Remedies...................................................................17
Section 603. Collection of Indebtedness and Suits for Enforcement.....................18
Section 604. Lender May File Proofs of Claim..........................................18
Section 605. Application of Money Collected...........................................19
Section 606. Rights and Remedies Cumulative...........................................19
Section 607. Delay or Omission Not Waiver.............................................19
Section 608. Waiver of Stay or Extension Laws.........................................19
Article VII - Reports by Company............................................................20
Section 701. Annual Statement.........................................................20
Section 702. Reports by Company.......................................................20
Section 703. Quarterly Financial Reports..............................................20
Article VIII - Consolidation, Merger, Conveyance, Transfer , Sale or Lease..................20
Section 801. Company May Consolidate. etc., on Certain Terms..........................20
Section 802. Right of First Refusal of Lenders........................................21
Article IX - Redemption of Note by the Company..............................................21
Section 901. Right to Redeem..........................................................21
Section 902. Notice of Redemption.....................................................21
Article X - Right to Convert Note and/or Right to Purchase Stock............................22
Section 1001. Rights Granted..........................................................22
Section 1002. Anti-Dilution Rights of Lender..........................................22
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
Section 1003. Manner of Exercise of Conversion Privilege..............................23
Section 1004. Notice to Lender Prior to Certain Corporate Actions.....................23
Section 1005. Reservation of Shares of Common Stock...................................24
Section 1006. Taxes Upon Conversion...................................................24
Section 1007. Covenants as to Common Stock............................................24
Section 1008. Piggyback Registration Rights...........................................24
Article XI - Conditions Precedent...........................................................25
Section 1101. Conditions Precedent....................................................25
</TABLE>
-iii-
<PAGE> 5
CONVERTIBLE NOTE PURCHASE AGREEMENT
This CONVERTIBLE NOTE PURCHASE AGREEMENT (the "Agreement") is made and
effective as of December 15, 1999, 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 2510 Redhill
Avenue, Santa Ana, California 92705, and CALWEST SERVICE CORPORATION, a
California corporation ("Lender").
RECITALS
WHEREAS, Lender has made 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 a convertible promissory note in the
principal amount of $5,265,408 which permits the Lender to convert said note
into a certain number of shares of the Company's common stock, and in connection
therewith, the Lender shall also receive 250,000 detachable warrants at $10.00
per share to purchase 250,000 shares of the Company's common stock. The parties
have authorized the execution and delivery of a purchase agreement 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 $5,265,408, 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 250,000 shares of the
Company's common stock (the "Common Stock"), at $10.00 per share and as an
additional inducement the Company has agreed to deliver to the Lender detachable
warrants which shall authorize the holders thereof to purchase and acquire,
pursuant to the terms of the warrants, up to 250,000 shares of the Company's
Common Stock; and
WHEREAS, Lender has previously made loans to the Company and is owed in
interest, and as evidenced by the above principal amount now desires to add the
accrued interest through October 31, 1999 to the principal amount of 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, and it being understood that the Convertible Note
Purchase
-4-
<PAGE> 6
Agreements and Promissory Notes of August 1, 1996, and October 27, 1998 will be
canceled upon conversion of the debt to the Company's Common Stock.
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.
"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,
-5-
<PAGE> 7
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," means Cal West Service Corporation.
"Interest Payment Date" has the meaning specified in Section 203 hereof.
"Note," means the Note executed by the Company and delivered to the
Lender 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.
-6-
<PAGE> 8
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"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." Common Stock of the Company as evidenced by
a detachable warrant referenced in this Agreement. "Warrant" means the right to
purchase 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
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<PAGE> 9
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
2510 Redhill Avenue
Santa Ana, California 92705
Attn: President
Facsimile: 949/477-6802
To Lender: CalWest Service Corporation
17911 Von Karman Avenue, Suite 300
Irvine, California 92614
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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<PAGE> 10
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 the subject of this Agreement in the face amount of
$5,265,408.
(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 December 15, 1999 (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 December
14, 2004.
(C) Accrued interest which is not paid when due to lender shall be
convertible into shares of common Stock of the Company at the option of the
lender on the same terms as the principal is convertible (i.e. $10.00 per share
conversion).
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
ISSUANCE OF DETACHABLE WARRANTS
SECTION 301. Warrants Issued. In consideration for Lender making the
loan as provided hereunder, and in consideration for the risks which Lender may
incur as a result of making said loan, and for other material consideration, the
Company shall, simultaneous with the execution of this Agreement, issue and
deliver to Lender a certificate evidencing detachable warrants, which shall
grant to the holders of said warrants the right to purchase from the Company
250,000 shares of the Company's Common Stock, with the right of exercise of
purchase of Common Stock to be exercised by the holder of the warrants at any
time after the issuance date and prior to 5:00 p.m. (PST) on December 14, 2004.
The warrant certificate shall represent 250,000 shares and be issued in favor of
CalWest. Each warrant is issued under the terms of the detachable warrant
certificate and shall grant to the holder the right to purchase form the Company
one (1) fully paid and non-assessable share for each warrant at an Exercise
Price of ten dollars ($10.00), subject to any adjustment based upon the
provisions of Section 303 of this Agreement (the "Exercise Price"). The Holder
of the Warrant certificate may exercise a warrant, in whole or in part, pursuant
to the terms specified in the holder's certificate and, at the holder's
election, the holder may assign all or a portion of the warrants to one or more
third party assignees.
SECTION 302. Form of Warrant and Notice of Exercise. The form of the
warrant shall be substantially in the form of Exhibit "C" attached hereto, with
the Exercise Notice attached to said warrant to be utilized by the holder to
exercise the rights of purchase of shares under the warrant. The holders of a
warrant shall, at any time during the term of said warrant, have the right to
exercise said warrant by acquiring one (1) share of Common Stock of the Company
for each warrant so held.
SECTION 303. Anti-Dilution Rights. The Company will not, by an voluntary
action, avoid or seek to avoid performance of any of the terms of the detachable
warrant, as is set forth in Section 301 hereinabove, but will at all times, in
good faith, carry out the provisions and intent of Section 301 and the warrants
issued under such Section and take all actions as may be necessary or
appropriate to protect against the impairment of any rights of Lender, or any
holder of the warrant to exercise rights thereunder and to purchase Common
Stock. In the event, at any time prior to the full exercise by any holder of the
warrant of all rights to purchase Common Stock, the Company shall sell or
otherwise transfer any Common Stock or adjust in any manner its capital
structure, the Company undertakes and agrees to make adjustments as may be
necessary to protect the holder of the warrant to purchase a number of shares of
Common Stock for a price per share equal to the price per share originally
contemplated under the terms of the Warrant and to adhere to and comply with all
provisions set forth in the warrant concerning anti-dilution rights extended to
the holder of the warrant.
SECTION 304. Manner of Exercise of Warrants. The warrants, as
represented by the certificate as issued under the provisions of Section 301 of
this Agreement, shall be exercisable, at
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the election of the holder of the warrant, either in their entirety or, from
time to time, for a part only the number of warrants specified in the
certificate issued to the holder of the warrant and in the Exercise Notice with
respect to the exercise thereof. If not all of the warrants evidenced by a
certificate are exercised at any time prior to the expiration of the warrant, a
new certificate or certificates (as the case may be) shall be promptly issued
for the balance of the warrants not so exercised, by the Company. All
certificates surrendered upon exercise of the warrants shall be cancelled by the
Company. Upon surrender of any certificate and payment of the exercise price,
the Company shall promptly issue and cause to be delivered to, or upon the
written order of, the holder of the warrant and, in such case, the name or names
as the holder of the warrant may designate, a certificate or other documents
representing the share or shares issuable upon the exercise of the warrants
evidenced by said certificate. The certificate representing the shares shall be
deemed to have been issued and any person so designated therein shall be deemed
to become a holder of record of such shares as of the date of the surrender of
any certificate and the payment of the exercise price by the holder of the
warrant.
SECTION 305. 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 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 involuntary 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 305, as promptly as possible, but in any even 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 excepted that
holders of Common Stock or 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.
SECTION 306. 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 issuance of
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shares upon exercise of warrants, the full number of shares of Common Stock
deliverable upon exercise of a warrant.
SECTION 307. Taxes Upon Exercise. The Company will pay any and all
documentary stamp or similar issue of transfer taxes payable in respect of the
issue or delivery of shares of Common Stock upon exercise of the warrants
pursuant thereto.
SECTION 308. Covenants as to Common Stock. The Company covenants that
all shares of Common Stock which may be delivered upon exercise of the Warrants
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 309. 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 the Lender 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 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 Common Stock from, or limit the number of
shares of Lender 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 they have elected to sell for their own accounts, 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
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<PAGE> 14
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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<PAGE> 15
ARTICLE IV
COVENANTS OF THE COMPANY
For so long as this Agreement shall remain in effect, the Company
covenants that:
SECTION 401. 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 402. 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 403. 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 404. 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 405. 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 406. 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 407. COMPLIANCE WITH LAWS. It shall comply with all federal,
state and local laws, rules and regulations related to its businesses;
SECTION 408. 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 409. 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 V
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants as follows to Lender:
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SECTION 501. 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 502. 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 503. 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 504. 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 7,753,580 shares
are issued and outstanding as of November 8, 1999, 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 non-assessable, 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 505. 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.
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SECTION 506. 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 507. 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 508. 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 $100,000;
(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 $100,000
(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
$100,000 other than in the ordinary course of business or granting an option or
preferential rights to purchase or sell any assets in excess of $100,000;
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(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 $100,000 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 509. 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 510. 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 511. 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 512. 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 $25,000 (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.
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SECTION 513. 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 514. 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 515. 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).
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SECTION 516. 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 VI
DEFAULTS; REMEDIES
SECTION 601. 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,
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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.
(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 602. 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 Lender may
declare the principal amounts of the Note to be due and payable immediately, by
a notice in writing to the Company and upon any such declaration such principal
amount 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 the Note to be
in default, and all Events of Default under the Note 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
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<PAGE> 23
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 603. 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 604. 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
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<PAGE> 24
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 605. 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 606. 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 607. 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 608. 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,
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<PAGE> 25
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 VII
REPORTS BY COMPANY
SECTION 701. 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 702. 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 703. 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 VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER, SALE OR LEASE
SECTION 801. 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
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<PAGE> 26
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 802. RIGHT OF FIRST REFUSAL OF LENDERS. For so long as any
amounts due under the Note shall be outstanding, Lender 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 Lender 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
Lender's 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 Lender 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 IX
REDEMPTION OF NOTE BY THE COMPANY
SECTION 901. 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 902. NOTICE OF REDEMPTION.
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<PAGE> 27
(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 December 14, 2004.
(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 December 14, 2004, or until all amounts due
under the Note have been repaid in full.
ARTICLE X
RIGHT TO CONVERT NOTE AND/OR RIGHT TO PURCHASE STOCK
SECTION 1001. 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 December 14, 2004, to convert the principal amount of
the Note up to a value of $5,265,408 into, an aggregate of 526,541 shares of
Common Stock at a price of $10.00 per share (the "Conversion Price").
SECTION 1002. 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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<PAGE> 28
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 December 14, 1999.
