Subordination Agreement - GE Capital Commercial Services Inc. and William M. Hawkins III
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of October 1,
2002, is entered into by and between GE CAPITAL COMMERCIAL SERVICES, INC., a
North Carolina corporation ("Lender"), with a place of business located at 505
N. Brand Boulevard, Suite 1100, Glendale, California 91203, and WILLIAM M.
HAWKINS, III ("Junior Creditor"), whose mailing address is 200 Cardinal Way,
Redwood City, California 94063, in light of the following facts (certain terms
used in the following recitals are defined in Paragraph 1 below):
WHEREAS, Junior Creditor is prepared to make a loan to THE 3DO COMPANY,
a California corporation ("Borrower"), in the amount of $3,000,000.00, evidenced
by the Junior Creditor Note.
WHEREAS, as a condition to making the loan evidenced by the Junior
Creditor Note, Junior Creditor requires that Lender consent to such loan to
Borrower and the granting of a security interest in assets of Borrower to secure
the repayment of such loan.
WHEREAS, Lender has agreed to consent to the loan evidenced by the
Junior Creditor Note and the granting of collateral to secure such loan on the
condition that Junior Creditor subordinate its right to repayment of the
obligations evidenced by the Junior Creditor Note and the collateral securing
such obligations owing to Junior Creditor, to the Lender Obligations.
WHEREAS, Junior Creditor and Lender desire to enter into this Agreement
in order to set forth the terms and conditions of the Junior Creditor's
subordination in favor of Lender and Lender's consent to the loan evidenced by
the Junior Creditor Note and the granting of collateral for such loan.
NOW, THEREFORE, Junior Creditor and Lender agree as follows:
1. In addition to the defined terms contained in the first paragraph
above and in the recitals, as used herein, the following terms shall have the
following definitions:
A. "Collateral" shall have the same definition ascribed to
this term in the Loan Agreement.
B. "Junior Creditor Note" means that certain Secured Bridge
Note, dated October 1, 2002, in the original principal amount of $3,000,000,
executed by Borrower to the order of Junior Creditor.
C. "Junior Creditor Obligations" means the Obligations
(including principal and interest) evidenced by the Junior Creditor Note.
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D. "Junior Creditor Security Agreement" means that certain
Security Agreement, dated as of October 1, 2002, from Borrower in favor of
Junior Creditor.
E. "Loan Agreement" means that certain Loan and Security
Agreement, dated as of June 27, 2002, between Borrower and Lender, as it may be
amended and/or supplemented from time to time.
F. "Loan Documents" shall have the same definition ascribed to
this term in the Loan Agreement.
G. "Obligations" is used in this Agreement in its broadest and
most comprehensive sense and means all present and future indebtedness which may
be from time to time, directly or indirectly, incurred by Borrower, including,
but not limited to, indebtedness evidenced by or arising pursuant to any
instruments, loan agreements, chattel paper, guarantees, leases, purchase
agreements, consulting agreements, license agreements, royalty agreements,
indemnification agreements, reimbursement agreements or any other agreements,
whether oral or written, and further including without limitation, obligations
owed or to become owing, including interest, principal, costs, and other
charges, and all claims, rights, causes of action, judgments, decrees, remedies,
security interests, or other obligations of Borrower of any kind whatsoever and
howsoever arising, whether voluntary, involuntary, absolute, contingent, or by
operation of law.
H. "Revolving Credit Advances" shall have the same definition
ascribed to this term in the Loan Agreement.
I. "Lender Obligations" means, collectively, all Obligations
owing to Lender by Borrower, including without limitation, the present and
future Obligations arising pursuant to the Loan Documents.
2. Lender hereby consents to Borrower incurring the Junior Creditor
Obligations and the granting to Junior Creditor of a security interest the
collateral described in the Junior Creditor Security Agreement. In the event
Junior Creditor breaches any of the terms, covenants or agreements contained in
this Agreement, the foregoing consent of Lender shall be deemed immediately
revoked.
3. Any and all Junior Creditor Obligations are hereby irrevocably
subordinated and subject to any and all Lender Obligations, including, without
limitation, the Lender Obligations arising pursuant to the Loan Documents.
