Working Capital Management Account (WCMA) Loan Agreement - The 3DO Co. and Merrill Lynch Business Financial Services Inc.
[LOGO] MERRILL LYNCH WCMA*LOAN AGREEMENT
------------------------------------------------------------------------------
WCMA LOAN AGREEMENT NO. 26M-07P21 ("Loan Agreement") dated as of November 3,
1998, between THE 3DO COMPANY, a corporation organized and existing under the
laws of the State of California having its principal office at 600 Galveston
Drive, Redwood City, CA 94063 ("Customer"), and MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC., a corporation organized and existing under the laws
of the State of Delaware having its principal office at 33 West Monroe
Street, Chicago, IL 60603 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT* ACCOUNT AGREEMENT
NO. 26M-07P21 ("WCMA Agreement") between Customer and MLBFS' affiliate,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has
subscribed to the WCMA Program described in the WCMA Agreement. The WCMA
Agreement is by this reference incorporated as a part hereof, in conjunction
therewith and as part of the WCMA Program, Customer has requested that MLBFS
provide, and subject to the terms and conditions herein set forth MLBFS has
agreed to provide, a commercial line of credit for Customer (the "WCMA Line
of Credit").
Accordingly, and in consideration of the premises and of the mutual covenants
of the parties hereto, Customer and MLBFS hereby agree as follows:
1. DEFINITIONS
(a) SPECIFIC TERMS, in addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Activation Date" shall mean the date upon which MLBFS shall cause the
WCMA Line of Credit to be fully activated under MLPF&S' computer system as
part of the WCMA Program.
(ii) "Additional Agreements" shall mean all agreements, instruments,
documents and opinions other than this Loan Agreement, whether with or from
Customer or any other party, which are contemplated hereby or otherwise
reasonably required by MLBFS in connection herewith, or which evidence the
creation, guaranty or collateralization of any of the Obligations or the
granting or perfection of liens or security interests upon any collateral for
the Obligations.
(iii) "Bankruptcy Event" shall mean any of the following: (A) a proceeding
under any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt or receivership law or statute shall be filed or consented to by
Customer or any Guarantor; or (B) any such proceeding shall be filed against
Customer or any Guarantor and shall not be dismissed or withdrawn within
sixty (60) days after filing; or (C) Customer or any Guarantor shall make a
general assignment for the benefit of creditors; or (D) Customer or any
Guarantor shall generally fail to pay or admit in writing its inability to
pay its debts as they become due; or (E) Customer or any Guarantor shall be
adjudicated as bankrupt or insolvent.
(iv) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(v) "Commitment Expiration Date" shall mean November 29, 1998.
(vi) "Default" shall mean an "Event of Default" as defined in Section 7
hereof, or an event which with the giving of notice, passage of time, or
both, would constitute such an Event of Default.
(vii) "General Funding Conditions" shall mean each of the following
conditions to any WCMA Loan by MLBFS hereunder: (A) no Default shall have
occurred and be continuing or would result from the making of any WCMA Loan
hereunder by MLBFS; (B) there shall not have occurred and be continuing any
material adverse change in the business or financial condition of Customer or
any Guarantor; (C) all representations and warranties of Customer or any
Guarantor herein or in any Additional Agreements shall then be true and
correct in all material respects; (D) MLBFS shall have received this Loan
Agreement and all of the Additional Agreements, duly executed and filed or
recorded where applicable, all of which shall be in form and substance
reasonably satisfactory to MLBFS; (E) MLBFS shall have received evidence
reasonably satisfactory to it as to the ownership of and the perfection and
priority of MLBFS' liens and security interests on any collateral for the
Obligations furnished pursuant to any of the Additional Agreements; and (F)
any additional conditions specified in the "WCMA Line of Credit Approval"
letter executed by MLBFS with respect to the transactions contemplated hereby
shall have been met to the reasonable satisfaction of MLBFS.
(viii) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations.
(ix) "Initial Maturity Date" shall mean the first date upon which the WCMA
Line of Credit will expire (subject to renewal in accordance with the terms
hereof); to wit: November 23, 2000.
(x) "Interest Due Date" shall mean the last Business Day of each calendar
month during the term hereof (or, if Customer makes special arrangements with
MLPF&S, the last Friday of each calendar month during the term hereof).