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<PAGE> 29
SECTION 1003. 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 1004. 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,
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<PAGE> 30
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 1005. 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 1006. 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 1007. 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 1008. 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
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<PAGE> 31
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 XI
CONDITIONS PRECEDENT
SECTION 1101. 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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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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<PAGE> 33
EXHIBIT "A"
MICRO GENERAL CORPORATION
CONVERTIBLE NOTE
$5,265,408.00 Irvine, California
December 15, 1999
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 17911 Von Karman Avenue, Suite 300, Irvine, California
92614 ("Lender"), or order, principal sum of FIVE MILLION TWO HUNDRED SIXTY FIVE
THOUSAND FOUR HUNDRED-EIGHT DOLLARS ($5,265,408.00), 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 December 15, 1999. Thereafter, on December 14, 2004, 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 $5,265,408 issued under and pursuant to that certain Convertible Note
Purchase Agreement, dated as of December 14, 1999 (herein called
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<PAGE> 34
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 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: December 15, 1999 MICRO GENERAL CORPORATION (the "Company")
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
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<PAGE> 35
EXHIBIT "B"
CONVERSION NOTICE
To: Micro General Corporation
2510 Redhill Avenue
Santa Ana, California 92705
The undersigned, as the owner of that certain Convertible Promissory
Note dated December 15, 1999 (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:
-----------------
------------------------------------------
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
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<PAGE> 36
EXHIBIT "C"
MICRO GENERAL CORPORATION
(Formed under the laws of the State of California)
DETACHABLE WARRANT CERTIFICATE
Date of Issuance: December 15, 1999
Number of Warrant Shares Subject
to this Certificate
on the Date of Issuance: 250,000
Registered Holder: CAL WEST SERVICE CORPORATION
Void after 5:00 p.m. Pacific Daylight Time, December 14, 2004
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS AND, IF NECESSARY, RECEIPT
OF AN OPINION OF COUNSEL SATISFACTORY TO MICRO GENERAL CORPORATION THAT
REGISTRATION IS NOT REQUIRED.
ANY SUCH SECURITIES MAY ONLY BE SUBJECT PURSUANT TO THE TERMS AND
PROVISIONS AND CONDITIONS SPECIFIED IN THAT CERTAIN "LOAN AGREEMENT AND
AGREEMENT TO ISSUE DETACHABLE WARRANTS" DATED DECEMBER ____, 1999, BY AND
BETWEEN MICRO GENERAL CORPORATION AND CAL WEST SERVICE CORPORATION, A CALIFORNIA
CORPORATION AS LENDER (THE "AGREEMENT"), A COMPLETE COPY OF WHICH IS AVAILABLE
FOR INSPECTION AT THE OFFICE OF MICRO GENERAL CORPORATION AND A CONFORMED COPY
WHICH WILL BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST
AND UPON PAYMENT OF REASONABLE CHARGE. NO TRANSFER OF SUCH SECURITIES SHALL BE
VALID OR EFFECTIVE UNLESS AND UNTIL ANY CONDITIONS RELATING TO TRANSFER OF SUCH
SECURITIES SO SPECIFIED IN THE AGREEMENT SHALL HAVE BEEN COMPLIES WITH.
FOR VALUE RECEIVED, Micro General Corporation, a Delaware corporation
(the "Company") hereby certifies that CAL WEST SERVICE CORPORATION ( the
"Investor"), or any registered assignee of Investor, is the registered holder
(the "Holder") of 250,000 Series 3 Warrants
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(the "Warrants") to purchase from the Company 250,000 newly issued shares of
Common Stock of the Company (each, a "Share" and collectively, the "Shares").
The Warrants evidenced by this Certificate are part of a duly authorized
issue of Warrants to purchase a total of 250,000 newly issued shares
simultaneously with the making of loans by Cal West Service Corporation under
the terms of the Agreement.
The Agreement is incorporated in this Certificate by this reference and
must be referred to for a complete description of the rights, obligations and
duties of the Company and the Holders of the warrants issued pursuant to the
Agreement. In the event of any conflict between the terms of this Certificate
and the terms of the Agreement, the terms of the Agreement will control.
Capitalized terms not defied in this Certificate will have the meanings assigned
to them under the Agreement.
1. Exercise of Warrants.
(a) On or before 5:00 p.m. Pacific Standard Time on December 14,
2004, the Holder shall have the right to purchase from the Company one (1) fully
paid and non-assessable Share for each Warrant at the exercise price of TEN
DOLLARS ($10.00) per Share, subject to any adjustment under paragraph 6 of this
Certificate (the "Exercise Price"), and upon surrender to the Company at its
principal office of this Certificate evidencing such Warrants, with the form of
election to purchase attached hereto and signed, (specifying the number of
Shares for which the Warrant is exercisable), and upon payment to the Company of
the Exercise Price in cash, lawful currency of the United States of America,
Share(s) shall be issued.
(b) The Warrants represented by this Certificate shall be
exercisable, at the election of the Holder, either in their entirety or from
time to time for part only of the number of warrants specified in this
Certificate and in the notice with respect to the exercise thereof. If less than
all of the Warrants evidenced by this Certificate are exercised at any time
prior to the Maturity Date, a new Certificate or Certificates, as the case may
be, shall promptly be issued for the balance of the Warrants not so exercised,
but no fractional numbers. All Certificates surrendered upon exercise of
Warrants shall be canceled by the Company.
(c) Upon surrender of any Certificates and payment of the Exercise
Price, Company shall promptly issue and cause to be delivered to, or upon the
written order of, the Holder, and in such name or names as the Holder may
designate, a certificate or other document representing the Share or Shares
issuable upon the exercise of the Warrants evidenced by this Certificate. The
certificate representing the Shares shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a holder
of record of such Shares as of the date of the surrender of any Certificate and
payment of the Exercise Price.
2. Right to Transfer
(a) Notwithstanding anything contained in the Agreement or this
Certificate to the contrary, the Warrants represented by this Certificate may be
pledged, together with the rights of the
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<PAGE> 38
Investor, in whole or in part, to any bank, savings and loan association or
other institutional lender affiliated with Investor (in each case, and
"Institutional Lender") as collateral to secure a bona fide loan form such
Institutional Lender, and may be transferred to such Institutional Lender upon
the foreclosure of the security interest created by such pledge, provided that
such pledge or transfer (in each case, an "Institutional Transfer"), as the case
may be, is in compliance with the Securities Act and any applicable state
securities and insurance laws.
(b) Except as otherwise set forth below, the warrants represented by
this Certificate may also be pledged, assigned, sold or otherwise transferred in
whole or in part (in each case, a "Transfer") to any other "Person" or "Persons"
(as hereinafter defined), on the condition that such Transfer is in compliance
with the Securities Act and any applicable state securities and insurance laws.
(c) With respect to any offer, sale or other disposition of any
Warrants or any Shares acquired on exercise of any Warrants which have not been
registered pursuant ;to the terms of the Agreement, the Holder will give written
notice to the Company prior to any such offer, requested by Company, with a
written opinion of such Holder's counsel, to the effect that such offer, sale or
other disposition may be effected without registration or qualification under
any federal or state law then in effect. Within fifteen (15) days after
receiving a Transfer Notice (the "Notice Period") and reasonably satisfactory
opinion, if so requested, Company shall notify such Holder that such Holder may
offer, sell or otherwise dispose of the Warrants or any Shares acquired on
exercise of any Warrants, all in accordance with the terms of the Transfer
Notice delivered to Company. Such transfer must be effected within ninety (90)
calendar days following the Holder's receipt of written consent from Company
with respect to such transfer. If company has determined that the opinion of
counsel for the Holder is not reasonable or satisfactory to the Company, Company
shall so notify the Holder within the Notice Period that such determination has
been made. Each of the Warrants and Shares with respect to which any Warrant may
be exercised thus transferred shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with the
Securities Act unless, in the opinion of counsel for Company, it is determined
that such legend is not required in order to ensure compliance and Company may
issue stop transfer instructions to its transfer agent in connection with such
restriction. In the event that Company fails to respond to a Transfer Notice
prior to the expiration of the Notice Period, the Holder may sell or otherwise
transfer the Warrants or any Common Stock acquired as a consequence of
exercising any Warrants in the manner described in such Transfer Notice;
provided, however, that such transfer is effected within ninety (90) calendar
days following the expiration of the Notice Period.
(d) The following terms shall be defined as follows: (i) "Person" or
"Persons" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof; and (ii) "Investor Controlled
Affiliates" shall be any trusts, corporations, associations, limited
partnerships, general partnerships or other business entities in
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which more than fifty percent (50%) of the stock of each class having ordinary
voting power or beneficial or other ownership interest, as appropriate, shall,
at the time as of which any determination is being made, be owned or controlled,
directly or indirectly by Investor or any general or limited partner of Investor
is an "affiliate," as such term is defined under Rule 405 promulgated under the
Securities Act and the regulations, rulings and decisions promulgated
thereunder.
(e) Company may deem and treat each registered Holder of a Warrant
Certificates as the absolute owner thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone) for the purpose of any
exercise thereof, any distribution to the Holder, or any other purposes.
(f) Company shall promptly register any transfer of record ownership
of any outstanding Certificates on the Company Register upon surrender thereof
accompanied, if so required by Company, by a written instrument or instruments
of transfer duly executed by Holder or by its duly authorized attorney. Upon a
proper registration of transfer, a new Certificate shall be issued to the
transferee and the surrendered Certificate shall be canceled by Company;
provided, however, in the event of a partial transfer, Company shall promptly
issue to the transferer a new Certificate representing the retained portion of
the transferor's Warrants and, in connection with any transfer permitted under
terms of the Agreement, the transferor can require Company to reissue the
Certificates representing the Warrants for any number of Warrants, but no
fractional shares.
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<PAGE> 40
EXERCISE OF WARRANT
Cal West Service Corporation hereby irrevocably elects to exercise the
purchase rights represented by this Certificate with respect to the following
number of shares of Common Stock of MICRO GENERAL CORPORATION, a Delaware
corporation (the "Company"), upon the terms and subject to the conditions
specified in that certain Convertible Note Purchase Agreement dated December 15,
1999, by and between Company and Cal West Service Corporation, a California
corporation as lenders.
Number of Shares_________________
Exercise Price $10.00 per Share
Total Cost: _____________________
Dated: _________________ CAL WEST SERVICE CORPORATION
By:_______________________________
Title:____________________________
* Subject to any adjustments as provided under Terms and Provisions of
the Certificate or the Agreement.
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<PAGE> 1
EXHIBIT 10.30
CREDIT AGREEMENT
This Credit Agreement ("Agreement") is made and entered into on December 22,
1999,by and between Micro General Corporation, a Delaware corporation,
("Borrower") and Imperial Bank, a California banking corporation, ("Bank").
Subject to the terms and conditions of this Agreement, any security agreements)
executed by Borrower in favor of Bank, any note(s) executed by Borrower in favor
of Bank, or any other agreements executed in conjunction therewith
(collectively, the "Loan Documents"), Bank shall make the loans and or advances
(individually a "Loan" and collectively "Loans") referred to below to Borrower.
In consideration of mutual covenants and conditions hereof, the parties hereto
agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.01 REVOLVING CREDIT COMMITMENT.
(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, in an amount not to exceed
$5,000,000 (the "Revolving Line of Credit") until June 5, 2000 (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) REVOLVING NOTE. The interest rate, principal and interest payments, maturity
date and certain other terms of the Revolving Loan will be contained in a
promissory note dated the date of this agreement, as such may be amended or
replaced from time to time.
1.02 DOCUMENTATION FEE, COSTS AND EXPENSES. In addition to any other amounts
due, or to become due, concurrently with the execution hereof, Borrower agrees
to pay to Bank a documentation fee in the amount of $250.00, and all other costs
and expenses incurred by the Bank the perfection of any security interest
granted to Bank by Borrower.
1.03 COLLATERAL. Borrower shall grant or cause to be granted to Bank a first
priority lien on any and all personal property assets of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now has
or hereafter acquires a security interest or pursuant to the terms of any
security agreement, an intellectual property security agreement or otherwise as
security for all of Borrower's obligations to Bank, all as may be subject to
Section 5.03 herein.
2. REPRESENTATIONS OF BORROWER
Borrower represents and warrants that:
2.01 EXISTENCE AND RIGHTS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the state of Delaware, without
limit as to the duration of its existence.
