EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of December
7, 2001, by and among The 3DO Company, a Delaware corporation, with headquarters
located at 000 Xxxxxxxx Xxx, Xxxxxxx Xxxx, Xxxxxxxxxx, 00000 (the "Company"),
and the undersigned buyers (individually, a "Buyer," and collectively, the
"Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Company has authorized the following new series of its preferred
stock, par value $0.01 per share: the Company's Series A Convertible Preferred
Stock (the "Preferred Stock"), which shall be convertible into shares of the
Company's common stock, par value $0.01 per share (the "Common Stock") (as
converted, the "Conversion Shares"), in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of the Preferred
Stock, substantially in the form attached hereto as Exhibit A (the "Certificate
of Designations");
C. The Buyers set forth under the heading "Initial Buyers" on the
Schedule of Buyers (the "Initial Buyers") wish to purchase, upon the terms and
conditions stated in this Agreement, (I) an aggregate of 15,720 shares of the
Preferred Stock (the "Initial Preferred Shares") in the respective amounts set
forth opposite such Initial Buyer's name on the Schedule of Buyers, and (II)
warrants, substantially in the form attached hereto as Exhibit B (the "Initial
Warrants"), to acquire a number of shares of Common Stock for each Initial
Preferred Share purchased equal to the quotient of (a) $300 divided by (b) the
arithmetic average of the Weighted Average Price (as defined in the Warrant) of
the Common Stock on each of the ten (10) consecutive trading days immediately
preceding the Initial Closing Date (as defined below) (as exercised,
collectively, the "Initial Warrant Shares"); and
D. The Buyers set forth under the heading "Second Buyers" on the
Schedule of Buyers (the "Second Buyers") wish to purchase, upon the terms and
conditions stated in this Agreement, (I) an aggregate of 100 shares of the
Preferred Stock (the "Second Preferred Shares," and collectively with the
Initial Preferred Shares, the "Preferred Shares") in the respective amounts set
forth opposite such Second Buyer's name on the Schedule of Buyers, and (II)
warrants, substantially in the form attached hereto as Exhibit B (the "Second
Warrants," and collectively with the Initial Warrants, the "Warrants"), to
acquire a number of shares of Common Stock for each Second Preferred Share
purchased equal to the quotient of (a) $300 divided by (b) the Weighed Average
Price of the Common Stock on each of the ten (10) consecutive trading days
immediately preceding the Initial Closing Date (as exercised, the "Second
Warrant Shares," and collectively with the Initial Warrant Shares, the "Warrant
Shares"); and
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the
form attached hereto as Exhibit C (the "Registration Rights Agreement") pursuant
to which the Company has agreed to provide certain registration rights under the
1933 Act and the rules and regulations promulgated thereunder, and applicable
state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7(a)
below, the Company shall issue and sell to each Initial Buyer and each Initial
Buyer severally agrees to purchase from the Company the respective number of
Initial Preferred Shares set forth opposite such Initial Buyer's name on the
Schedule of Buyers, along with Initial Warrants to acquire that number of shares
of Common Stock for each Initial Preferred Share purchased equal to the quotient
of (i) $300 divided by (ii) the arithmetic average of the Weighted Average Price
of the Common Stock on each of the ten (10) consecutive trading days immediately
preceding the Initial Closing Date (the "Initial Closing"). Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7(b)
below, the Company shall issue and sell to each Second Buyer and each Second
Buyer severally agrees to purchase from the Company the respective number of
Second Preferred Shares set forth opposite such Second Buyer's name on the
Schedule of Buyers, along with Second Warrants to acquire that number of shares
of Common Stock for each Second Preferred Share purchased equal to the quotient
of (x) $300 divided by (y) the arithmetic average of the Weighted Average Price
of the Common Stock on each of the ten (10) consecutive trading days immediately
preceding the Initial Closing Date (the "Second Closing," and collectively with
the Initial Closing, the "Closings"). The purchase price (the "Purchase Price")
of each Preferred Share and the related Warrants at each of the Closings shall
be an aggregate of $1,000. "Business Day" means any day other than Saturday,
Sunday or other day on which commercial banks in the City of New York are
authorized or required by law to remain closed.
b. The Initial Closing Date. The date and time of the Initial
Closing (the "Initial Closing Date") shall be 10:00 a.m. Central Time, on
December 10, 2001, subject to the satisfaction (or waiver) of the conditions to
the Initial Closing set forth in Sections 6 and 7(a) (or such later date as is
mutually agreed to by the Company and the Initial Buyers). The Initial Closing
shall occur on the Initial Closing Date at the offices of Xxxxxx Xxxxxx Xxxxx,
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000-0000.
c. The Second Closing Date. The date, time and location of the
Second Closing (the "Second Closing Date," and collectively with the Initial
Closing Date, the "Closing Dates") shall be mutually agreed to by the Company
and the Second Buyers; provided, however, that the Second Closing Date shall not
occur after December 10, 2001, or, if later, the Initial Closing Date.
d. Form of Payment. On each of the Closing Dates, (i) each
Buyer purchasing Preferred Shares at such Closing shall pay the Purchase Price
to the Company for the Preferred Shares and the related Warrants to be issued
and sold to such Buyer at such Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, less
any amount withheld for expenses pursuant to Section 4(h), and (ii) the
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Company shall deliver to each Buyer purchasing Preferred Shares at such Closing,
stock certificates (in the denominations as such Buyer shall request) (the
"Preferred Stock Certificates") representing the number of the Preferred Shares
which such Buyer is then purchasing hereunder along with instruments
representing the related Warrants, duly executed on behalf of the Company and
registered in the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that, as of the date of this Agreement and as of the Closing Date on which such
Buyer is purchasing Securities hereunder, except that HFTP Investment L.L.C. and
Gaia Offshore Master Fund, Ltd. do not make the representation set forth in
Section 2(j):
a. Investment Purpose. Such Buyer (i) is acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares,
will acquire the Conversion Shares then issuable, and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof (the
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "Securities"), for its own account
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under
the 1933 Act; provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of the United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire the Securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Sections 3 and 9(m) below. Such Buyer understands that its investment in the
Securities involves a high degree of risk. Such Buyer has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.
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e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act, as amended, (or a successor rule thereto) ("Rule 144"); (ii) any sale of
the Securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
the Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 0000 Xxx) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register the
Securities under the 1933 Act or any state securities laws or to comply with the
terms and conditions of any exemption thereunder.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Preferred Shares and the Warrants and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II)
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
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The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold. Such Buyer acknowledges, covenants and agrees to sell
Securities represented by a certificate from which the legend has been removed
only pursuant to (i) a registration statement effective under the 1933 Act or
(ii) advice of counsel that such sale is exempt from the registration
requirements of Section 5 of the 1993 Act, including, without limitation, a
transaction pursuant to Rule 144.
h. Authorization; Enforcement; Validity. This Agreement and
the Registration Rights Agreement have been duly and validly authorized,
executed and delivered on behalf of such Buyer and are valid and binding
agreements of such Buyer enforceable against such Buyer in accordance with their
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that jurisdiction
specified in its address on the Schedule of Buyers.
j. Independent Investigation. Such Buyer, other than HFTP
Investment L.L.C. and Gaia Offshore Master Fund, Ltd., has made an independent
evaluation of the Company, its current business and financial condition and the
risks associated with such Buyer's investment in the Securities based solely on
(i) publicly available information disclosed by or concerning the Company and
(ii) the information contained in the Transaction Documents.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers
that, as of the date of this Agreement and as of the Initial Closing Date:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power and authorization to own their properties and
to carry on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "Material
Adverse Effect" means any material adverse effect on the business, properties,
assets,
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operations, results of operations, financial condition or prospects of the
Company and its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements and instruments to be entered into in
connection herewith, or on the authority or ability of the Company to perform
its obligations under the Transaction Documents (as defined below) or the
Certificate of Designations. The Company has no Subsidiaries except as set forth
on Schedule 3(a).
b. Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5), the Warrants
and each of the other agreements entered into by the parties hereto in
connection with the transactions contemplated by this Agreement (collectively,
the "Transaction Documents"), and to issue the Securities in accordance with the
terms hereof and thereof. The execution and delivery of the Transaction
Documents by the Company and the execution and filing of the Certificate of
Designations by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
the Preferred Shares and the Warrants and the reservation for issuance and the
issuance of the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise thereof, have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders (except such stockholder approved as
may be required pursuant to the rules of The Nasdaq Stock Market, Inc. for the
issuance of a number of shares of Common Stock which is greater than 19.99% of
the number of shares of Common Stock outstanding immediately prior to the
Initial Closing Date). This Agreement and the other Transaction Documents dated
of even date herewith have been duly executed and delivered by the Company. The
Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. As of
the applicable Closing, the Transaction Documents dated after the date hereof
shall have been duly executed and delivered by the Company and shall constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies. The Certificate of Designations has been filed prior to the
Initial Closing with the Secretary of State of the State of Delaware and will be
in full force and effect, enforceable against the Company in accordance with its
terms and shall not have been amended unless in compliance with its terms.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 125,000,000 shares of Common Stock,
of which as of December 4, 2001, 53,072,399 shares were issued and outstanding,
8,728,883 shares were reserved for issuance pursuant to the Company's stock
option and purchase plans (excluding shares of Common Stock reserved for
issuance upon the exercise of options which already have been issued pursuant to
the Company's stock option plans) and 26,228,667 shares are issuable and
reserved for issuance pursuant to securities (other than the Preferred Shares
and the Warrants, but including options issued and outstanding under the
Company's stock option plans) exercisable or exchangeable for, or convertible
into, shares of Common Stock and (ii) 5,000,000
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shares of Preferred Stock, of which as of the date hereof, no shares are issued
and outstanding. All of such outstanding or issuable shares have been, or upon
issuance in compliance with the terms thereof will be, validly issued and are
fully paid and nonassessable. From December 4, 2001 through the date hereof, the
Company has not issued or reserved for issuance more than 25,000 shares of
Common Stock (other than the reservation of shares of Common Stock for issuance
upon conversion of the Preferred Shares and upon exercise of the Warrants and
the reservation of up to 312,424 shares of Common Stock for issuance upon
exercise of the warrant to be issued to Xxxxxx Xxxxxx Xxxxxxxx). Except as
disclosed in Schedule 3(c), (A) no shares of the Company's capital stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances granted or created by the Company; (B) there are no outstanding
debt instruments issued by the Company; (C) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (D) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement); (E) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (F) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement; and (G) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement. The
Company has furnished to each Buyer true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's Bylaws, as amended and
as in effect on the date hereof (the "Bylaws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issuance thereof and (iii) entitled to the
rights and preferences set forth in the Certificate of Designations. 10,816,165
shares of Common Stock (subject to adjustment pursuant to the Company's covenant
set forth in Section 4(f) below) have been duly authorized and reserved for
issuance upon conversion of the Preferred Shares and upon exercise of the
Warrants. Upon conversion or exercise in accordance with the Certificate of
Designations or the Warrants, as the case may be, the Conversion Shares and the
Warrant Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. The
issuance by the Company of the Securities is exempt from registration under the
1933 Act.
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e. No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company, the performance by the Company of its
obligations under the Certificate of Designations and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the reservation for issuance and issuance of the Conversion Shares
and the Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the Bylaws; (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party; (iii) result in a violation of any law, rule, regulation, order, judgment
or decree (including federal and state securities laws and regulations and the
rules and regulations of the Principal Market (as defined below)) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Neither the Company nor
its Subsidiaries is in violation of any term of its Certificate of
Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or Bylaws or their
organizational charter or bylaws, respectively. Except as disclosed in Schedule
3(e), neither the Company or any of its Subsidiaries is in violation of any term
of or in default under any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except where such
violations and defaults would not result, either individually or in the
aggregate, in a Material Adverse Effect. The business of the Company and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, ordinance or regulation of any governmental entity, except where such
violations would not result, either individually or in the aggregate, in a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or to perform its obligations under
the Certificate of Designations, in each case in accordance with the terms
hereof or thereof. Except as disclosed in Schedule 3(e), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain as described in the preceding sentence have been obtained or effected
on or prior to the date hereof. The Company and its Subsidiaries are unaware of
any facts or circumstances which might give rise to any of the foregoing. The
Company is not in violation of the listing requirements of the Principal Market,
including, without limitation, the requirements set forth in Rule 4350(i)(1)(D)
of the Principal Market and has no actual knowledge of any facts which would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future.
f. SEC Documents; Financial Statements. Since March 31, 2000,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof (including all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein) being hereinafter referred to as the "SEC
Documents"). A complete and accurate list of the SEC Documents is set forth on
Schedule 3(f). Except as set forth on Schedule 3(f), neither the Company nor any
of its Subsidiaries is a party to or subject to any agreement, indenture or
instrument which it is or will be required to file as an exhibit to the
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Company's reports or filings under the 1934 Act and which has not been filed as
an exhibit to any of the SEC Documents. Except for the amendments to the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2000
contained in the amendment to such Form 10-Q filed with the SEC on June 7, 2001,
as of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents. None of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Except for the
amendments to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 2000 contained in the amendment to such Form 10-Q filed with the
SEC on June 7, 2001, as of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d), contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they are or were made, not misleading. Neither the Company nor any of its
Subsidiaries or any of their officers, directors, employees or agents have
provided the Buyers with any material, nonpublic information. The Company meets
the requirements for use of Form S-3 for registration of the resale of
Registrable Securities (as defined in the Registration Rights Agreement). As of
the date of this Agreement, there are no amounts outstanding under the Loan and
Security Agreement, dated as of April 6, 2000 by and among the Company, its
subsidiaries, and certain lenders including Foothill Capital Corporation, as
amended.
g. Absence of Certain Changes; Solvency. Except as disclosed
in Schedule 3(g) or in the SEC Documents filed with the SEC through XXXXX and
available to the public through XXXXX at least five (5) Business Days prior to
the date of this Agreement, since March 31, 2001, there has been no material
adverse change and no material adverse development in the business, properties,
assets, operations, results of operations, financial conditions or prospects of
the Company or its Subsidiaries. Except as disclosed in Schedule 3(g), since
March 31, 2001, the Company has not declared or paid any dividends, sold any
assets, individually or in the aggregate, in excess of $250,000 outside of the
ordinary course of business or had capital expenditures, individually or in the
aggregate, in excess of $250,000. The information and statements set forth in
Schedule 3(g) have been publicly disclosed prior to the date of this Agreement.