4. This Agreement constitutes a continuing irrevocable subordination
agreement which shall remain effective until all of the Lender Obligations have
been repaid in full and Lender no longer has any obligation to consider
Borrower's requests for Lender to extend additional Revolving Credit Advances to
Borrower pursuant to the Loan Documents. In this connection, Junior Creditor
waives any and all rights that he may have to terminate this Agreement prior to
such time as all of the Lender Obligations have been repaid in full and Lender
no longer has any obligation to extend additional Revolving Credit Advances to
Borrower pursuant to the Loan Documents.
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5. So long as any of the Lender Obligations remain unpaid, in whole or
in part, or so long as Lender is committed or otherwise obligated to make
Revolving Credit Advances to Borrower pursuant to the Loan Documents, Junior
Creditor agrees: (i) subject to the provisions of Paragraph 7 below, not to
collect, or to receive payment upon, by setoff or in any other manner, all or
any portion of the Junior Creditor Obligations; (ii) not to sell, assign,
transfer, pledge, or give a security interest in the Junior Creditor Obligations
(except subject expressly to this Agreement); (iii) not to enforce or apply, or
take any steps to enforce or apply, any security, including any of the
Collateral, now or hereafter existing, for the Junior Creditor Obligations; (iv)
not to commence, prosecute or participate in any administrative, legal or
equitable action against Borrower or in any administrative, legal or equitable
action regarding the Junior Creditor Obligations that might adversely affect
Borrower or its interest; (v) not to join in any petition for bankruptcy,
assignment for the benefit of creditors, or creditors' agreement based on the
Junior Creditor Obligations; (vi) except for the collateral granted to Junior
Creditor pursuant to the Junior Creditor Security Agreement, not to take any
lien or security on any of Borrower's property, real or personal to secure the
Junior Creditor Obligations; and (vii) not to incur any obligation to or receive
any loans, advances or gifts from Borrower which would violate any of the terms,
covenants or conditions contained in the Loan Documents.
6. Subject to the provisions of Paragraph 7 below, all of the Lender
Obligations now or hereafter existing shall be first paid by Borrower before any
payment shall be made by Borrower on the Junior Creditor Obligations. This
priority of payment shall apply at all times until all of the Lender Obligations
have been repaid in full, and in the event of any assignment by Borrower for the
benefit of Borrower's creditors, of any bankruptcy proceedings instituted by or
against Borrower, of the appointment of any receiver for Borrower or Borrower's
business or assets, or of any dissolution or other winding up of the affairs of
Borrower or of Borrower's business, and in all such cases respectively, the
officers of Borrower and any assignee, trustee in bankruptcy, receiver, and
other person or persons in charge, are hereby directed to pay to Lender the full
amount of the Lender Obligations before making any payments on the Junior
Creditor Obligations.
7. So long as no Event of Default (as that term is defined in the Loan
Agreement) has occurred and is continuing, Borrower shall be entitled to pay
scheduled interest payments under the Junior Creditor Note. In addition,
regardless of whether an Event of Default has occurred or is continuing,
Borrower may repay the Junior Creditor Obligations in full from proceeds
received by The 3DO Company, a Delaware corporation, in connection with
additional equity investments or subordinated debt issuances, as measured from
the date of this Agreement, of not less than Six Million Dollars ($6,000,000) so
long as such equity investments and/or subordinated debt issuances are on terms
and conditions satisfactory to Lender.
8. As additional security for the Lender Obligations, and to secure the
performance of all of Junior Creditor's obligations to Lender arising pursuant
to this Agreement, Junior Creditor hereby transfers, grants to Lender a security
interest in, and assigns to Lender all of Junior Creditor's rights to any
payments or distributions which might otherwise be due to Junior Creditor on the
Junior Creditor Obligations. Lender is hereby irrevocably constituted and
appointed the attorney-in-fact of Junior Creditor to file any and all proofs of
claim, financing statements, and any other documents and to take all other
action, either in Lender's name or in
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the name of Junior Creditor, which in Lender's opinion is necessary or desirable
to enable Lender to obtain all such payments on the Junior Creditor Obligations.
9. Junior Creditor shall place or cause to be placed on the face of the
Junior Creditor Note a legend stating that the payment thereof is subject to the
terms of this Agreement and is subordinate to the payment of all of the Lender
Obligations and, if requested by Lender, shall deliver the original Junior
Creditor Note to Lender.