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<PAGE> 2
Borrower is authorized and in good standing to do business in the state of its
incorporation; Borrower has the appropriate powers and adequate authority,
rights and franchises to own its property and to carry on its business as now
conducted, and is duly qualified and in good standing in each state in which the
character of the properties owned by it therein or the conduct of its business
makes such qualification necessary; and Borrower has the power and adequate
authority to make and carry out this Agreement. Borrower has not other
investment in any other business entity except for those disclosed in it's
annual report 10-K, or quarterly report 10Q, as filed with the U. S. Securities
and Exchange Commission.
2.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement and the Loan Documents are duly authorized and do not require the
consent or approval of any governmental body or other regulatory authority; are
not in contravention of or in conflict with any law or regulation or any term or
provision of Borrower's charter/articles of incorporation, by-laws, or similar
document as the case may be, and this Agreement is the valid, binding and
legally enforceable obligation of Borrower in accordance with its terms; subject
only to bankruptcy, insolvency or similar laws affecting creditors' rights
generally.
2.03 NO CONFLICT. The execution, delivery and performance of this Agreement and
the Loan Documents are not in contravention of or in conflict with any
agreement, indenture or undertaking to which Borrower is a party or by, which it
or any of its property may be bound or affected, and do not cause any lien,
charge or other encumbrance to be created or imposed upon any such property by
reason thereof.
2.04 LITIGATION. Except as disclosed in writing to bank by Borrower, there is no
litigation or other proceeding pending or threatened against or affecting
Borrower which if determined adversely to Borrower or its interest would have a
material adverse effect on the financial condition of Borrower, and Borrower is
not in default with respect to any order, writ, injunction, decree or demand of
any court or other governmental or regulatory authority.
2.05 FINANCIAL CONDITION. The consolidated balance sheet of Borrower as of March
31, 1999, and the related profit and loss statement for the three month period
ended as of that date, a copy of which has heretofore been delivered to Bank by
Borrower, and all other statements and data submitted in writing by Borrower to
Bank in connection with this request for credit are true and correct in all
material aspects, and said balance sheet truly presents the financial condition
of Borrower as of the date thereof, and has been prepared in accordance with
generally accepted accounting principles on a basis consistently maintained.
Since such date there have been no material adverse changes in the financial
condition or business of Borrower. Borrower has no knowledge of any liabilities,
contingent or otherwise, at such date not reflected in said balance sheet, and
Borrower has not entered into any special commitments or substantial contracts
which are not reflected in said balance sheet, other than in the ordinary and
normal course of its business, which may have a materially adverse effect upon
its financial condition, operations or business as now conducted.
2.06 TITLE TO ASSETS. Borrower has good title to its assets, and the same are
not subject to any liens or encumbrances other than those permitted by Section
5.03 hereof.
2.07 TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
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<PAGE> 3
2.08 TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
2.09 REGULATION U. None of the proceeds of any Loan shall be used to purchase or
carry margin stock (as defined within Regulation U of the Board of Governors of
the Federal Reserve system).
2.10 ERISA. All defined benefit pension plans as defined in the Employees
Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower meet,
as of the date hereof, the minimum funding standards of Section 302 of ERISA,
and no Reportable Event or Prohibited Transaction as defined in ERISA has
occurred with respect to any such plan.
2.11 YEAR 2000 COMPLIANCE. Borrower and its subsidiaries, as applicable, have
reviewed the areas within their operations and business which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the Year 2000 Problem and have made related appropriate inquiry of
material suppliers and vendors, and based on such review and program, the Year
2000 Problem will not have a material adverse effect upon its financial
condition, operations or business as now conducted. "Year 2000 Problem" means
the possibility that any computer applications or equipment used by Borrower may
be unable to recognize and properly perform date sensitive functions involving
certain dates prior to and any dates on or after December 31, 1999.
3. CONDITIONS PRECEDENT TO LOAN.
Prior to Bank being obligated to make any Loan pursuant to this
Agreement, Bank must receive all of the following, each of which must be in form
and substance satisfactory to Bank:
3.01 PROMISSORY NOTE(S). Original, executed promissory note(s).
3.02 SECURITY AGREEMENT. Original, executed security agreements) covering the
personal property collateral securing the Loan(s).
3.03 FINANCING STATEMENT. Financing statement(s) executed by Borrower.
3.04 GUARANTEE. Continuing Guarantee in favor of Bank executed by Fidelity
National Financial, Inc. ("Guarantor") in the amount of $5,000,000.
3.05 INSURANCE. Borrower shall have delivered to Bank evidence of insurance
coverage required pursuant that Agreement to Provide Insurance executed by
Borrower, in form, substance, amounts, covering risks and issued by companies
satisfactory to Bank, and where required by Bank, with loss payable endorsements
in favor of Bank.
3.06 ORGANIZATIONAL DOCUMENTS. Copies of the charter/articles of incorporation,
or similar document as the case may be, of the Borrower and Guarantor.
3.07 AUTHORIZATIONS. Certified copies of all action taken by the Borrower and
Guarantor to authorize the execution, delivery and performance of the Loan
Documents.
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<PAGE> 4
3.08 GOOD STANDING. Good standing certificates from the appropriate secretary of
state of the state in which the Borrower and Guarantor is organized and in each
state in which it is required to be qualified to do business.
3.09 ADDITIONAL DOCUMENTS. Such other documents as Bank may reasonably deem
necessary.
4. AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, under borrowings, or
other indebtedness, or so long as Bank has any obligation to' extend credit to
Borrower it will, unless Bank shall other-wise consent in writing, which consent
shall not be unreasonably withheld:
4.01 RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
4.02 USE OF PROCEEDS. Use the proceeds of the Loans only for purposes specified
in Section I of this Agreement.
4.03 INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses and/or in the exercise of good business
judgment, and as required by that Agreement to Provide Insurance executed by
Borrower, with the Bank to be shown as Lenders Loss Payee on such policies.
4.04 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate proceedings in
such manner as not to cause any materially adverse effect upon its financial
condition or the loss of any right of redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it to be adequate
with respect thereto.
4.05 RECORDS AND REPORTS. Maintain a standard and modem system of accounting in
accordance with generally accepted accounting principles on a basis consistently
maintained; permit Bank's representatives to have access to, and to examine its
properties, books and records at all reasonable times and upon reasonable notice
during normal business hours; and furnish Bank:
(a) QUARTERLY FINANCIAL STATEMENT-BORROWER. As soon as available, and in any
event within forty-five (45) days after the close of each quarter, 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
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<PAGE> 5
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.
(b) QUARTERLY FINANCIAL STATEMENT-GUARANTOR. As soon as available, and in any
event within sixty (60) days after the close of each quarter, Borrower to cause
Guarantor to provide a consolidated balance sheet, profit and loss statement and
reconciliation of Guarantor's capital balance accounts as of the close of such
period and covering operations for the portion of Guarantor'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 Guarantor and certified by an appropriate
officer of Guarantor.
(c) ANNUAL FINANCIAL STATEMENT-BORROWER. As soon as available, and in any event
within one hundred twenty (120) days after and as of the close of each fiscal
year of Borrower 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 accepted accounting
principles on a basis consistently maintained by Borrower and certified by an
appropriate officer of Borrower.
(d) ANNUAL FINANCIAL STATEMENT-GUARANTOR. As soon as available, and in any event
within one hundred twenty (120) days after and as of the close of each fiscal
year of Guarantor, Borrower to cause Guarantor to provide a consolidated report
of audit of Guarantor, all in reasonable detail, by an independent certified
public accountant selected by Guarantor and reasonably acceptable to Bank, in
accordance with generally accepted accounting principles on a basis consistently
maintained by Guarantor and certified by an appropriate officer of Guarantor.
(e) OFFICER'S CERTIFICATE. Within forty-five days (45) days after the end of
each quarter and fiscal year of Borrower, a certificate of the chief financial
officer of Borrower, stating that Borrower has performed and observed each and
every covenant contained in this Agreement to be performed by it and that no
event has occurred and no condition then exists which constitutes an event of
default hereunder or would constitute such an event of default upon the lapse of
time or upon the giving of notice and the lapse of time specified herein; or, if
any such event has occurred or any such condition exists, specifying the nature
thereof .
(f) STOCKHOLDER, SECURITY AND EXCHANGE COMMISSION STATEMENTS AND REPORTS.
Promptly after the same are available, copies of all such proxy statements,
financial statements and reports as Borrower or any subsidiary shall send to its
members or stockholders as appropriate, if any, and copies of all reports which
Borrower or any subsidiary may file with the Securities and Exchange Commission.
(g) OTHER INFORMATION. Such other information relating to the affairs of
Borrower as the Bank reasonably may request from time to time.
4.06 OUT OF DEBT: The unpaid balance of the Revolving Loans shall be zero (-0-)
for at least thirty (30) consecutive days during the term of this Agreement.
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<PAGE> 6
4.07 ERISA. Cause all defined benefit pension plans, as defined in ERISA, of
Borrower to, at all times, meet the minimum funding standards of Section 302 of
ERISA, and ensure that no Reportable Event or Prohibited Transaction, as defined
in ERISA, will occur with respect to any such plan. 4.08 LAWS. At all times
comply with, or cause to be complied with, all laws, statutes, rules,
regulations, orders and directions of any governmental authority having
jurisdiction over Borrower or Borrower's business.
4.09 GAAP. Compliance with all financial covenants shall be calculated based on
generally accepted accounting principles applied on a consistent basis as
maintained by Borrower.
4.10 YEAR 2000 COMPLIANT. Borrower shall perform all acts reasonably necessary
to ensure that (a) Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and vendors whose
compliance is likely to be material to Borrower's business, become Year 2000
Compliant in a timely manner. Such acts shall include, without limitation,
performing a comprehensive review and assessment of all Borrower's systems and
adopting a detailed plan, with itemized budget, for the remediation, monitoring
and testing of such systems. As used in this paragraph, "Year 2000 Compliant"
shall mean, in regard to any entity, that all software, hardware, firmware,
equipment, goods or systems utilized by or material to the business operations
or financial condition of such entity, will properly perform date sensitive
functions before, during and after the year 2000. Borrower shall, immediately
upon request, provide to Agent such certifications or other evidence of
Borrower's compliance with the ten-ns of this paragraph as Bank may from time to
time require.
4.11 NOTICES. Promptly notify Bank in writing of (i) the occurrence of any Event
of Default hereunder or any event which upon notice and lapse of time would be
an Event of Default; (ii) all litigation affecting Borrower where the amount is
$250,000 or more; any substantial dispute which may exist between Borrower and
any governmental regulatory body or law enforcement authority; any change in
Borrower's name or principal place of business; or any other matter which has
resulted or might result in a material adverse change in Borrower's financial
condition or operations.
5. NEGATIVE COVENANTS OF BORROWER
Borrower agrees that so long as it is indebted to Bank, or so long as Bank has
any obligation to extend credit to Borrower, it will not, without Bank's written
consent:
5.01 TYPE OF BUSINESS: Make any substantial change in the character of its
business.
5.02 OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than Loans from the Bank except
obligations now existing as shown in the financial statement dated March 31,
1999, excluding those obligations being refinanced by Bank, and other than loans
or advances made by FNFI or its subsidiaries to Borrower from time to time, or
sell or transfer, either with or without recourse, any accounts or notes
receivable or any moneys due or to become due.
5.03 LIENS AND ENCUMBRANCES. Create, incur, permit to exist, or assume any
mortgage, pledge, encumbrance, lien or charge of any kind upon any asset now
owned or hereafter acquired by it, other than liens for taxes not delinquent and
liens in Bank's favor and other than liens agreed to in writing by Bank.
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<PAGE> 7
5.04 LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances to
any person or other entity other than in the ordinary and normal course of its
business as now conducted; or guarantee or otherwise become liable upon the
obligation of any person or other entity, except by endorsement of negotiable
instruments for deposit or collection in the ordinary and normal course of its
business.