The Company is not as of the date hereof, and after giving effect to the
transactions contemplated hereby will not be, Insolvent (as defined below). The
Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company
have any knowledge or reason to believe that its creditors
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intend to initiate involuntary bankruptcy proceedings. For purposes of this
Section 3(g), "Insolvent" means (i) the present fair saleable value of the
Company's assets is less than the amount required to pay the Company's total
indebtedness, contingent or otherwise, (ii) the Company is unable to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) the Company intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) the Company has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company, the Common Stock or any of the Subsidiaries or any of the
Company's or the Subsidiaries' officers or directors in their capacities as
such, except as expressly set forth in Schedule 3(h). Except as set forth in
Schedule 3(h), to the knowledge of the Company none of the directors or officers
of the Company have been involved in securities related litigation during the
past five years.
i. Acknowledgment Regarding Buyer's Purchase of Preferred
Shares and Warrant. The Company acknowledges and agrees that each of the Buyers
is acting solely in the capacity of an arm's length purchaser with respect to
the Company in connection with the Transaction Documents and the Certificate of
Designations and the transactions contemplated hereby and thereby. The Company
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the Certificate of Designations and the transactions contemplated
hereby and thereby and any advice given by any of the Buyers or any of their
respective representatives or agents in connection with the Transaction
Documents and the Certificate of Designations and the transactions contemplated
hereby and thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. Except for the issuance of the Preferred Shares and Warrant
contemplated by this Agreement, no material event, liability, development or
circumstance has occurred or exists, or is contemplated to occur, with respect
to the Company or its Subsidiaries or their respective business, properties,
prospects, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws on a registration
statement on Form S-1 filed with the SEC relating to an issuance and sale by the
Company of its Common Stock and which has not been publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Securities.
-10-
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of any exchange or automated quotation system on
which any of the securities of the Company are listed or designated, nor will
the Company or any of its Subsidiaries take any action or steps that would
require registration of any of the Securities under the 1933 Act or cause the
offering of the Securities to be integrated with other offerings.
m. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares will increase in certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designations and
its obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
n. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union which relates to
such employee's relationship with the Company, neither the Company nor any of
its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relations with their employees
are good. No executive officer (as defined in Rule 501(f) of the 0000 Xxx) has
notified the Company that such officer intends to leave the Company or otherwise
terminate such officer's employment with the Company. No executive officer, to
the knowledge of the Company and its Subsidiaries, is, or is now expected to be,
in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement, non-competition agreement, or
any other contract or agreement or any restrictive covenant, and, to the
knowledge of the Company, the continued employment of each such executive
officer does not subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters.
o. Intellectual Property Rights. The Company and its
Subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service xxxx registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct their respective businesses as now conducted. Except as set forth on
Schedule 3(o), none of the Company's trademarks, trade names, service marks,
service xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other intellectual property rights necessary to conduct their respective
businesses as now conducted have expired or terminated, or are expected to
expire or terminate within two years from the date of this Agreement, except
where such expirations or termination would not result, either individually or
in the aggregate, in a Material Adverse Effect. The Company and its Subsidiaries
do not have any knowledge of any
-11-
infringement by the Company or its Subsidiaries of trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, trade secrets or other intellectual
property rights of others, or of any development of similar or identical trade
secrets or technical information by others and, except as set forth on Schedule
3(o), there is no claim, action or proceeding being made or brought against, or
to the Company's knowledge, being threatened against, the Company or its
Subsidiaries regarding its trademarks, trade names, service marks, service xxxx
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, trade secrets, or infringement of other intellectual property rights;
and the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
p. Environmental Laws. The Company and its Subsidiaries (i)
are in material compliance with any and all applicable foreign, federal, state
and local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses, except for such permits, licenses or other
approvals, the failure to receive would not result, either individually or in
the aggregate, in a Material Adverse Effect and (iii) are in material compliance
with all terms and conditions of any such permit, license or approval.
q. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(q) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and facilities by the
Company and its Subsidiaries.
r. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect, taken as a whole.
s. Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, except for those certificates, authorizations and
permits, the failure to obtain would not result, either individually
-12-
or in the aggregate in a Material Adverse Effect, and neither the Company nor
any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit.
t. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of liability
is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets and liabilities is
compared with the existing assets and liabilities at reasonable intervals and
appropriate action is taken with respect to any differences.
u. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect.
v. Tax Status. The Company and each of its Subsidiaries (i)
has made or filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes), (ii) has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and for which the Company has made appropriate reserves for on its
books, and (iii) has set aside on its books provisions reasonably adequate for
the payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations (referred to in clause (i) above) apply. There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
w. Transactions With Affiliates. Except as set forth on
Schedule 3(w) and in the SEC Documents filed at least ten days prior to the date
hereof, and other than the grant of stock options disclosed on Schedule 3(c),
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.
x. Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation or the
-13-
laws of the state of its incorporation which is or could become applicable to
the Buyers as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Securities and the
Buyers' ownership of the Securities.
y. Rights Agreement. The Company has not adopted a shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.
z. Foreign Corrupt Practices. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any of its Subsidiaries has, in the course of
its actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
aa. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyer(s) relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts to
timely satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the applicable Closing Date, take such action as the Company shall
reasonably determine is necessary in order to obtain an exemption for or to
qualify the Securities for sale to the Buyers at such Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the applicable Closing Date. The Company shall make all
filings and reports relating to the offer and sale of the Securities required
under applicable securities or "Blue Sky" laws of the states of the United
States following the applicable Closing Date.
c. Reporting Status. Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all of the
Conversion Shares and the Warrant Shares and none of the Preferred Shares or the
Warrant is outstanding (the "Reporting Period"), the Company shall file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination.
-14-
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares and the Warrants for general corporate purposes and
working capital.
e. Financial Information. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Reporting Period: (i) unless the following are filed with
the SEC through XXXXX and are available to the public through XXXXX, within two
(2) days after the filing thereof with the SEC, a copy of its Annual Reports on
Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K
and any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act; (ii) on the same day as the release thereof, facsimile
copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) copies of any notices and other information made available or given to
the stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 150% of the number of shares of Common Stock needed to
provide for the issuance of the shares of Common Stock upon conversion of all
outstanding Preferred Shares (without regard to any limitations on conversions)
and 100% of the number of shares of Common Stock needed to provide for the
issuance of the shares of Common Stock upon exercise of all outstanding Warrants
(without regard to any limitations on exercises).
g. Listing. The Company shall promptly secure the listing of
all of the Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange and automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents and the
Certificate of Designations. The Company shall maintain the Common Stock's
authorization for quotation on the Nasdaq National Market ("Nasdaq") or listed
on The New York Stock Exchange, Inc. ("NYSE") or The American Stock Exchange,
Inc. ("AMEX") (as applicable, the "Principal Market"). Neither the Company nor
any of its Subsidiaries shall take any action which would be reasonably expected
to result in the delisting or suspension of the Common Stock from the Principal
Market. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(g).
h. Expenses. At the Closing, the Company shall pay an expense
allowance of $30,000 (which amount is in addition to any amounts paid by the
Company prior to the date of this Agreement) to HFTP Investment L.L.C., which
amount shall be withheld by HFTP Investment L.L.C. from its Purchase Price to be
paid at the Initial Closing.
i. Filing of Form 8-K; Press Release. After 6:00 p.m., New
York City Time, on December 10, 2001, but prior to 8:45 a.m., New York City
Time, on December 11, 2001, the Company shall file a Form 8-K with the SEC
describing the terms of the transactions contemplated by the Transaction
Documents and including as exhibits to such Form 8-K this Agreement (including
the Schedule of Exceptions hereto), the Certificate of Designations, the
Registration Rights Agreement and the Form of Warrant, in the form required by
the 1934 Act (the "Announcing Form 8-K"). The Company shall not, and shall cause
each of its Subsidiaries
-15-
and each of their respective officers, directors, employees and agents not to,
provide the Buyer with any material nonpublic information regarding the Company
or any of its Subsidiaries from and after the filing of the Announcing Form 8-K
with the SEC without the express written consent of the Buyer. The Company's
first press release or other announcement of this Agreement or the transactions
contemplated by this Agreement shall be made concurrent with the filing of the
Announcing Form 8-K with the SEC.