10. Junior Creditor agrees that Lender shall have the absolute power
and discretion, without notice to Junior Creditor, to deal in any manner with
the Lender Obligations (including, interest, costs and expenses payable by
Borrower to Lender) and any security and guarantees therefor. In this
connection, Lender shall have absolute power and discretion to release any
Collateral or obligor, to surrender Collateral, to extend payment and maturity
dates, to renew any or all Lender Obligations, to accelerate any or all Lender
Obligations, to compromise any or all Lender Obligations, or to accept the
substitution of any Collateral or any obligor. Junior Creditor hereby waives and
agrees not to assert against Lender any rights which a guarantor or surety could
exercise, however, nothing in this Agreement shall constitute Junior Creditor a
guarantor or surety. Junior Creditor hereby subordinates in favor of Lender any
security interests he may have in the Collateral to the security interests of
Lender therein, and Junior Creditor hereby waives the right, if any, to require
that Lender marshal or otherwise proceed to dispose of or foreclose upon
Collateral in any manner or order.
11. If, at any time hereafter, Lender, in its sole and independent
judgment, elects to discontinue the extension of credit to or on behalf of
Borrower, Lender may do so. This Agreement, the obligations of Junior Creditor
owing to Lender, and Lender's rights and privileges hereunder shall continue
until payment in full of all of the Lender Obligations, notwithstanding any
action or nonaction by Lender with respect thereto or with respect to any
Collateral therefor or any guarantees thereof. All rights, powers and remedies
hereunder shall apply to all past, present and future Lender Obligations,
including under successive transactions which may continue, renew, increase,
decrease or from time to time create new Lender Obligations.
12. Junior Creditor further agrees that, other than the security
interests granted under the Junior Creditor Security Agreement, in case Junior
Creditor should take or receive any security interest in, or lien by way of
attachment, execution or otherwise on any of the Collateral or any other
property, real or personal, of Borrower, or should take or join in any other
measure or advantage contrary to this Agreement, at any time prior to the
payment in full of all of the Lender Obligations, Lender shall be entitled to
have the same vacated, dissolved and set aside by such proceedings at law, or
otherwise, as Lender may deem proper, and this Agreement shall be and constitute
full and sufficient grounds therefor. In furtherance of Lender's rights
hereunder, Lender shall be entitled to become a party to any proceedings at law,
or otherwise, initiated by Junior Creditor or by any other party in order to
enable Lender, as it deems proper, to protect its interests hereunder. Junior
Creditor agrees that if Junior Creditor violates this Agreement, Junior Creditor
shall be liable to Lender for all losses and damages sustained by Lender by
reason of such breach, including Lender attorneys' fees in any such legal
action.
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13. (a) Upon the payment in full of all Lender Obligations and
termination of all Loan Documents, the holder of the Junior Creditor Obligations
shall be subrogated to the rights of Lender to receive all payments or
distributions of assets of Borrower applicable to the Lender Obligations,
including payments to Lender under the Loan Agreement. As between Borrower and
its creditors, other than Lender and Junior Creditor, no payment or distribution
made to Lender by virtue of this Agreement, which otherwise would have been made
to Junior Creditor, as holder of the Junior Creditor Obligations, shall be
deemed to be a payment on account of the Lender Obligations.
(b) Nothing in this Agreement is intended to, nor shall it,
impair as between Borrower and its creditors, other than Lender and Junior
Creditor, the obligations of Borrower to pay Junior Creditor, as holder of the
Junior Creditor Obligations, the principal of, and interest on, the Junior
Creditor Obligations, as and when the same shall become due.
(c) It is understood that the purpose of this Agreement is to
define the relative rights of Junior Creditor, as holder of the Junior Creditor
Obligations, on the one hand and Lender, as holder of the Lender Obligations, on
other hand.