5.05 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings therefor;
or sell any assets except in the ordinary and normal course of its business as
now conducted; or sell, lease, assign, or transfer any substantial part of its
business or fixed assets, or any property or other assets necessary for the
continuance of its business as now conducted, including without limitation the
selling of any property or other asset accompanied by the leasing back of the
same.
6. EVENTS OF DEFAULT
The occurrence of any of the following events of default ("Events of Default")
shall, at Bank's option, terminate Bank's commitment to lend and make all sums
of principal and interest then remaining unpaid on all Borrower's indebtedness
to Bank immediately due and payable, all without demand, presentment or notice,
all of which are hereby expressly waived:
6.01 FAILURE TO PAY. Failure to pay any installment of principal or of interest
on any indebtedness of Borrower to Bank within, five (5) days of its due date.
6.02 BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement or any Loan Document binding upon Borrower.
6.03 BREACH OF WARRANTY. Any of Borrower's representations or warranties made
herein or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false or misleading in any material
respect.
6.04 INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or admit
its inability to pay its debts as they mature; or make an assignment for the
benefit of creditors; or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business.
6.05 JUDGMENTS, ATTACHMENTS. Any money judgment in excess of $ 250,000, writ or
warrant of attachment, or similar process shall be entered or filed against
Borrower or any of its assets and shall remain unvacated, unbonded or unstayed
for a period of ten (10) days or in any event later than five (5) days prior to
the date of any proposed sale thereunder.
6.06 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall not be dismissed within thirty (30) days
thereafter.
6.07 REVOCATION OF GUARANTEE. Any guarantee required hereunder is breached or
becomes ineffective; or any Guarantor or subordination creditor disavows or
attempts to revoke or terminate such guarantee or subordination agreement.
7
<PAGE> 8
6.08 OWNERSHIP. Any change in ownership which results in the Guarantor owning
less than twenty percent (20%) of Borrower's voting stock.
6.09 CESSATION OF BUSINESS. Borrower shall voluntarily suspend its business.
6.10 ADVERSE CHANGE. Any change which, in the opinion of Bank, is materially
adverse to the financial condition of Borrower or any Guarantor; or should Bank,
for any reason, believe that the prospect of Borrower's payment or performance
hereunder or under any other agreement or instrument with Bank be impaired.
6.11 OTHER DEFAULTS. Borrower, or any Guarantor of Borrower's obligations to
Bank, shall commit or do or fall to commit or do any act or thing which would
constitute an event of default under any of the terms of any other agreement,
document or instrument executed or to be executed by it concerning the
obligation to pay money.
6.12 ADVANCES. Notwithstanding anything to the contrary contained herein, Bank
shall have no duty to make advances while any event of default exists
notwithstanding any cure period provided for herein.
7. MISCELLANEOUS PROVISIONS
7.01 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of Bank
or any holder of notes issued hereunder, in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing under this Agreement or any note (s) issued in connection with
a Loan that Bank may make hereunder, are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
7.02 COUNTERPARTS; ENTIRE AGREEMENT. This Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement, and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersedes any prior agreements, written or oral, with respect thereto.
7.03 ATTORNEY'S FEES. Borrower will pay promptly to Bank without demand after
notice, with interest thereon from the date of expenditure at the rate
applicable to the Loan, reasonable attorneys' fees and all costs and expenses
paid or incurred by Bank in collecting or compromising the Loan after the
occurrence of an Event of Default, whether or not suit is filed. If suit is
brought to enforce any provision of this Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys' fees and court costs in
addition to any other remedy or recovery awarded by the court.
7.04 ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.05 INUREMENT. The benefits of this Agreement shall inure to the successors and
assigns of Bank and the permitted successors and assigns of Borrower.
8
<PAGE> 9
7.06 APPLICABLE LAW. This Agreement and all other agreements and instruments
required by Bank in connection therewith shall be governed by and construed
according to the laws of the state of California, to the Jurisdiction of whose
courts the parties hereby agree to submit.
7.07 OFFSET. In addition to and not in limitation of all rights of offset that
Bank or other holder of the Loan may have under applicable law, Bank or other
holder of any note issued hereunder shall, upon the occurrence of any Event of
Default or any event which with the passage of time or notice would constitute
such an Event of Default, have the right to appropriate and apply to the payment
of the Loan any and all balances, credits, deposits, accounts or monies of
Borrower then or thereafter with Bank or other holder, within ten (10) days
after the Event of Default, and notice of the occurrence of any Event of Default
by Bank to Borrower.
7.08 SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
7.09 TIME OF THE ESSENCE. Time is hereby declared to be of the essence of this
Agreement and of every part hereof.
7.10 ACCOUNTING. All accounting terms shall have the meanings applied under
generally accepted accounting principles unless otherwise specified.
7.11 REFERENCE PROVISION.
(a) Other than (i) nonjudicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this Credit
Agreement, any security agreement executed by Borrower in favor of Bank or any
note executed by Borrower in favor of Bank or any other agreement or instrument
issued in favor of Bank by Borrower (collectively in this Section, the
"Agreement") which controversy, dispute or claim is not settled in writing
within thirty (30) days after the "Claim Date" (defined as the date on which a
party subject to this Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et @se . of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such controversy,
dispute or claim is subject to the reference proceeding and except as set forth
above, the parties waive their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court in the
County where the Real Property, if any, is located or Los Angeles County if none
(the "Court"). The referee shall be a retired Judge of the Court selected by
mutual agreement of the parties, and if they cannot so agree within forty-five
(45) days after the Claim Date, the referee shall be promptly selected by the
Presiding Judge of the Court (or his representative). The referee shall be
appointed to sit as a temporary judge, with all of the powers for a temporary
judge, as authorized by law, and upon selection should take and subscribe to the
oath of office as provided for in Rule 244 of the California Rules of Court (or
any subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP Section 170.6. The referee shall (a) be requested to set the
matter for hearing within sixty (60) days after the date of selection of the
referee and (b) try any and all issues of
9
<PAGE> 10
law or fact and report a statement of decision upon them, if possible, within
ninety (90) days of the Claim Date. Any decision rendered by the referee will be
final, binding and conclusive and judgment shall be entered pursuant to CCP
Section 644 in any court in the state of California having jurisdiction. Any
party may apply for a reference proceeding at any time after thirty (30) days
following notice to any other party of the nature of the controversy, dispute or
claim, by filing a petition for a hearing and/or trial. All discovery permitted
by this Agreement shall be completed no later than fifteen (15) days before the
first hearing date established by the referee. The referee may extend such
period in the event of a party's refusal to provide requested discovery for any
reason whatsoever, including, without limitation, legal objections raised to
such discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions may
be taken by either party upon seven (7) days written notice, and request for
production or inspection of documents shall be responded to within ten (10) days
after service. All disputes relating to discovery which cannot be resolved by
the parties shall be submitted to the referee whose decision shall be final and
binding upon the parties. Pending appointment of the referee as provided herein,
the Superior Court is empowered to issue temporary and/or provisional remedies,
as appropriate.
(b) Except as expressly set forth in this Agreement, the referee shall determine
the manner in which the reference proceeding is conducted including the time and
place of all hearings, the order of presentation of evidence, and all other
questions that arise with respect to the course of the reference proceeding. All
proceedings and hearings conducted before the referee, except for trial, shall
be conducted without a court reporter except that when any party so requests, a
court reporter will be used at any hearing conducted before the referee. The
party making such a request shall have the obligation to arrange for and pay for
the court reporter. The costs of the court reporter at the trial shall be borne
equally by the parties.
(c) The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the state of California. The rules
of evidence applicable to proceedings at law in the state of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that will be binding upon the parties.
The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of laws, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
(d) In the event that the enabling legislation which provides for appointment of
a referee is repealed (and no successor statute is enacted), any dispute between
the parties that would otherwise be determined by the reference procedure herein
described will be resolved and determined by arbitration. The arbitration will
be conducted by a retired judge of the Court, in accordance with the California
Arbitration Act, Section 1280 through Section 1294.2 of the CCP as amended from
time to time. The limitations with respect to discovery as set forth hereinabove
shall apply to any such arbitration proceeding.
7.13 This Agreement may be modified only by a writing signed by all parties
hereto.
10
<PAGE> 11
This Agreement is executed on behalf of the parties by duly authorized officers
as of the date first above written.
IMPERIAL BANK MICRO GENERAL CORPORATION
("BANK") ("BORROWER")
By: By:
--------------------------------- ------------------------------------
Its: Its:
-------------------------------- -----------------------------------
By:
------------------------------------
Its:
-----------------------------------
11
<PAGE> 12
<TABLE>
<S><C>
THIS SPACE FOR USE OF FILING OFFICER
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- --------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- --------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
----- -----
IMPERIAL BANK
LOAN DOCUMENTATION SERVICES
9920 S. LA CIENEGA BLVD., STE 628
INGLEWOOD, CA 90301
----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY's NAME
MICRO GENERAL CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
2510 N. RED HILL AVENUE, SUITE 230 SANTA ANA CA 92705
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
95-2621545 ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 1070-004 1070-004
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY's NAME
IMPERIAL BANK
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
9777 WILSHIRE BLVD., 4TH FLOOR BEVERLY HILLS CA 90212-9762
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
ALL PERSONAL PROPERTY, WHETHER PRESENTLY EXISTING OR HEREAFTER CREATED OR ACQUIRED, INCLUDING BUT NOT LIMITED TO: ALL ACCOUNTS,
CHATTEL PAPER, DOCUMENTS, INSTRUMENTS, MONEY, DEPOSIT ACCOUNTS AND GENERAL INTANGIBLES INCLUDING RETURNS, REPOSSESSIONS, BOOKS AND
RECORDS RELATING THERETO, AND EQUIPMENT CONTAINING SAID BOOKS AND RECORDS. ALL INVESTMENT PROPERTY INCLUDING SECURITIES AND
SECURITIES ENTITLEMENTS. ALL GOODS INCLUDING EQUIPMENT AND INVENTORY. ALL PROCEEDS INCLUDING, WITHOUT LIMITATION, INSURANCE
PROCEEDS. ALL GUARANTEES AND OTHER SECURITY THEREFOR; WHETHER ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS,
ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING TO ANY OF THE
FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND ACCOUNTS PROCEEDS).
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [ ] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [X] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
/s/ [Signature Illegible] Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
[ADDITIONAL FEE]
/s/ [Signature Illegible] (optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
CFI PROSERVICES, INC. 400 S.W. 6TH AVENUE, PORTLAND, OREGON 97204
(1) FILING OFFICER COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95)
</TABLE>
<PAGE> 13
<TABLE>
<S><C>
THIS SPACE FOR USE OF FILING OFFICER
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- --------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- --------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
----- -----
IMPERIAL BANK
LOAN DOCUMENTATION SERVICES
9920 S. LA CIENEGA BLVD., STE 628
INGLEWOOD, CA 90301
----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY's NAME
MICRO GENERAL CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
2510 N. RED HILL AVENUE, SUITE 230 SANTA ANA CA 92705
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
95-2621545 ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 1070-004 1070-004
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY's NAME
IMPERIAL BANK
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
9777 WILSHIRE BLVD., 4TH FLOOR BEVERLY HILLS CA 90212-9762
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
ALL PERSONAL PROPERTY, WHETHER PRESENTLY EXISTING OR HEREAFTER CREATED OR ACQUIRED, INCLUDING BUT NOT LIMITED TO: ALL ACCOUNTS,
CHATTEL PAPER, DOCUMENTS, INSTRUMENTS, MONEY, DEPOSIT ACCOUNTS AND GENERAL INTANGIBLES INCLUDING RETURNS, REPOSSESSIONS, BOOKS AND
RECORDS RELATING THERETO, AND EQUIPMENT CONTAINING SAID BOOKS AND RECORDS. ALL INVESTMENT PROPERTY INCLUDING SECURITIES AND
SECURITIES ENTITLEMENTS. ALL GOODS INCLUDING EQUIPMENT AND INVENTORY. ALL PROCEEDS INCLUDING, WITHOUT LIMITATION, INSURANCE
PROCEEDS. ALL GUARANTEES AND OTHER SECURITY THEREFOR; WHETHER ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS,
ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING TO ANY OF THE
FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND ACCOUNTS PROCEEDS).