j. Transactions With Affiliates. So long as any Preferred
Shares or Warrants are outstanding, the Company shall not, and shall cause each
of its Subsidiaries not to, enter into, amend, modify or supplement any
agreement, transaction, commitment or arrangement with any of its or any
Subsidiary's officers, directors, persons who were officers or directors at any
time during the previous two years, stockholders who beneficially own 5% or more
of the Common Stock, or affiliates of the Company or its Subsidiaries or with
any individual related by blood, marriage or adoption to any such individual or
with any entity in which any such entity or individual owns a 5% or more
beneficial interest (each a "Related Party"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
agreement, transaction, commitment or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, or (c) any agreement, transaction,
commitment or arrangement which is approved by a majority of the disinterested
directors of the Company. For purposes hereof, any director who is also an
officer of the Company or any Subsidiary shall not be a disinterested director
with respect to any such agreement, transaction, commitment or arrangement.
"Affiliate" for purposes hereof means, with respect to any person or entity,
another person or entity that, directly or indirectly, (i) has a 5% or more
equity interest in that person or entity, (ii) has 5% or more common ownership
with that person or entity, (iii) controls that person or entity, or (iv) shares
common control with that person or entity. "Control" or "controls" for purposes
hereof means that a person or entity has the power, direct or indirect, to
conduct or govern the policies of another person or entity.
k Capital and Surplus; Special Reserves. The Company agrees
that the capital of the Company (as such term is used in Section 154 of the
General Corporation Law of Delaware) in respect of the Preferred Shares shall be
equal to the aggregate par value of such Preferred Shares and that it shall not
increase the capital of the Company with respect to any shares of the Company's
capital stock at anytime on or after the date of this Agreement. The Company
also agrees that it shall not create any special reserves under Section 171 of
the General Corporation Law of Delaware without the prior written consent of
each holder of Preferred Shares. So long as any Preferred Shares remain
outstanding, the Company shall not account for as surplus or transfer to or
otherwise allocate to the Company's surplus account for purposes of the Delaware
General Corporation Law any of the capital represented by the Preferred Shares,
including, without limitation, for the purpose of reducing any of its capital
stock as contemplated by Section 244 of the Delaware General Corporation Law.
The amount to be represented in the capital account for the Preferred Stock at
all times for each outstanding Preferred Share shall be an amount equal to the
product of (i) the Stated Value (as defined in the Certificate of Designations)
and (ii) 125%.
l. Corporate Existence. So long as any Buyer beneficially owns
any Preferred Shares or Warrants, the Company shall maintain its corporate
existence and shall not
-16-
sell all or substantially all of the Company's assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company's
assets, where the surviving or successor entity in such transaction (i) assumes
the Company's obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded corporation
whose common stock is quoted on or listed for trading on Nasdaq, AMEX or NYSE.
m. Pledge of Securities. The Company acknowledges and agrees
that the Securities may be pledged by an Investor (as defined in the
Registration Rights Agreement) in connection with a bona fide margin agreement
or other loan secured by the Securities. The pledge of Securities shall not be
deemed to be a transfer, sale or assignment of the Securities hereunder, and no
Investor effecting any such pledge of Securities shall be required to provide
the Company with any notice thereof or otherwise make any delivery to the
Company pursuant to this Agreement, any other Transaction Document or the
Certificate of Designations, including without limitation, Section 2(f) of this
Agreement; provided that an Investor and its pledgee shall be required to comply
with the provisions of Section 2(f) hereof in order to effect a sale, transfer
or assignment of Securities to such pledgee. The Company hereby agrees to
execute and deliver such documentation as a pledgee of the Securities may
reasonably request in connection with a pledge of the Securities to such pledgee
by an Investor.
n. Proxy Statement. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which shall
be not later than 90 days after the Initial Closing Date (the "Stockholder
Meeting Deadline"), a proxy statement, which has been previously reviewed by the
Buyers and a counsel of their choice, soliciting each such stockholder's
affirmative vote at such annual stockholder meeting for approval of the
Company's issuance of all of the Securities as described in this Agreement in
accordance with applicable law and the rules and regulations of the Principal
Market (such affirmative approval being referred to herein as the "Stockholder
Approval"), and the Company shall use its best efforts to solicit its
stockholders' approval of such issuance of the Securities and to cause the Board
of Directors of the Company to recommend to the stockholders that they approve
such proposal. Such proxy statement shall not seek approval of any matters other
than the approval described in the preceding sentence and the election of
directors. The Company shall file such proxy statement with the SEC as soon as
possible but in no event later than 60 days after the Initial Closing Date (the
"Proxy Statement Filing Due Date"). If the Company fails to file the proxy
statement referred to above by the Proxy Statement Filing Due Date or fails to
hold a meeting of its stockholders by the Stockholder Meeting Deadline, then, as
partial relief (which remedy shall not be exclusive of any other remedies
available at law or in equity), the Company shall pay to each holder of
Preferred Shares an amount in cash per Preferred Share equal to the product of
(i) the Purchase Price multiplied by (ii) .015 multiplied by (iii) the quotient
of (x) the sum of (A) the number of days after the Proxy Statement Filing Due
Date and prior to the date that the proxy statement referred to above is filed
with the SEC and (B) the number of days after the Stockholder Meeting Deadline
and prior to the date that a meeting of the Company's stockholders is held,
divided by (y) 30. The Company shall make the payments referred to in the
immediately preceding sentence within five days of the earlier of (I) the filing
of the proxy statement or the holding of the meeting of the Company's
stockholders, the failure of which resulted in the requirement to make such
payments, and (II) the last day of each 30-day period beginning on the Proxy
Statement Filing Due Date or the Stockholder Meeting Deadline, as the case may
be. In the event the Company fails to make such payments in a timely manner,
such
-17-
payments shall bear interest at the rate of 1.50% per month (pro rated for
partial months) until paid in full.
o. Trading Restrictions.
(i) Each Buyer agrees that, subject to the exceptions described below,
during the Alternative Conversion Period (as defined in the Certificate
of Designations), such Buyer and its affiliates shall not make Net
Sales (as defined below) on any single day during the Alternative
Conversion Period, a number of shares of Common Stock in excess of that
percentage of the daily trading volume of the Common Stock (as reported
by Bloomberg Financial Markets (or any successor thereto)) on such day
equal to the product of (I) the quotient of (x) the number of Preferred
Shares purchased by such Buyer and its affiliates pursuant to this
Agreement divided by (y) 15,820, multiplied by (II) 15.82.
Notwithstanding the foregoing, the net sales restriction set forth in
this Section 4(o)(i) shall not apply (A) at any time on and after the
occurrence of a Triggering Event (as defined in the Certificate of
Designations) or the occurrence of an event that with the passage of
time, and assuming it were not cured, would constitute a Triggering
Event, (B) at any time on and after the consummation of a Change of
Control (as defined in the Certificate of Designations) or the public
announcement of a pending, proposed or intended Change of Control, (C)
on and after the Stockholder Approval Deadline if the Company shall
have failed to receive the Stockholder Approval on or prior to the
Stockholder Approval Deadline or (D) at any time on and after the first
date on which the Company shall have failed to comply with, or
breached, any provision, covenant, representation or warranty in any of
the Transaction Documents or the Certificate of Designations which
would result, either individually or in the aggregate, in a Material
Adverse Effect and, in the case of a covenant which is curable, such
breach continues for a period of at least ten (10) days. For purposes
of this Section 4(o)(i), "Net Sales" means, with respect to any date of
determination and with respect to any Buyer, the difference of (A) the
number of shares of Common Stock sold, including by way of short sales,
or otherwise transferred or disposed of, directly or indirectly, on
such date of determination by such Buyer and its affiliates, minus (B)
the number of shares of Common Stock purchased, directly or indirectly,
on such date of determination by such Buyer and its affiliates.