(d) In the event that it is determined by a court,
administrative body, arbitrator or other tribunal that (i) the holder of the
Junior Creditor Obligations is not deemed to be subrogated to the rights of
Lender under the conditions set forth in subparagraph (a) above, or (ii) as
between Borrower and its creditors, payments received by Lender which would have
otherwise been paid to Junior Creditor but for this Agreement are deemed to be a
payment on account of the Lender Obligations, or (iii) as between Borrower and
its creditors, this Agreement is deemed to impair rights of Junior Creditor, as
holder of Junior Creditor Obligations, to receive payments of principal and
interest on the Junior Creditor Obligations (the foregoing determinations shall
be referred to collectively as "Adverse Determinations"), then Lender shall
nonetheless be entitled to all rights and remedies granted to Lender under this
Agreement and the Adverse Determinations shall not impair in any respect or
manner such rights and remedies of Lender under this Agreement.
14. Except as otherwise expressly agreed to herein, if Junior Creditor
shall receive any payments, security interests, or other rights in any property
of Borrower in violation of this Agreement, such payment or property shall be
received by Junior Creditor in trust for Lender and shall forthwith be delivered
and transferred to Lender.
15. No subordinations of the Junior Creditor Obligations have
previously been executed by Junior Creditor for the benefit of anyone else, and
any such subordinations hereafter executed will be, and shall be expressed to
be, subject and subordinate to the terms of this Agreement. This Agreement shall
continue in full force and effect, and it shall not be canceled or otherwise
rendered ineffective, until Lender has received payment in full of all of the
Lender Obligations and all Loan Documents have been terminated.
16. This Agreement shall be binding upon the heirs, administrators,
personal representatives, successors and assigns of Junior Creditor, and shall
inure to the benefit of Lender's successors and assigns.
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17. The validity of this Agreement, its construction, interpretation
and enforcement, and the rights of the parties hereunder, shall be determined
under, governed by, and construed in accordance with the laws of the State of
California. The parties agree that all actions or proceedings arising in
connection with this Agreement shall be tried and litigated only in the state
and federal courts located in the County of Los Angeles, State of California.
Junior Creditor waives any right he may have to assert the doctrine of forum non
conveniens or to object to such venue and hereby consents to any court ordered
relief.
18. In the event it becomes necessary for any party to commence any
proceedings or actions to enforce the provisions of this Agreement, the court or
body before which the same shall be tried shall award to the prevailing party
all costs and expenses thereof, including, but not limited to, reasonable
attorneys' fees, the usual customary and lawfully recoverable court costs, and
all other expenses in connection therewith.
19. The parties intend and agree that their respective rights, duties,
liabilities, obligations and discretion shall be performed, discharged and
exercised in good faith.
20. JURY TRIAL. JUNIOR CREDITOR AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN JUNIOR CREDITOR AND LENDER
RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE. JUNIOR CREDITOR AND LENDER EACH ACKNOWLEDGE THAT THIS WAIVER
IS A MATERIAL INDUCEMENT TO ENTERING INTO THIS AGREEMENT, THAT EACH OF JUNIOR
CREDITOR AND LENDER HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH OF JUNIOR CREDITOR AND LENDER WILL CONTINUE TO RELY ON
THIS WAIVER IN ANY RELATED FUTURE DEALINGS BETWEEN JUNIOR CREDITOR AND LENDER.
JUNIOR CREDITOR AND LENDER FURTHER WARRANT AND REPRESENT THAT THEY EACH
KNOWINGLY AND VOLUNTARILY WAIVE THEIR RESPECTIVE JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THE PARTIES HERETO EXPRESSLY AGREE TO WAIVE ANY
AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN CONNECTION WITH ANY MATTER
RELATING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto entered into this Agreement.
/S/ WILLIAM M. HAWKINS, III _
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WILLIAM M. HAWKINS, III
GE CAPITAL COMMERCIAL
SERVICES, INC
By: /s/ Michael Gardner
-------------------------------------
Michael Gardner, Vice President
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The undersigned, THE 3DO COMPANY, a California corporation, being the
Borrower named in the foregoing Subordination Agreement, hereby accepts and
consents thereto and agrees to be bound by all of the provisions thereof and to
recognize all priorities and other rights granted thereby to GE CAPITAL
COMMERCIAL SERVICES, INC. ("Lender"), and to pay Lender in accordance therewith.
DATED: October 7, 2002 THE 3DO COMPANY,
a California corporation
By: /s/ Richard A. Gelhaus
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Richard A. Gelhaus
Title: Chief Financial Officer
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