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [ ] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [X] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
/s/ [Signature Illegible] Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
[ADDITIONAL FEE]
/s/ [Signature Illegible] (optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
CFI PROSERVICES, INC. 400 S.W. 6TH AVENUE, PORTLAND, OREGON 97204
(2) ACKNOWLEDGMENT COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95)
</TABLE>
<PAGE> 14
<TABLE>
<S><C>
THIS SPACE FOR USE OF FILING OFFICER
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- --------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- --------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
----- -----
IMPERIAL BANK
LOAN DOCUMENTATION SERVICES
9920 S. LA CIENEGA BLVD., STE 628
INGLEWOOD, CA 90301
----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY's NAME
MICRO GENERAL CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
2510 N. RED HILL AVENUE, SUITE 230 SANTA ANA CA 92705
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
95-2621545 ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 1070-004 1070-004
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY's NAME
IMPERIAL BANK
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
9777 WILSHIRE BLVD., 4TH FLOOR BEVERLY HILLS CA 90212-9762
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
ALL PERSONAL PROPERTY, WHETHER PRESENTLY EXISTING OR HEREAFTER CREATED OR ACQUIRED, INCLUDING BUT NOT LIMITED TO: ALL ACCOUNTS,
CHATTEL PAPER, DOCUMENTS, INSTRUMENTS, MONEY, DEPOSIT ACCOUNTS AND GENERAL INTANGIBLES INCLUDING RETURNS, REPOSSESSIONS, BOOKS AND
RECORDS RELATING THERETO, AND EQUIPMENT CONTAINING SAID BOOKS AND RECORDS. ALL INVESTMENT PROPERTY INCLUDING SECURITIES AND
SECURITIES ENTITLEMENTS. ALL GOODS INCLUDING EQUIPMENT AND INVENTORY. ALL PROCEEDS INCLUDING, WITHOUT LIMITATION, INSURANCE
PROCEEDS. ALL GUARANTEES AND OTHER SECURITY THEREFOR; WHETHER ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS,
ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING TO ANY OF THE
FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND ACCOUNTS PROCEEDS).
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [ ] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [X] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
/s/ [Signature Illegible] Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
[ADDITIONAL FEE]
/s/ [Signature Illegible] (optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
CFI PROSERVICES, INC. 400 S.W. 6TH AVENUE, PORTLAND, OREGON 97204
(3) SEARCH REQUEST COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95)
</TABLE>
<PAGE> 15
<TABLE>
<S><C>
THIS SPACE FOR USE OF FILING OFFICER
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- --------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- --------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
----- -----
IMPERIAL BANK
LOAN DOCUMENTATION SERVICES
9920 S. LA CIENEGA BLVD., STE 628
INGLEWOOD, CA 90301
----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY's NAME
MICRO GENERAL CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
2510 N. RED HILL AVENUE, SUITE 230 SANTA ANA CA 92705
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
95-2621545 ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 1070-004 1070-004
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY's NAME
IMPERIAL BANK
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
9777 WILSHIRE BLVD., 4TH FLOOR BEVERLY HILLS CA 90212-9762
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
ALL PERSONAL PROPERTY, WHETHER PRESENTLY EXISTING OR HEREAFTER CREATED OR ACQUIRED, INCLUDING BUT NOT LIMITED TO: ALL ACCOUNTS,
CHATTEL PAPER, DOCUMENTS, INSTRUMENTS, MONEY, DEPOSIT ACCOUNTS AND GENERAL INTANGIBLES INCLUDING RETURNS, REPOSSESSIONS, BOOKS AND
RECORDS RELATING THERETO, AND EQUIPMENT CONTAINING SAID BOOKS AND RECORDS. ALL INVESTMENT PROPERTY INCLUDING SECURITIES AND
SECURITIES ENTITLEMENTS. ALL GOODS INCLUDING EQUIPMENT AND INVENTORY. ALL PROCEEDS INCLUDING, WITHOUT LIMITATION, INSURANCE
PROCEEDS. ALL GUARANTEES AND OTHER SECURITY THEREFOR; WHETHER ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS,
ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING TO ANY OF THE
FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND ACCOUNTS PROCEEDS).
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [ ] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [X] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
/s/ [Signature Illegible] Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
[ADDITIONAL FEE]
/s/ [Signature Illegible] (optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
CFI PROSERVICES, INC. 400 S.W. 6TH AVENUE, PORTLAND, OREGON 97204
(4) DEBTOR COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95)
</TABLE>
<PAGE> 16
<TABLE>
<S><C>
THIS SPACE FOR USE OF FILING OFFICER
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- --------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- --------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
----- -----
IMPERIAL BANK
LOAN DOCUMENTATION SERVICES
9920 S. LA CIENEGA BLVD., STE 628
INGLEWOOD, CA 90301
----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY's NAME
MICRO GENERAL CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
2510 N. RED HILL AVENUE, SUITE 230 SANTA ANA CA 92705
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
95-2621545 ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 1070-004 1070-004
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY's NAME
IMPERIAL BANK
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
9777 WILSHIRE BLVD., 4TH FLOOR BEVERLY HILLS CA 90212-9762
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
ALL PERSONAL PROPERTY, WHETHER PRESENTLY EXISTING OR HEREAFTER CREATED OR ACQUIRED, INCLUDING BUT NOT LIMITED TO: ALL ACCOUNTS,
CHATTEL PAPER, DOCUMENTS, INSTRUMENTS, MONEY, DEPOSIT ACCOUNTS AND GENERAL INTANGIBLES INCLUDING RETURNS, REPOSSESSIONS, BOOKS AND
RECORDS RELATING THERETO, AND EQUIPMENT CONTAINING SAID BOOKS AND RECORDS. ALL INVESTMENT PROPERTY INCLUDING SECURITIES AND
SECURITIES ENTITLEMENTS. ALL GOODS INCLUDING EQUIPMENT AND INVENTORY. ALL PROCEEDS INCLUDING, WITHOUT LIMITATION, INSURANCE
PROCEEDS. ALL GUARANTEES AND OTHER SECURITY THEREFOR; WHETHER ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS,
ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING TO ANY OF THE
FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND ACCOUNTS PROCEEDS).
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [ ] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [X] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
/s/ [Signature Illegible] Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
[ADDITIONAL FEE]
/s/ [Signature Illegible] (optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
CFI PROSERVICES, INC. 400 S.W. 6TH AVENUE, PORTLAND, OREGON 97204
(5) SECURED PARTY COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95)
</TABLE>
<PAGE> 17
[IMPERIAL BANK LETTERHEAD]
IMPERIAL BANK
Member FDIC
PROMISSORY NOTE
<TABLE>
<CAPTION>
=============================================================================================================
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$5,000,000.00 12-22-1999 12-20-2000 155
- -------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY
OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM.
=============================================================================================================
BORROWER: MICRO GENERAL CORPORATION LENDER: IMPERIAL BANK
2510 N. RED HILL AVENUE, SUITE 230 FINANCIAL SERVICES GROUP
SANTA ANA, CA 92705 9777 WILSHIRE BLVD., 4TH FLOOR
BEVERLY HILLS, CA 92012-9762
=============================================================================================================
PRINCIPAL AMOUNT: $5,000,000.00 INITIAL RATE: 8.500% DATE OF NOTE: DECEMBER 22, 1999
</TABLE>
PROMISE TO PAY. MICRO GENERAL CORPORATION ("BORROWER") PROMISES TO PAY TO
IMPERIAL BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA, THE PRINCIPAL AMOUNT OF FIVE MILLION & 00/100 DOLLARS ($5,000,000.00)
OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID
OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED
FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING
PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON DECEMBER 20, 2000. IN ADDITION,
BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING
JANUARY 20, 2000, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY
OF EACH MONTH AFTER THAT. The annual interest rate for this Note is computed on
a 365/360 basis; that is, by applying the ratio of the annual interest rate
over a year of 360 days, multiplied by the outstanding principal balance,
multiplied by the actual number of days the principal balance is outstanding.
Borrower will pay Lender at Lender's address shown above or at such other place
as Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs
and any late charges, then to any unpaid interest, and any remaining amount to
principal.
VARIABLE INTEREST RATE. Subject to designation of a different interest rate
index by Borrower as provided below, the interest rate on this Note is subject
to change from time to time based on changes in an index which is the Imperial
Bank Prime Rate (the "Index"). The Prime Rate is the rate announced by Lender
as its Prime Rate of interest from time to time. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each day. THE INDEX CURRENTLY IS 8.500%. THE INTEREST
RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A
RATE EQUAL TO THE INDEX, RESULTING IN AN INITIAL RATE OF 8.500%. NOTICE: Under
no circumstances will the interest rate on this Note be more than the maximum
rate allowed by applicable law.
INTEREST RATE OPTIONS. The following interest rate options are available under
this Note:
(a) Default Option. The interest rate margin and index described in the
"VARIABLE INTEREST RATE" paragraph above (the "Default Option").
(b) LIBOR. A margin of 1,400 percentage points over LIBOR. For purposes of
this Note, LIBOR shall mean London Inter-Bank Offered Rate as provided
in the LIBOR ADDENDUM TO NOTE attached hereto and made a part hereof.
When the interest rate is based on a fixed rate, the rate shall be in effect
for a period of the number of days or months as indicated in the rate option
description (the "Interest Period"), in any case extended to the next
succeeding business day when necessary, beginning on a borrowing date,
conversion date or expiration date of the then current Interest Period.
Adjustments in the interest rate due to changes in the maximum nonusurious
interest rate allowed (the "Highest Lawful Rate") shall be made on the
effective day of any change in the Highest Lawful Rate.
Provided Borrower is not in default under this Note, Borrower may designate in
advance which of the above interest rate indexes shall be applicable to any
loan advance under this Note and shall designate any optional Interest Period
applicable to any fixed rate loan or advance. In the absence of any such
designation the interest rate option shall be the Default Option. Thereafter
unpaid principal balances under this Note may be converted (at the end of an
Interest Period if the index used to determine the interest rate therefore is a
fixed rate) to another of the above interest rate options, or continued for an
additional interest period, when applicable, as designated by Borrower in
advance; and in the absence of sufficient advance designation as to conversion
to or continuation of a fixed rate index, the index shall be converted to the
Default Option. Notwithstanding the foregoing, a fixed rate index may not be
elected for a loan or advance under this Note, nor any conversion to or
continuation of a fixed rate index be elected, if the Interest Period thereof
would extend beyond the maturity of this Note.
Each loan or advance under this Note at conversion into or continuation of a
fixed rate index shall be a minimum amount of $500,000.00. Unless otherwise
provided herein, accrued interest on amounts for which the interest rate is
based on a fixed rate shall be due and payable at the end of the respective
Interest Period thereof.