(ii) Each Buyer agrees that during the period beginning on and
including the Initial Closing Date and ending on and including the
earlier of (A) the first date on which such Buyer no longer holds any
Preferred Shares or Warrants and (B) the date which is three (3) years
after the Initial Closing Date, such Buyer shall not effect, nor shall
such Buyer cause any of its affiliates to effect, any "short sale" (as
defined in Rule 3b-3 of the 0000 Xxx) of the Common Stock (a "Short
Sale") on any trading day (a "Sale Day") at a price which is less than
the lowest sale price of the Common Stock on such Sale Day by any
seller other than such Buyer and its affiliates.
(iii) Each Buyer agrees that, subject to the exceptions described
below, during the period beginning on and including the Initial Closing
Date and ending on and including the earlier of (A) the first date on
which such Buyer no longer holds any Preferred Shares or Warrants and
(B) the date which is three (3) years after the Initial Closing Date,
such
-18-
Buyer shall not engage in, nor shall such Buyer cause any of its
affiliates to engage in, any transaction constituting a Short Sale or
establish an open "put equivalent position" (within the meaning of Rule
16a-1(h) under the 0000 Xxx) with respect to the Common Stock
(collectively with a transaction constituting a Short Sale, a "Short
Equivalent Transaction"); provided, however, that during such period
each Buyer and its affiliates shall be entitled to engage in Short
Equivalent Transactions to the extent that following such Short
Equivalent Transaction the aggregate short position (including
aggregate open "put equivalent positions") of such Buyer and its
affiliates does not exceed the sum of (A) the number of shares of
Common Stock issuable upon exercise (which shall be determined as if an
Exercise Notice (as defined in the Warrants) had been delivered) of the
Warrants held by such Buyer and its affiliates (without regard to any
limitations on exercises), (B) (I) on any day other than a day during
the Adjustment Period (as defined below), the number of shares of
Common Stock issuable upon conversion (which shall be determined as if
a Conversion Notice (as defined in the Certificate of Designations) was
delivered) of the Preferred Shares held by such Buyer and its
affiliates (without regard to any limitations on conversions) and (II)
on any day during the Adjustment Period, the number of shares of Common
Stock equal to the result of (w) the aggregate Conversion Amounts (as
defined in the Certificate of Designations) of all the Preferred Shares
held by such Buyer and its affiliates, divided by (x) the lower of (i)
the Conversion Price (as defined in the Certificate of Designations) in
effect on such date of determination and (ii) as of such date of
determination, the arithmetic average of the Weighted Average Price (as
defined in the Certificate of Designations) of the Common Stock on each
trading day during the period beginning on and including the first day
of the Adjustment Period and ending on and including such date of
determination, plus (C) the number of Dividend Shares (as defined in
the Certificate of Designations) issuable to such Buyer and its
affiliates with respect to the Preferred Shares held by such Buyer and
its affiliates. Notwithstanding the foregoing, the restrictions set
forth in this Section 4(o)(iii) shall not apply (I) at any time on and
after the occurrence of a Triggering Event (as defined in the
Certificate of Designations) or the occurrence of an event that with
the passage of time, and assuming it were not cured, would constitute a
Triggering Event, (II) at any time on and after the consummation of a
Change of Control (as defined in the Certificate of Designations) or
the public announcement of a pending, proposed or intended Change of
Control, (III) at any time on and after the first date on which the
Company shall have failed to delivered the required number of
Conversion Shares to any Buyer or its affiliates upon conversion of
Preferred Shares held by such Buyer or its affiliates on a timely basis
in accordance with Section 2(d)(ii) of the Certificate of Designations
or the Company shall have failed to deliver the required number of
Warrant Shares to any Buyer or its affiliates upon exercise of the
Warrants held by such Buyer or its affiliates on a timely basis in
accordance with Section 2(a) of the Warrants, or (IV) at any time on
and after the first date on which the Company shall have failed to
comply with, or breached, any provision, covenant, representation or
warranty in any of the Transaction Documents or the Certificate of
Designations which would result, either individually or in the
aggregate, in a Material Adverse Effect and, in the case of a covenant
which is curable, such breach continues for a period of at least ten
(10) days. For purposes of this Section 4(o), "Adjustment Period" means
the period (A) beginning on and including the earlier of (y) the date
which is 20 trading days prior to the date immediately following the
date which is 120 days after the date the Registration Statement (as
defined in the Registration Rights
-19-
Agreement) is declared effective by the SEC and (z) the date which is
20 trading days prior to the Adjustment Date (as defined in the
Certificate of Designations) and (B) ending on and including the
Adjustment Date.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent in the form attached hereto as Exhibit F (the "Irrevocable
Transfer Agent Instructions"), and any subsequent transfer agent, to issue
certificates, registered in the name of each Buyer or its respective nominee(s),
for the Conversion Shares and the Warrant Shares in such amounts as specified
from time to time by each Buyer to the Company upon conversion of the Preferred
Shares or exercise of the Warrants. Prior to registration of the Conversion
Shares and the Warrant Shares under the 1933 Act, all such certificates shall
bear the restrictive legend specified in Section 2(g). The Company warrants that
no instruction other than the Irrevocable Transfer Agent Instructions referred
to in this Section 5 and stop transfer instructions to give effect to Section
2(f) (in the case of the Conversion Shares and the Warrant Shares, prior to
registration of the Conversion Shares and the Warrant Shares under the 0000 Xxx)
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
If a Buyer provides the Company with an opinion of counsel, in a generally
acceptable form, to the effect that a public sale, assignment or transfer of the
Securities may be made without registration under the 1933 Act or such Buyer
provides the Company with reasonable assurances that the Securities can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold, the Company
shall permit the transfer, and, in the case of the Conversion Shares and the
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the Buyers
and without any restrictive legend. The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Buyer by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyers shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company to issue and sell the Preferred Shares and the Warrants to each
applicable Buyer at the applicable Closing is subject to the satisfaction, at or
before the applicable Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion by providing each Buyer
purchasing Preferred Shares and Warrants at such Closing with prior written
notice thereof:
a. Such Buyer shall have executed each of the Transaction
Documents to which it is a party and delivered the same to the Company.
-20-
b. Such Buyer shall have delivered to the Company the Purchase
Price (less the amounts withheld pursuant to Section 4(h)) for the Preferred
Shares and the Warrants being purchased by such Buyer at the applicable Closing
by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
c. The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the applicable Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date), and such Buyer shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by such Buyer
at or prior to the applicable Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Initial Buyer
to purchase the Initial Preferred Shares and the Initial Warrants from the
Company at the Initial Closing is subject to the satisfaction, at or before the
Initial Closing Date, of each of the following conditions, provided that these
conditions are for each Initial Buyer's sole benefit and may be waived by such
Initial Buyer at any time in its sole discretion by providing the Company with
prior written notice thereof:
(i) The Company shall have executed each of the Transaction Documents
and delivered the same to such Initial Buyer.