PREPAYMENT; MINIMUM INTEREST CHARGE. In the event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a MINIMUM INTEREST
CHARGE OF $250.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any material payment when due. (b) Borrower breaks any
promise Borrower has made to Lender, or Borrower fails to comply with or to
perform when due any other term, obligation, covenant, or condition contained in
this note or any Agreement related to this Note, or in any other agreement or
loan Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d)
Borrower becomes insolvent, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors, or any
proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of Borrower's
property on or in which Lender has a lien or security interest. This includes a
garnishment of any of Borrower's accounts with Lender. (f) Any guarantor dies or
any of the other events described in this default section occurs with respect to
any guarantor of this Note. (g) A material adverse change occurs in Borrower's
financial condition, or Lender reasonably and in good faith believes the
prospect of payment or performance of the indebtedness is impaired. (h) Lender
reasonably and in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been reasonably and in good faith given a notice of a breach of the same
provision of this Note within the preceding twelve (12) months, it may be cured
(and no event of default will have occurred) if Borrower, after receiving
written notice from Lender demanding cure of such default; (a) cures the default
within ten (10) days; or (b) if the cure requires more than ten (10) days,
immediately initiates steps which Lender deems in Lender's reasonable
discretion to be sufficient to cure the default and thereafter continues and
completes all reasonable and necessary steps sufficient to produce compliance
as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate on
this Note to 5.000 percentage points over the Index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's reasonable attorney's fees and Lender's
reasonable legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals and any
anticipated post-judgment collection services. Borrower also will pay any court
costs, in addition to all other sums provided by law. THIS NOTE HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE
IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, THE STATE OF CALIFORNIA.
LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE
OTHER. (INITIAL HERE ____) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh
<PAGE> 18
12-22-1999 PROMISSORY NOTE Page 2
(Continued)
================================================================================
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent permitted
by applicable law, to charge or setoff all sums owing on this Note against any
and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or by an authorized person. All
oral requests shall be confirmed in writing on the day of the request. All
communications, instructions, or directions by telephone or otherwise to Lender
are to be directed to Lender's office shown above. The following person or
persons are authorized to request advances under the line of credit until
Lender receives from Borrower at Lender's address shown above written notice of
revocation of their authority: PATRICK F. STONE, AUTHORIZED SIGNER; JOHN
SNEDEGAR, CHIEF EXECUTIVE OFFICER; JEFF SANDERSON, AUTHORIZED SIGNER; AND DALE
CHRISTENSEN, AUTHORIZED SIGNER. Borrower agrees to be liable for all sums
either: (a) advanced in accordance with the instructions of an authorized
person or (b) credited to any of Borrower's accounts with Lender. The unpaid
principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; (d) Borrower has applied
funds provided pursuant to this Note for purposes other than those authorized
by Lender; or (e) Lender in good faith deems itself insecure under this Note or
any other agreement between Lender and Borrower.
CREDIT AGREEMENT. This Note is subject to the provisions of the Credit
Agreement dated December 22, 1999 and all amendments thereto and replacements
therefor.
GENERAL PROVISIONS. Lender may delay or forego enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
any applicable statute of limitations, presentment, demand for payment, protest
and notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral; and take any other action deemed necessary by
Lender without the consent of or notice to anyone. All such parties also agree
that Lender may modify this loan without the consent of or notice to anyone
other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
MICRO GENERAL CORPORATION
X /s/ {Signature illegible) X /s/ (Signature illegible)
--------------------------------- ------------------------------------
AUTHORIZED OFFICER AUTHORIZED OFFICER
===============================================================================
<PAGE> 19
[IMPERIAL BANK LETTERHEAD]
Member FDIC
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
=============================================================================================================
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$5,000,000.00 12-22-1999 12-20-2000 155
=============================================================================================================
References in the shaded area are for Lender's use only and do not limit the applicability of this document
to any particular loan or item.
=============================================================================================================
BORROWER: MICRO GENERAL CORPORATION LENDER: IMPERIAL BANK
2510 N. RED HILL AVENUE, SUITE 230 FINANCIAL SERVICES GROUP
SANTA ANA, CA 92705 9777 WILSHIRE BLVD., 4TH FLOOR
BEVERLY HILLS, CA 92012-9762
=============================================================================================================
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN MICRO GENERAL
CORPORATION (REFERRED TO BELOW AS "GRANTOR"); AND IMPERIAL BANK (REFERRED TO
BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A
SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT
LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE
COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the Untied States of
America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL PERSONAL PROPERTY, WHETHER PRESENTLY EXISTING OR HEREAFTER CREATED
OR ACQUIRED, INCLUDING BUT NOT LIMITED TO: ALL ACCOUNTS, CHATTEL
PAPER, DOCUMENTS, INSTRUMENTS, MONEY, DEPOSIT ACCOUNTS AND GENERAL
INTANGIBLES INCLUDING RETURNS, REPOSSESSIONS, BOOKS AND RECORDS
RELATING THERETO, AND EQUIPMENT CONTAINING SAID BOOKS AND RECORDS. ALL
INVESTMENT PROPERTY INCLUDING SECURITIES AND SECURITIES ENTITLEMENTS.
ALL GOODS INCLUDING EQUIPMENT AND INVENTORY. ALL PROCEEDS INCLUDING,
WITHOUT LIMITATION, INSURANCE PROCEEDS. ALL GUARANTEES AND OTHER
SECURITY THEREFOR.
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising,
and wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles,instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means MICRO GENERAL CORPORATION, its successors
and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to Lender, as
well as all claims by Lender against Grantor, or any one or more of them,
whether existing now or later; whether they are voluntary or involuntary,
due or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable (INITIAL HERE ______ )
LENDER. The word "Lender" means Imperial Bank, its successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated December 22,
1999, in the principal amount of $5,000,000.00 from MICRO GENERAL
CORPORATION to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and substitutions for
the note or credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security interest in
and hereby assigns, conveys, delivers, pledges, and transfers all of Grantor's
right, title and interest in and to Grantor's accounts with Lender (whether
checking, savings, or some other account), including all accounts held jointly
with someone else and all accounts Grantor may open in the future, excluding,
however, all IRA and Keogh accounts, and all trust accounts for which the grant
of a security interest would be prohibited by law. Grantor authorizes Lender, to
the extent permitted by applicable law, to charge or setoff all Indebtedness
against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor and
do not conflict with, result in a violation of, or constitute a default
under (a) any provision of its articles of incorporation or organization,
or bylaws, or any agreement or other instrument binding upon Grantor or (b)
any law, governmental regulation, court decree, or order applicable to
Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are reasonably requested by
Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any and
all of the documents evidencing or constituting the Collateral, and Grantor
will note Lender's interest upon any and all chattel paper if not delivered
to Lender for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all reasonable expenses for the perfection and
the continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable
<PAGE> 20
12-22-1999 COMMERCIAL SECURITY AGREEMENT Page 2
(Continued)
================================================================================
in accordance with its terms, is genuine, and complies with applicable laws
concerning form, content and manner of preparation and execution, and all
persons appearing to be obligated on the Collateral have authority and
capacity to contract and are in fact obligated as they appear to be on the
Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of California, without the prior written consent of
Lender, not to be unreasonably withheld.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender not to be reasonably withheld. This includes security
interests even if junior in right to the security interests granted under
this Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for Lender
and shall not be commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists of
inventory, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may reasonably require to identify the nature, extent, and location
of such Collateral. Such information shall be submitted for Grantor and
each of its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair ordinary wear and tear
excepted. Grantor will not commit or permit damage to or destruction of the
Collateral or any part of the Collateral. Lender and its designated
representatives and agents shall have the right at all reasonable times to
examine, inspect, and audit the Collateral wherever located. Grantor shall
immediately notify Lender of all cases involving the return, rejection,
repossession, loss or damage of or to any Collateral; of any request for
credit or adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and event affecting the
Collateral or the value or the amount of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the
California Health and Safety Code, Section 25100, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. The terms "hazardous waste" and "hazardous
substance" shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The representations and
warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances. Grantor
hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor becomes liable for cleanup
or other costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to indemnify
shall survive the payment of the Indebtedness and the satisfaction of this
Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least thirty (30) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
In no event shall the insurance be in an amount less than the amount agreed
upon in the Agreement to Provide Insurance. If Grantor at any time fails to
obtain or maintain any insurance as required under this Agreement, Lender
may (but shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if it so chooses "single interest insurance," which
will cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or
restoration. If Lender does not consent to repair or replacement of the
Collateral, Lender shall retain a sufficient amount of the proceeds to pay
all of the indebtedness, and shall pay the balance to Grantor. Any
proceeds which have not been disbursed within six (6) months after their
receipt and which Grantor has not committed to the repair or restoration
of the Collateral shall be used to prepay the indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender to
be sufficient to produce, at least fifteen (15) days before the premium
due date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have
an independent appraiser satisfactory to Lender determine, as applicable,
the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor shall have possession of
the tangible personal property and beneficial use of all the Collateral and may
use it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's
<PAGE> 21
12-22-1999 COMMERCIAL SECURITY AGREEMENT PAGE 3
(CONTINUED)
================================================================================
security interest in such Collateral. If Lender at any time has possession of
any Collateral, whether before or after an Event of Default, Lender shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral if Lender takes such action for that purpose as Grantor shall
request or as Lender, in Lender's sole discretion, shall deem appropriate under
the circumstances, but failure to honor any request by Grantor shall not of
itself be deemed to be a failure to exercise reasonable care. Lender shall not
be required to take any steps necessary to preserve any rights in the
Collateral against prior parties, nor to protect, preserve or maintain any
security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term or any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will
be due and payable at the Note's maturity. This Agreement also will secure
payment of these amounts. Such right shall be in addition to all other rights
and remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, material obligation, covenant or condition contained in this
Agreement or any other Related Documents or in any other agreement between
Lender and Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceedings, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender reasonably and in good faith believes the prospect of
payment or performance of the Indebtedness is impaired.
INSECURITY. Lender, reasonably and in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within ten (10) days; or (b),
if the cure requires more than ten (10) days, immediately initiates steps
which Lender deems in Lender's reasonable discretion to be sufficient to
cure the default and thereafter continues and completes all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days, or such lesser time as required by state law, before
the time of the sale or disposition. All reasonable expenses relating to
the disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, preparing for sale and selling the
Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all reasonable fees of the receiver and his or her attorney shall
become part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of expenditure
until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of Los
Angeles County, the State of California. Lender and Grantor
<PAGE> 22
12-22-1999 COMMERCIAL SECURITY AGREEMENT PAGE 4
(CONTINUED)
================================================================================
hereby waive the right to any jury trial in any action, proceeding, or
counterclaim brought by either Lender or Grantor against the other.
(INITIAL HERE ______) This agreement shall be governed by and construed
in accordance with the laws of the State of California.
ATTORNEYS' FEES EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there
is a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all court costs
and such additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for ALL obligations in this Agreement.
NOTICE. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued
in payment for the Collateral; (c) to settle or compromise any and all
claims arising under the Collateral, and, in the place and stead of
Grantor, to execute and deliver its release and settlement for the claim;
and (d) to file any claim or claims or to take any action or institute or
take part in any proceedings, either in its own name or in the name of
Grantor, or otherwise, which in the discretion of Lender may seem to be
necessary or advisable. This power is given as security for the
Indebtedness, and the authority hereby conferred is and shall be
irrevocable and shall remain in full force and effect until renounced by
Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Grantor, shall
constitute a waiver of any of Lender's rights or of any Grantor's
obligations as to any future transactions. Whenever the consent of
Lender is required under this Agreement, the granting of such consent by
Lender in any instance shall not constitute continuing consent to
subsequent instances where such consent is required and in all cases such
consent may be granted or withheld in the sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waives, disclaims and relinquishes
all claims against such other person which borrower has or would otherwise
have by virtue of payment of the Indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity,
contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED DECEMBER
22, 1999.