(ii) The Certificate of Designations, shall have been filed with the
Secretary of State of the State of Delaware, and a copy thereof
certified by such Secretary of State shall have been delivered to such
Initial Buyer.
(iii) The Common Stock (x) shall be designated for quotation or listed
on the Principal Market and (y) shall not have been suspended by the
SEC or the Principal Market from trading on the Principal Market nor
shall suspension by the SEC or the Principal Market be threatened
either (A) in writing by the SEC or the Principal Market or (B) by
falling below the minimum listing maintenance requirements of the
Principal Market.
(iv) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Initial Closing Date
as though made at that time (except for representations and warranties
that speak as of a specific date) and the Company shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to the Initial Closing Date.
Such Initial Buyer shall have received a certificate, executed by the
Chief Executive Officer of the Company, dated as of the Initial Closing
Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Initial Buyer including, without
limitation, an update as of the Initial Closing Date regarding the
representation contained in Section 3(c) above.
(v) Such Initial Buyer shall have received the opinion of Xxxxxx
Xxxxxxx Xxxxxxxx & Xxxxxx dated as of the Initial Closing Date, in
form, scope and substance reasonably
-21-
satisfactory to such Initial Buyer and in substantially the form of
Exhibit D attached hereto.
(vi) Such Initial Buyer shall have received the opinion of Xxxxx Xxxx
Xxxx, Esq., General Counsel of the Company, dated as of the Initial
Closing Date, in form, scope and substance reasonably satisfactory to
such Initial Buyer and in substantially the form of Exhibit E attached
hereto.
(vii) The Company shall have executed and delivered to such Initial
Buyer the Preferred Stock Certificates and the Warrants (in such
denominations as the Initial Buyer shall request) for the Preferred
Shares and the Warrants being purchased by such Initial Buyer at the
Initial Closing.
(viii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b) above and in a form reasonably
acceptable to such Initial Buyer (the "Resolutions").
(ix) As of the Initial Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Preferred Shares and the exercise of
the Warrants, at least 10,816,165 shares of Common Stock.
(x) The Irrevocable Transfer Agent Instructions, in the form of Exhibit
F attached hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent and the Company shall deliver a
copy thereof to such Initial Buyer.
(xi) The Company shall have delivered to such Initial Buyer a
certificate evidencing the incorporation and good standing of the
Company and each U.S. Subsidiary in such entity's state of
incorporation or organization issued by the Secretary of State of such
state of incorporation or organization as of a date within ten (10)
days of the Initial Closing Date.
(xii) The Company shall have delivered to such Initial Buyer a
certified copy of the Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware as of a date within ten
(10) days of the Initial Closing Date.
(xiii) The Company shall have delivered to such Initial Buyer a
secretary's certificate, dated as the Initial Closing Date, certifying
as to (A) the Resolutions, (B) the Certificate of Incorporation and (C)
the Bylaws, each as in effect at the Initial Closing.
(xiv) The Company shall have made all filings under all applicable
federal and state securities laws necessary to consummate the issuance
of the Securities pursuant to this Agreement in compliance with such
laws.
(xv) The Company shall have delivered to such Initial Buyer a letter
from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five (5) days of the
Initial Closing Date.
-22-
(xvi) The Company shall have delivered to such Initial Buyer the
consent of Foothill Capital Corporation to this Agreement and the
transactions contemplated hereby in form, scope and substance
reasonably satisfactory to such Initial Buyer.
(xvii) The Company shall have delivered to such Initial Buyer such
other documents relating to the transactions contemplated by this
Agreement as such Initial Buyer or its counsel may reasonably request.
b. Second Closing Date. The obligation of each Second Buyer
hereunder to purchase the Second Preferred Shares and the Second Warrants from
the Company at the Second Closing is subject to the satisfaction, at or before
the Second Closing Date, of each of the following conditions, provided that
these conditions are for each Second Buyer's sole benefit and may be waived by
such Second Buyer at any time in its sole discretion by providing the Company
with prior written notice thereof:
(i) The Company shall have executed each of the Transaction Documents
and delivered the same to such Second Buyer.
(ii) The Initial Closing shall have occurred.
(iii) Such Second Buyer shall have received the opinion of Xxxxxx
Xxxxxxx Xxxxxxxx & Xxxxxx dated as of the Initial Closing Date, in
form, scope and substance reasonably satisfactory to such Second Buyer
and in substantially the form of Exhibit D attached hereto.
(iv) Such Second Buyer shall have received the opinion of Xxxxx Xxxx
Xxxx, Esq., General Counsel of the Company, dated as of the Initial
Closing Date, in form, scope and substance reasonably satisfactory to
such Second Buyer and in substantially the form of Exhibit E attached
hereto.
(v) The Company shall have executed and delivered to such Second Buyer
the Preferred Stock Certificates and the Warrants (in such
denominations as such Second Buyer shall request) for the Preferred
Shares and the Warrants being purchased by such Second Buyer at the
Second Closing.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Designations, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees
-23-
and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as
a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of
action, suit or claim brought or made against such Indemnitee (other than a
cause of action, suit or claim which is (x) brought or made by the Company and
(y) is not a shareholder derivative suit) and arising out of or resulting from
any misrepresentation or breach, or alleged misrepresentation or breach, of any
representation or warranty made by the Company in the Transaction Documents, or
the breach or alleged breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law. Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 8 shall be the same as those set forth
in Sections 6(a) and (d) of the Registration Rights Agreement, including,
without limitation, those procedures with respect to the settlement of claims
and the Company's rights to assume the defense of claims.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of
the state and federal courts sitting in the City of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party;
-24-
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between each Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least a majority of the Preferred Shares issued
pursuant to this Agreement, or, if prior to the Initial Closing Date, the Buyers
listed on the Schedule of Buyers as being obligated to purchase at least a
majority of the Preferred Shares, and no provision hereof may be waived other
than by an instrument in writing signed by the party against whom enforcement is
sought.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
The 3DO Company
000 Xxxxxxxx Xxx
Xxxxxxx Xxxx, Xxxxxxxxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Chief Executive Officer
With a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
-25-
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxx Xxxxx, Esq.
Yoichiro Taku, Esq.
If to the Transfer Agent:
EquiServe
000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: Xxxx Xxxxxxxxxx
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of at least a majority of the Preferred Shares
then outstanding, including by merger or consolidation, except pursuant to a
Change of Control (as defined in Section 4(c) of the Certificate of
Designations) with respect to which the Company is in compliance with Section
4(l) of the Agreement, Section 4 of the Certificate of Designations and Section
9 of the Warrants. A Buyer may assign some or all of its rights hereunder
without the consent of the Company, provided, however, that any such assignment
shall not release such Buyer from its obligations hereunder unless such
obligations are assumed by such assignee. Notwithstanding anything to the
contrary contained in the Transaction Documents, the Buyers shall be entitled to
pledge the Securities in connection with a bona fide margin account or other
loan or financing arrangement secured by the Securities.
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. The representations and warranties of the Company
and the Buyers contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive the Closings. The
-26-
Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of any Buyer, to make
any press release or other public disclosure with respect to such transactions
as is required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Initial Closing shall
not have occurred with respect to an Initial Buyer on or before five (5)
Business Days from the date hereof due to the Company's or such Initial Buyer's
failure to satisfy the conditions set forth in Sections 6 and 7(a) above (and
the nonbreaching party's failure to waive such unsatisfied condition(s)), the
nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 9(l), the Company shall remain
obligated to reimburse any nonbreaching Buyers for the expenses described in
Section 4(h) above.
m. Placement Agent. The Company acknowledges that it has
engaged Xxxxxx Xxxxxx Xxxxxxxx & Co., Inc. as placement agent in connection with
the sale of the Preferred Shares and the related Warrants, which placement agent
may have formally or informally engaged other agents on its behalf. The Company
shall be responsible for the payment of any placement agent's fees or broker's
commissions relating to or arising out of the transactions contemplated hereby.
The Company shall pay, and hold the Buyer harmless against, any liability, loss
or expense (including, without limitation, attorneys' fees and out of pocket
expenses) arising in connection with any such claim.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
the Certificate of Designations and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under any law. Any person having any rights
under any provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.
-27-
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Registration
Rights Agreement, the Certificate of Designations or the Warrants or the Buyers
enforce or exercise their rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company by a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
* * * * * *
-28-
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
-------- -------
THE 3DO COMPANY HFTP INVESTMENT L.L.C.
By: Promethean Asset Management, L.L.C.
Its: Investment Manager
By: /s/ Xxxxx Xxxx Xxxx By: /s/ Xxxxx X. X'Xxxxx, Xx.
------------------- -------------------------
Name: Xxxxx Xxxx Xxxx Name: Xxxxx X. X'Xxxxx, Xx.
Title: Executive Vice President Title: Managing Member
/s/ Xxxx Xxxxx
--------------
Xxxx Xxxxx
/s/ Xxxxxxxx X. Xxxxxxx
-----------------------
Xxxxxxxx X. Xxxxxxx
XX. M. & XXXXX X. XXXXXXX Trust
U/A Apr. 25, 1981
By: /s/ Xxxxxxx X. Xxxxxxx, Xx.
---------------------------
Name: Xxxxxxx X. Xxxxxxx, Xx.
Title: Trustee
/s/ Xxxx Xxxxx
--------------
Xxxx Xxxxx
/s/ Xxxxxxx Xxxxx
-----------------
Xxxxxxx Xxxxx
XXXXXX 1992 REVOCABLE TRUST
u/t/a 2/4/92
By: /s/ Xxxxxx X. Xxxxxx
--------------------
Name: Xxxxxx X. Xxxxxx
Title: Co-Trustee
By: /s/ Xxxxxxx X. Xxxxxx
---------------------
Name: Xxxxxxx X. Xxxxxx
Title: Co-Trustee
-29
XXXXXX & XXXXXXX X'XXXXX, as
joint tenants
By: /s/ Xxxxxx X'Xxxxx
------------------
Name: Xxxxxx X'Xxxxx
By: /s/ Xxxxxxx X'Xxxxx
-------------------
Name: Xxxxxxx X'Xxxxx
THE POSEHN FAMILY TRUST Dated
10/5/94
By: /s/ Xxxxxx X. Xxxxxx
--------------------
Name: Xxxxxx X. Xxxxxx
Title: Trustee
/s/ Xxxxxxx X. Xxxx
-------------------
Xxxxxxx X. Xxxx
/s/ Xxxxxxx Xxxxxx Xxxxx
------------------------
/s/ Xxxxx X Xxxxx
-----------------
Xxxxxxx Xxxxxx Xxxxx and
Xxxxx Xxx Xxxxx, Husband and Wife
/s/ Xxxxxxx X. Xxxxxxxxx
------------------------
Xxxxxxx X. Xxxxxxxxx
/s/ Xxxxxx X. Xxxxxxx
---------------------
Xxxxxx X. Xxxxxxx
/s/ Xxxxx Xxxxx
---------------
Xxxxx Xxxxx
GAIA OFFSHORE MASTER FUND, LTD.
By: Promethean Asset Management
L.L.C.
Its: Investment Manager
By: /s/ Xxxxx X. X'Xxxxx, Xx.
-------------------------
Name: /s/ Xxxxx X. X'Xxxxx, Xx.
-------------------------
Title: Managing Member
---------------
SCHEDULE OF BUYERS
Number
of
Investor Address Preferred Investor's Legal Representatives'
Investor's Name and Facsimile Number Shares Address and Facsimile Number
------------------------------ -------------------------------------- ---------- ------------------------------------
Initial Buyers:
---------------
HFTP Investment L.L.C. c/o Promethean Asset Management 9,000 Promethean Investment Group, L.L.C.
L.L.C. 000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx Xxx Xxxx, Xxx Xxxx 00000
Xxx Xxxx, Xxx Xxxx 00000 Attention: Xxxxx X. X'Xxxxx, Xx.
Attention: Xxxxx X. X'Xxxxx, Xx. Xxxx X. Xxxxxxx
Xxxx X. Xxxxxxx Xxxxx X. Xxxxxx
Xxxxx X. Xxxxxx Telephone: (000) 000-0000
Telephone: (000) 000-0000 Facsimile: (000) 000-0000
Facsimile: (000) 000-0000
Xxxxxx Xxxxxx Zavis
Residence: New York 000 X. Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Gaia Offshore Master Fund, c/o Promethean Asset Management 3,500 Promethean Investment Group, L.L.C.
Ltd. L.L.C. 000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx Xxx Xxxx, Xxx Xxxx 00000
Xxx Xxxx, Xxx Xxxx 00000 Attention: Xxxxx X. X'Xxxxx, Xx.
Attention: Xxxxx X. X'Xxxxx, Xx. Xxxx X. Xxxxxxx
Xxxx X. Xxxxxxx Xxxxx X. Xxxxxx
Xxxxx X. Xxxxxx Telephone: (000) 000-0000
Telephone: (000) 000-0000 Facsimile: (000) 000-0000
Facsimile: (000) 000-0000
Xxxxxx Xxxxxx Xxxxx
Residence: New York 000 X. Xxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Xxxx Xxxxx 000 Xxxxxxxxx Xxxx 000
Xxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: ______________
Residence: California
Xxxxxxxx X. Xxxxxxx 0000 Xxxx Xxxxxx, #000 000
Xxx Xxxxx, Xxxxxx 00000
Telephone: (000) 000-0000
Facsimile: ________________
Residence: Nevada
Wm. M. & Xxxxx X. Xxxxxxx Xx. X. Xxxxxxx, Xx., Trustee 2,000
Trust U/A Apr. 25, 1981 0000 Xxxxxxx Xxxx
Xx Xxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Residence: California
Xxxx Xxxxx 000 Xxxxxxxxx Xxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: _______________
Residence: California
Xxxxxxx Xxxxx 0000 Xxxxxxx Xxxxx 000
Xxx Xxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: ___________________
Residence: California
Xxxxxx 1992 Revocable Trust Xxxxxx Xxxxxx & Xxxxxxx Xxxxxx, 50
u/t/a 2/4/92 Trustees
0000 Xxxxxxx Xxxxx
Xxx Xxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: ____________________
Residence: California
Xxxxxx & Xxxxxxx X'Xxxxx, Xxxxxx X'Xxxxx 125
as joint tenants 000 X. 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: ___________________
Residence: New York
The Posehn Family Trust Xxxxxxx X. Xxxxxx, Trustee 50
Dated 10/5/94 X.X. Xxx 000
Xxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: ____________________
Residence: California
Xxxxxxx X. Xxxx 0000 Xxxxx Xxxxxx, Xxxxx Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: __________________
Residence: New York
Xxxxxxx X. Xxxxxxxxx 000 Xxxxxxxx Xxxxxx 00
Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: _____________________
Residence: California
Xxxxxx X. Xxxxxxx 00 Xxxx Xxxxxx 000
Xxxxxx Xxxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: _______________
Residence: New York
Xxxxx Xxxxx 0000 Xxxxx Xx., #000 00
Xxx Xxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: _______________
Residence: California
Second Buyers:
--------------
Xxxxxxx Xxxxxx Xxxxx & Xxxxxxx Xxxxxx Xxxxx & 100
Xxxxx Xxx Xxxxx Xxxxx Xxx Xxxxx
0000 Xxxxxx Xxxxxx #0000
Xxxxxxx, XX. 00000
Telephone: (000) 000-0000
Facsimile:
Residence: Washington
Total 15,820
SCHEDULES
Schedule 3(a) Organization and Qualification
Schedule 3(c) Capitalization
Schedule 3(e) No Conflicts
Schedule 3(f) SEC Documents
Schedule 3(g) Material Changes
Schedule 3(h) Absence of Litigation
Schedule 3(o) Intellectual Property
Schedule 3(q) Titles
Schedule 3(w) Transactions with Affiliates
Schedule 4(d) Use of Proceeds
EXHIBITS
Exhibit A Form of Certificate of Designations, Preferences and
Rights of the Series A Preferred Stock
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Outside Company Counsel Opinion
Exhibit E Form of Inside Company Counsel Opinion
Exhibit F Form of Irrevocable Transfer Agent Instructions
SCHEDULE OF EXCEPTIONS
The following are exceptions to the representations and warranties of
The 3DO Company (the "Company") contained in Section 3 of the Securities
Purchase Agreement by and among the Company and each of the Buyers named therein
(the "Agreement") and should be considered an integral part of the Agreement.