GRANTOR:
MICRO GENERAL CORPORATION
X /s/ [Signature Illegible] X /s/ [Signature Illegible]
------------------------------------ ------------------------------------
Authorized Officer Authorized Officer
================================================================================
<PAGE> 23
CORPORATE RESOLUTION TO GUARANTEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$5,000,000.00 12-22-1999 12-20-2000 155
- ------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- ------------------------------------------------------------------------------------------------------------
BORROWER: MICRO GENERAL CORPORATION LENDER: IMPERIAL BANK
2510 N. RED HILL AVENUE, SUITE 230 FINANCIAL SERVICES GROUP
SANTA ANA, CA 92705 9777 WILSHIRE BLVD., 4TH FLOOR
BEVERLY HILLS, CA 90212-9762
GUARANTOR: FIDELITY NATIONAL FINANCIAL, INC.
17911 VON KARMAN AVENUE, SUITE 300
IRVINE, CA 92614
</TABLE>
================================================================================
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF FIDELITY NATIONAL
FINANCIAL, INC. (THE "CORPORATION"), HEREBY CERTIFY THAT the Corporation is
organized and existing under and by virtue of the laws of the State of Delaware
with its principal office at 17911 VON KARMAN AVENUE, SUITE 300, IRVINE, CA
92614.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held on ____________, at which a quorum was present and voting, or
by other duly authorized corporate action in lieu of a meeting, the following
resolutions were adopted:
BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:
<TABLE>
<CAPTION>
NAME POSITION ACTUAL SIGNATURE
- ---- -------- -----------------
<S> <C> <C>
ALAN L. STINSON EVP/CFO X /s/ ALAN L. STINSON
---------------------------
</TABLE>
acting for and on behalf of the Corporation and as its act and deed be, and he
or she hereby is, authorized and empowered:
GUARANTY. To guarantee or act as surety for loans or other financial
accommodations to MICRO GENERAL CORPORATION from Imperial Bank ("Lender")
on such guarantee or surety terms as may be agreed upon between the
officers or employees of this Corporation and Lender and in such sum or
sums of money as in his or her judgment should be guaranteed or assured,
not exceeding, however, at any one time the amount of FIVE MILLION &
00/100 DOLLARS ($5,000,000.00), in addition to such sum or sums of money
as may be currently guaranteed by the Corporation to Lender (the
"Guaranty").
GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the Guaranty,
any property now or hereafter belonging to the Corporation or in which the
Corporation now or hereafter may have an interest, including without
limitation all real property and all personal property (tangible or
intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans
are obtained or such indebtedness is incurred, or at any other time or
times, and may be either in addition to or in lieu of any property
theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered. The provisions of these Resolutions authorizing or relating to
the pledge, mortgage, transfer, endorsement, hypothecation, granting of a
security interest in, or in any way encumbering, the assets of the
Corporation shall include, without limitation, doing so in order to lend
collateral security for the indebtedness, now or hereafter existing, and
of any nature whatsoever, of MICRO GENERAL CORPORATION to Lender. The
Corporation has considered the value to itself of lending collateral in
support of such indebtedness, and the Corporation represents to Lender
that the Corporation is benefited by doing so.
EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be required
by Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments,
any chattel paper, or any other collateral, of any kind or nature, which
Lender may deem necessary or proper in connection with or pertaining to
the giving of the liens and encumbrances.
FURTHER ACTS. To do and perform such other acts and things and to execute
and deliver such other documents and agreements, INCLUDING AGREEMENTS
WAIVING THE RIGHT TO A TRAIL BY JURY, as he or she may in his or her
discretion deem reasonably necessary or proper in order to carry into
effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation, (d) change in the authorized signer(s), (e)
conversion of the Corporation to a new or different type of business entity, or
(f) change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been notified.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of his or
her revocation shall have been delivered to and received by Lender. Any such
notice shall not affect any of the Corporation's agreements or commitments in
effect at the time notice is given.
I FURTHER CERTIFY that the officer, employee, or agent named above is duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupies the position set opposite the name; that the foregoing Resolutions
now stand of record on the books of the Corporation; and that the Resolutions
are in full force and effect and have not been modified or revoked in any
manner whatsoever.
IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND ON DECEMBER 22, 1999 AND
ATTEST THAT THE SIGNATURES SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR
GENUINE SIGNATURES.
CERTIFIED TO AND ATTESTED BY:
X
-------------------------------------
X /s/ [Signature Illegible]
-------------------------------------
NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.
================================================================================
<PAGE> 24
EXHIBIT 10.30
LIBOR ADDENDUM
IMPERIAL BANK TO NOTE
This Libor Addendum ("Addendum") is dated as of DECEMBER 22, 1999, and
is by and between MICRO GENERAL CORPORATION ("Borrower") and Imperial Bank
("Bank"). This Addendum amends and supplements the NOTE to which it is attached
(the "Note") and forms a part of and is incorporated into the Note.
In the event of any inconsistency between the terms herein and the terms
of the Note, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meanings set forth in the Note.
1. ADVANCES.
1.1 Prime Loans. Advances permitted pursuant to the terms of the Note or
this Addendum which bear interest in relation to Bank's Prime Rate shall be
referred to herein as "Prime Loans" and each such advance shall be a "Prime
Loan." Each Prime Loan shall bear interest at an annual rate equal to the sum of
00.00% plus the Bank's Prime Rate. "Prime Rate," shall mean the rate of interest
publicly announced by Bank from time to time in Inglewood, California, as its
prime rate for lending. The Prime Rate is not intended to be the lowest rate of
interest charged by Bank in connection with extensions of credit to borrowers.
1.2 Libor Loans. Advances permitted pursuant to the terms of the Note or
this Addendum which bear interest in relation to the Libor Rate shall be
referred to herein as "Libor Loans" and each such advance shall be a "Libor
Loan." Each Libor Loan shall bear interest at the Libor Rate, as defined below.
A Libor Loan shall be in the minimum amount of FIVE HUNDRED THOUSAND DOLLARS
($500,000.00) or such greater amount which is an integral multiple of FIFTY
THOUSAND DOLLARS ($50,000.00). No Libor Loan shall be made after the last
Business Day that is at least three (3) months prior to the Maturity Date
described in the Note.
2. INTEREST ON LIBOR LOANS.
2.1 Rate of Interest. Each Libor Loan shall bear interest on the unpaid
principal amount thereof from the Loan Date through the date paid (whether by
acceleration or otherwise) at a rate equal to the sum of 1.40 % per annum plus
the Libor Rate for the interest Period.
(a) "Loan Date" shall mean the date on which (i) a Libor Loan is
made, a Libor Loan is continued, or a Prime Loan is converted to a Libor Loan.
(b) "Interest Period" share mean a period of UP TO 270 DAYS
commencing on the applicable Loan Date, as selected by Borrower pursuant to
Section 2.2; provided, however, that Borrower may not select an Interest Period
that would otherwise extend beyond the Maturity Date of the Loan. Borrower may
also select a twelve (12) month Interest Period if and when Bank notifies
Borrower that such Interest Period is available, as determined by Bank in its
sole discretion. During a Libor Interest Period, interest shall be payable on
the last day of the Interest Period, provided that for any Interest Period
longer than 3 months, interest shall be payable quarterly and on the last day of
the Interest Period.
(c) "Libor Rate" shall mean, for the applicable Interest Period
for a Libor Loan, a rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) equal to (i) the Libor Base Rate for such Interest Period
divided by (ii) 1.00 minus the Reserve Requirement Rate (expressed as a decimal
fraction) for such Interest Period.
(d) "Libor Base Rate" shall mean with respect to any Interest
Period, the rate equal to the arithmetic mean (rounded upwards, if necessary, to
the nearest 1/16 of 1%) of:
(i) the offered rates per annum for deposits in U.S.
Dollars for a period equal to such Interest Period which appears at 11:00 a.m.,
London time, on the Reuters Screen LIBOR Page on the Business Day that is two
(2) Business Days before the first day of such Interest Period, in each case if
at least four (4) such offered rates appear on such page, or
Page 1
<PAGE> 25
(ii) if clause (i) is inapplicable, (x) the offered rate
per annum for deposits in U.S. Dollars for a period equal to such Interest
Period which appears as of 11:00 a.m., London time on the Telerate Monitor on
Telerate Screen 3750 on the Business Day which is two (2) Business Days before
the first day of such Interest Period; or (y) if clause (x) above is
inapplicable, the arithmetic mean (rounded upwards, if necessary, to the nearest
1/16 of 1%) of the interest rates per annum offered by at least three (3) prime
banks selected by Bank at approximately 11:00 a.m. London time, on the Business
Day which is two (2) Business Days before such date for deposits in U.S. Dollars
to prime banks in the London interbank market, in each case for a period equal
to such Interest Period in an amount equal to the amount to which the Libor Rate
applies.
(e) "Business Day" means any day on which Bank is open for
business in the State of California.
(f) "Reuters Screen LIBOR Page" means the display designated as
page LIBOR on the Reuters Monitor Money Rates Service or such other page as may
replace the LIBOR page on that service for the purpose of displaying London
interbank offered rates of major banks.
(g) "Reserve Requirement Rate" means, for any Interest Period,
the aggregate of the rates, effective as of the Business Day which is two (2)
Business Days before the first day of the Interest Period, at which:
(i) reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during such Interest Period
under Regulation D against "Eurocurrency liabilities" (as such term is used in
Regulation D) by member banks of the Federal Reserve System; and
(ii) any additional reserves are required to be maintained
by Bank by reason of any Regulatory Change against (x) any category of
liabilities which includes deposits by reference to which the Libor Rate is to
be determined as provided in the definition of "Libor Base Rate;" or (y) any
category of extensions of credit or other assets which include Libor Loans.
(h) "Regulatory Change" means, with respect to Bank, any change
on or after the date of the Note and this Addendum in any Governmental
Regulation, including the introduction of any new Governmental Regulation or the
rescission of any existing Governmental Regulation.
(i) "Governmental Regulation" means any (i) United States
Federal, state or foreign law or regulation (including without limitation
Regulation D); and (ii) the adoption or making of any interpretation,
application, directive or request applying to a class of lenders, including
Bank, of or under any United States Federal, state, or any foreign law or
regulation (whether or not having the force of law) by any court or by any
governmental, central banking, monetary or taxing authority charged with the
interpretation or administration of such law or regulation.
2.2 Determination of Interest Rates. Subject to the terms and conditions
of the Note and this Addendum, Borrower, at its option, may request an advance
in the form of a Libor Loan, a continuation of a Libor Loan, or a conversion of
a Prime Loan into a Libor Loan, only upon delivery to Bank of an irrevocable
written notice received by Bank at least three (3) Business Days prior to the
requested Loan Date, specifying (i) the principal amount of such Libor Loan,
(ii) the requested Loan Date, and (iii) the selected Interest Period. Upon
receiving such notice, Bank shall determine (which determination shall be in
accordance with Section 2.1 and shall, absent manifest error, be final,
conclusive and binding upon all parties hereto) the Libor Rate applicable to
such Libor Loan two (2) Business Days prior to the Loan Date, and shall promptly
give notice thereof (in writing or by telephone confirmed in writing) to
Borrower. If Borrower shall fail to notify Bank of its selected Interest Period
for a Libor Loan (including the continuation of an existing Libor Loan or the
conversion of a Prime Loan into a Libor Loan), the Borrower shall be deemed to
have selected at) Interest Period of three (3) months.
2.3 Computation of Interest and Fees. All computations of interest and
fees payable pursuant to the Note shall be calculated oil the basis of a three
hundred sixty (360) day year for the actual number of days elapsed (less the
date of repayment).
2.4 Recordation by Bank. Bank is hereby authorized to record the Loan
Date, the applicable Interest Period, the principal amount, and the interest
rate of each Libor Loan made (or continued or converted) by Bank, and the date
and amount of each payment or prepayment of principal thereof, in Bank records.
Any such recordation shall constitute prima facie evidence of the accuracy of
the information recorded; provided that the failure to make any such recordation
shall not in any way affect the Borrower's obligations hereunder.