Any terms defined in the Agreement shall have the same meaning when used in this
Schedule of Exceptions as when used in the Agreement, unless the context
otherwise requires.
Schedule 3(a): Organization and Qualification.
The Company has three Subsidiaries, (1) The 3DO Company, a
California corporation, (2) 3DO Europe Limited, a Limited Liability
Company incorporated under the laws of England, and (3) Studio 3DO
K.K., a corporation duly incorporated under the laws of Japan, which
was reincorporated as a Delaware LLC by name Studio 3DO LLC.
Schedule 3(c): Capitalization.
The authorized capital stock of the Company consists of
125,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock. As of December 4, 2001, there were 53,072,399 shares of Common
Stock issued and outstanding and no shares of Preferred Stock issued
and outstanding. There were also 23,083,402 options to purchase Common
Stock issued and outstanding; 6,787,513 options to purchase Common
Stock were available for grant under the Company's 1993 Option Plan;
220,833 options to purchase Common Stock were available for grant under
the Company's 1995 Director Plan, and 1,720,537 options to purchase
Common Stock were available for grant under the Company's 1994 Employee
Stock Purchase Plan. The Company has outstanding warrants to purchase
3,145,265 shares of Common Stock. In addition, the Company will issue
warrants to the Buyers pursuant to the Agreement and will also issue
warrants to purchase 312,424 shares of Common Stock as part of its fee
commitment to Xxxxxx Xxxxxx Xxxxxxxx. The Company entered into a Loan
and Security Agreement with Foothill Capital Corporation and other
lenders on April 6, 2000, as amended. See also Schedule 3(e).
Schedule 3(e): No Conflicts
The Company entered into Registration Rights Agreements in October 2000
and October 2001 pursuant to which certain shareholders have
"piggy-back" registration rights. These rights entitle holders to
include their shares in any registration initiated by the Company for
its own account or for the account of a security holder. Of the shares
covered by the registration rights agreements,
1
2,416,162 shares of Common Stock were included in a resale registration
statement on form S-3 filed by the Company on October 25, 2001. Xx.
Xxxxxxx holds registration rights in connection with 3,933,010 shares
of Common Stock and 1,179,903 shares of Common Stock issuable upon
exercise of warrants. An additional 562,932 shares of Common Stock
issuable upon exercise of outstanding warrants also have "piggy-back"
registration rights.
Schedule 3(f): List of SEC Filings Since March 30, 2000
10-Q Quarterly Report 10/30/2001
----
10-Q Quarterly Report 8/14/2001
----
DEF 14A Definitive Proxy Statement 7/31/2001
-------
10-K Annual Report 6/29/2001
----
10-Q/A Amended Quarterly Report 6/7/2001
------
8-K Current Report 3/20/2001
---
10-Q Quarterly Report 2/14/2001
----
10-Q Quarterly Report 11/14/2000
----
DEF 14A Definitive Proxy Statement 9/13/2000
-------
10-Q Quarterly Report 8/14/2000
----
10-K Annual Report 6/29/2000
----
Schedule 3(g): Material Changes.
Since March 31, 2001, the Company has taken a number of
actions to reduce operating expenses in order to reduce the Company's
breakeven point and conserve cash. Actions taken included reductions in
force in excess of 150 people, the closure of the Austin TX development
studio, a reduction in previously planned levels of marketing expense,
and the cancellation of several outside development contracts for
"unproven" products. As a result of these changes, there have been
revisions to internal expectations for the fourth quarter of FY02, as
well as changes in the FY03 product plan. All of this information,
except for the approximate number of employees affected by the
reductions in force, has been previously publicly disclosed.
Schedule 3(h): Absence of Litigation.
In March 2001, the Company initiated a lawsuit against
LucasArts Entertainment Company, LLA and Xxxxx Licensing Ltd.
(collectively, "Xxxxx") as a result of Xxxxx publishing an
entertainment software product entitled "STAR WARS: STARFIGHTER",
compatible with the PlayStation 2 computer entertainment system. The
Company is the owner of the trademark "STAR FIGHTER". The trademark
infringement case is currently in the discovery stages.
2
Schedule 3(o): Intellectual Property.
None.
Schedule 3(q): Titles.
The Loan Agreement with Foothill Capital Corporation on April
6, 2000 provides Foothill with collateral interest in the Company's
assets for the purpose of securing the line of credit provided by
Foothill.
Schedule 3(w): Transactions with Affiliates.
On August 16, 2000, the Company entered a Convertible Note and
Warrant Purchase Agreement with the Company's CEO and Chairman of the
Board, Xxxx Xxxxxxx III, and sold a $2 million convertible promissory
note to Xx. Xxxxxxx. On August 23, 2000, the Company entered a
Convertible Note and Warrant Purchase Agreement with Xx. Xxxxxxx and
sold an $18 million convertible promissory note to Xx. Xxxxxxx. On
September 13, 2000, the full amount of the two notes, along with
accrued interest, were converted to Common Stock at $6.9375 per share,
resulting in the Company issuing Xx. Xxxxxxx a total of 2,899,641
shares. Associated with the issuance of the promissory notes, the
Company issued 432,432 warrants to Xx. Xxxxxxx. These warrants have a
$20 exercise price and a five-year term.
On October 31, 2000, the Company entered into a Stock Purchase
Agreement with Xx. Xxxxxxx for the purchase of 4,848,485 shares of
Common Stock for $15 million. The Company also issued 969,997 warrants
with a five-year term and an exercise price of $3.7125 per share to Xx.
Xxxxxxx.
On October 9, 2001, the Company entered into a Stock Purchase
Agreement with Xx. Xxxxxxx for the purchase of 3,933,010 of Common
Stock for $8.1 million. The Company also issued 1,179,903 warrants with
a five-year term and a $2.27 per share exercise price to Xx. Xxxxxxx.
Xxxxx Xxxxxxxxx, an employee of 3DO is purchasing $95,000 of
Series A Preferred Stock as part of the transactions set forth in the
Agreement.
3