3. CONVERSION TO PRIME LOANS.
Page 2
<PAGE> 26
3.1 Election by Borrower. Subject to all the terms and conditions of
this Addendum, Borrower may elect from time to time to convert a Libor Loan to a
Prime Loan by giving Bank at least three (3) Business Days' prior irrevocable
notice of such election, and any such conversion of a Libor Loan shall be made
on the last day of the Interest Period with respect thereto.
3.2 Failure of Notice by Borrower. If Borrower otherwise fails to give
notice specifying its requests with respect to any Libor Loans that are
scheduled to become due, such failure shall be deemed, in the absence of any
notice from Borrower to the contrary, to be notice of a requested advance in the
form of a Prime Loan in a principal amount equal to the amount of said Libor
Loan.
4. PREPAYMENTS.
4.1 Voluntary Prepayment by Borrower. Subject to the terms and
conditions of the Note and this Addendum, Borrower may, upon at least three (3)
Business Days' irrevocable notice to Bank as provided herein, at any time and
from time to time on any Business Day prepay any Prime Loan or Libor Loan in
whole or in part, without penalty or premium, other than customary actual
"Breakage Fees" and "Prepayment Costs" as defined below, resulting from
prepayment of any Libor Loan prior to the expiration of the Interest Period
relating thereto. The notice of prepayment shall specify the date and amount of
the prepayment, and the Loan to which the prepayment applies. Each partial
prepayment of a Libor Loan shall be in an amount not less than FIFTY THOUSAND
DOLLARS ($50,000.00) FIVE HUNDRED THOUSAND DOLLARS ($500,000.00) or such greater
amount which is an integral multiple of FIFTY THOUSAND DOLLARS ($50,000.00);
provided that unless a Libor Loan is prepaid in full, no prepayment shall be
made if, after giving effect to such prepayment, the aggregate principal amount
of Libor Loans having the same Interest Period shall be less than FIVE HUNDRED
THOUSAND DOLLARS ($500,000.00). Notice of prepayment having been delivered as
aforesaid, the principal amount of the prepayment specified in such notice shall
become due and payable on the prepayment date set forth in such notice. All
payments of principal under this Section 4 shall be accompanied by accrued but
unpaid interest on the amount being prepaid through the date of such prepayment.
4.2 Breakage Fees. If for any reason (including voluntary or mandatory
prepayment, voluntary or mandatory conversion of a Libor Loan into a Prime Loan,
or acceleration), Bank receives all or part of the principal amount of a Libor
Loan prior to the last day of the Interest Period for such Loan, Borrower shall
immediately notify Borrower's account officer at Bank and, on demand by Bank,
pay Bank the Breakage Fees, defined as the amount (if any) by which (i) the
additional interest which would have been payable on the amount so received had
it not been received until the last day of such Interest Period exceeds (ii) the
interest which would have been recoverable by Bank (without regard to whether
Bank actually so invests said funds) by placing the amount so received on
deposit in the certificate of deposit markets or the offshore currency interbank
markets or United States Treasury investment products, as the case may be, for a
period starting on the date on which it was so received and ending on the last
day of such Interest Period at the interest rate determined by Bank in its
reasonable discretion. Bank's determination as to such amount shall be
conclusive and final, absent manifest error.
4.3 Prepayment Costs. Borrower shall pay to Bank, upon the demand of
Bank, such other amount or amounts as shall be sufficient (in the sole good
faith opinion of Bank) to compensate it for any loss, costs or expense incurred
by it as a result of any prepayment by Borrower (including voluntary or
mandatory prepayment, voluntary or mandatory conversion of a Libor Loan into a
Prime Loan, or prepayment due to acceleration) of all or part of the principal
amount of a Libor Loan prior to the last day of the Interest Period for such
Loan (including without limitation any failure by Borrower to borrow a Libor
Loan on the Loan Date for such borrowing specified in the relevant notice of
borrowing hereunder). Such costs shall include, without limitation, any interest
or fees payable by Bank to lenders of funds obtained by it in order to make or
maintain its loans based on the London interbank eurodollar market. Bank's
determination as to such costs shall be conclusive and final, absent manifest
error.
5. REMEDIES UPON EVENTS OF DEFAULT.
5.1 Conversion to Prime Loans. If any Event of Default has occurred and
is continuing under the Note or this Addendum, then in addition to all other
remedies available to Bank under the Note, at the option of Bank and without
demand or notice, all Libor Loans then outstanding shall be automatically
converted to Prime Loans on the last day of each respective Interest Period for
each Libor Loan.
5.2 Indemnity. Borrower agrees to pay and indemnify Bank for, and to
hold Bank harmless from, any and all cost, loss or expense (including without
limitation any such cost, loss or expense arising from interest or fees payable
by Bank to lenders of funds obtained by it in order to maintain its Libor Loans
hereunder, or in its reemployment of funds obtained in connection with the
Page 3
<PAGE> 27
making or maintaining of Libor Loans) which Bank may sustain or incur as a
consequence of any default by Borrower in connection with or related to: (a)
payment of the principal amount of or interest on Libor Loans, (b) making a
borrowing or conversion of a Libor Loan after Borrower has given a notice
thereof in accordance with this Addendum, or (c) making a prepayment of a Libor
Loan after Borrower has given a notice thereof in accordance with this Addendum,
or any prepayment (whether optional or mandatory) of any Libor Loan prior to the
end of the applicable Interest Period for such Loan.
6. ADDITIONAL PROVISIONS REGARDING LIBOR LOANS.
6.1 Libor Rate Taxes. All payments of principal, interest, fees, costs,
expenses and all other amounts payable by Borrower pursuant to the Note and this
Addendum shall be made free and clear of and without reduction by reason of all
present and future income, stamp and other taxes or other charges whatsoever
imposed, assessed, levied or collected by any national government or any
political subdivision or taxing authority thereof or any organization of which
it is a member (excluding (i) any taxes imposed on or measured by the overall
net income or gross receipts of Bank by any such entity, and (ii) any taxes
which would have been imposed even if no provisions for Libor Loans had appeared
in this Addendum) (collectively, "Libor Taxes").
If any Libor Taxes are required to be withheld from any amounts payable
to Bank, Borrower shall pay such additional amounts as may be necessary so as to
yield to Bank a net amount equal to the total amount of the payments provided
for in this Addendum or under the Note which Bank would have received if such
amounts had not been subject to Libor Taxes.
If any Libor Taxes are payable directly by Borrower, they shall be paid
by Borrower prior to the date on which penalties attach for failure to timely
pay such Libor Taxes. Within forty five (45) days after the date on which
payment of any such Libor Taxes is due pursuant to applicable law, Borrower will
furnish Bank the original receipt for the full payment of such Libor Taxes or,
if such is not available, evidence of such payment satisfactory in form and
substance to Bank. Borrower shall indemnify and hold Bank harmless against, and
will reimburse to Bank, upon demand, any incremental taxes, interest or
penalties that may become payable by Bank as a result of any failure by Borrower
to pay any Libor Taxes when due.
6.2 Inability to Determine Fair Interest Rate. If at any time Bank, in
its sole and absolute discretion, determines that: (i) the amount of the Libor
Loans for periods equal to the corresponding Interest Periods are not available
to Bank in the offshore currency interbank markets, (ii) the Libor Rate does not
accurately reflect the cost to Bank of lending the Libor Loan, or (iii) by
reason of any changes arising after the date of the Note affecting the London
interbank eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in Sections
2.1 and 2.2 above, then Bank shall promptly give notice thereof to Borrower.
Upon the giving of such notice, Bank's obligation to make Libor Loans shall
terminate, unless Bank and the Borrower agree in writing to a different interest
rate applicable to Libor Loans, or until such time as Bank notifies Borrower
that the circumstances giving rise to Bank's notice no longer exist. While such
circumstances continue to exist, (x) any requested Libor Loan shall be treated
as a request for a Prime Loan, (y) any Prime Loan that was to have been
converted to a Libor Loan shall be continued as a Prime Loan, and (z) any
outstanding Libor Loan shall be converted retroactively, on the first day of the
then current Interest Period with respect thereto, to a Prime Loan.
6.3 Illegality or Impracticability. If (i) due to any Governmental
Regulation it shall become unlawful for Bank to continue to fund or maintain any
Libor Loans, or to perform its obligations hereunder, or (ii) due to any
contingency occurring after the date of the Note which has a material adverse
effect on the London interbank eurodollar market, it has become impracticable
for Bank to continue to fund or maintain any Libor Loans, or to perform its
obligations hereunder, then Bank shall promptly give notice thereof to Borrower.
Upon the giving of such notice, Bank's obligation to make Libor Loans shall
terminate, and in such event, (x) any requested Libor Loan shall be treated as a
request for a Prime Loan, (y) any Prime Loan that was to have been converted to
a Libor Loan shall be continued as a Prime Loan, and (z) any outstanding Libor
Loan shall be converted retroactively, on the first day of the then current
Interest Period with respect thereto, to a Prime Loan.
6.4 Governmental Regulations; Increased Costs. Borrower shall pay to
Bank, within 15 days after demand by Bank, from time to time such amounts as
Bank may determine to be necessary to compensate it for any increased costs
incurred by Bank that Bank determines are attributable to its making or
maintaining of any Libor Loans to Borrower (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"), in
each case resulting from any Regulatory Change which:
(a) imposes a new tax or changes the basis of taxation of any
amounts payable to Bank under the Note or this Addendum in respect of any Libor
Loans (other than changes which affect taxes measured by or imposed on the
overall net income of Bank by the jurisdiction in which such Bank has its
principal office); or
Page 4
<PAGE> 28
(b) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits or other liabilities with or for the account of Bank (including any
Libor Loans or any deposits referred to in the definition of Libor Base Rate);
or
(c) imposes any other condition affecting the Note (or any of
such extensions of credit or liabilities); or
(d) imposes or modifies a Governmental Regulation regarding
capital adequacy which has or would have the effect of reducing the rate of
return on capital of Bank or any person or entity controlling Bank ("Parent") as
a consequence of its obligations hereunder to a level below that which Bank (or
its Parent) could have achieved but for such adoption, change or compliance
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by Bank to be material.
Bank will notify Borrower of any event occurring after the date of the
Note which will entitle Bank to Additional Costs pursuant to this Section 6.4 as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Bank will furnish Borrower with a statement setting
forth the basis and amount of each request by Bank for Additional Costs under
this Section 6.4. Determinations and allocations by Bank for purposes of this
Section 6.4 of the effect of any Regulatory Change on its costs of maintaining
its obligations to make Libor Loans or of making or maintaining Libor Loans or
on amounts receivable by it in respect of Libor Loans, and of the additional
amounts required to compensate Bank in respect of any Additional Costs, shall be
conclusive and final, absent manifest error.
This Addendum is executed as of the date first written above.
BORROWER BANK
MICRO GENERAL CORPORATION, IMPERIAL BANK,
a DELAWARE CORPORATION a California banking
corporation
By By
--------------------------------- -------------------------------------
Its Its
-------------------------------- ------------------------------------
By
---------------------------------
Its
--------------------------------
Page 5
<PAGE> 1
EXHIBIT 21
MICRO GENERAL CORPORATION
LIST OF SUBSIDIARIES
1. ACS Systems, Inc.
2. LDExchange.com, Inc.
3. Interactive Associates, Inc.
38
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Micro General Corporation:
We consent to incorporation by reference in the registration statements
(no. 2-85485, 2-94290, 333-22240, 333-64289 and 333-95913) on Form S-8 of Micro
General Corporation of our report dated March 28, 2000, relating to the
consolidated balance sheets of Micro General Corporation as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999, and the related schedule, which report appears in the
December 31, 1999 annual report on Form 10-K of Micro General Corporation.
KPMG LLP
Los Angeles, California
March 28, 2000
39
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,400,874
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<RECEIVABLES> 8,678,333
<ALLOWANCES> 2,265,601
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0
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