(xi) "Interest Rate" shall mean a variable per annum rate of interest equal
to the sum of 2.10% and the 30-Day Commercial Paper Rate. The "30-Day
Commercial Paper Rate" shall mean, as of the date of any determination, the
interest rate from time to time published in the "Money Rates" section of THE
WALL STREET JOURNAL for 30-day high-grade unsecured notes sold through
dealers by major corporations. The Interest Rate will change as of the date
of publication in THE WALL STREET JOURNAL of a 30-Day Commercial Paper Rate
that is different from that published on the preceding Business Day. In the
event
<PAGE>
that THE WALL STREET JOURNAL shall, for any reason, fail or cease to publish
the 30-Day Commercial Paper Rate, MLBFS will choose a reasonably comparable
index or source to use as the basis for the Interest Rate.
(xii) "Line Fee" shall mean the fee of $75,000.00 payable from time to time
in accordance with the provisions of Section 3(k) hereof.
(xiii) "Maturity Date" shall mean the date of expiration of the WCMA Line of
Credit.
(xiv) "Maximum WCMA Line of Credit" shall mean $20,000,000.00.
(xv) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect,
absolute or contingent, due or to become due, primary or secondary or joint
or several, and without limiting the foregoing, shall include interest
accruing after the filing of any petition in bankruptcy, and all present and
future liabilities, indebtedness and obligations of Customer under this Loan
Agreement.
(xvi) "Renewal Year" shall mean and refer to the 12-month period immediately
following the Initial Maturity Date and each 12-month period thereafter.
(xvii) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 26M-07P21 and any
successor WCMA account.
(xviii) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this
Loan Agreement.
(xix) "WCMA Loan Balance" shall mean an amount equal the aggregate unpaid
principal amount of all WCMA Loans.
(b) OTHER TERMS. Except as otherwise defined herein: (i) all terms used in
this Loan Agreement which are defined in the Uniform Commercial Code of
Illinois ("UCC") shall have the meanings set forth in the UCC, and (ii)
capitalized terms used herein which are defined in the WCMA Agreement shall
have the meanings set forth the WCMA Agreement.
2. WCMA PROMISSORY NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such
other manner and at such place as MLBFS may hereafter designate in writing
[which if other than by a direct payment to MLBFS at its principal office shall
be approved in writing by Customer (such approval not to be unreasonably
withheld)], the following: (a) on the Maturity Date, or if earlier, on the
date of termination of the WCMA Line of Credit, the WCMA Loan Balance; (b)
interest at the Interest Rate on the outstanding WCMA Loan Balance, from and
including the date on which the initial WCMA Loan is made until the date of
payment of all WCMA Loans in full; and (c) on demand, all other sums payable
pursuant to this Loan Agreement, including, but not limited to, the periodic
Line Fee and any late charges. Except as otherwise expressly set forth
herein, Customer hereby waives presentment, demand for payment, protest and
notice of protest, notice of dishonor, notice of acceleration, notice of
intent to accelerate and all other notices and formalities in connection with
this WCMA Promissory Note and this Loan Agreement.
3. WCMA LOANS
(a) ACTIVATION DATE. Provided that: (i) the Commitment Expiration Date shall
not then have occurred, and (ii) Customer shall have subscribed to the WCMA
Program and its subscription to the WCMA Program shall then be in effect, the
Activation Date shall occur on or promptly after the date, following the
acceptance of this Loan Agreement by MLBFS at its office in Chicago,
Illinois, upon which each of the General Funding Conditions shall have been
met or satisfied to the reasonable satisfaction of MLBFS. No activation by
MLBFS of the WCMA Line of Credit for a nominal amount shall be deemed
evidence of the satisfaction of any of the conditions herein set forth, or a
waiver of any of the terms or conditions hereof.
(b) WCMA LOANS. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the first to occur of the Maturity Date
or the date of termination of the WCMA Line of Credit pursuant to the terms
hereof, and in addition to WCMA Loans automatically made to pay accrued
interest, as hereafter provided: (i) MLBFS will make WCMA Loans to Customer
in such amounts as Customer may from time to time request in accordance with
the terms hereof, up to an aggregate outstanding amount not to exceed the
Maximum WCMA Line of Credit, and (ii) Customer may repay any WCMA Loans in
whole or in part at any time, and request a re-borrowing of amounts repaid on
a revolving basis. Customer may request such WCMA Loans by use of WCMA
Checks, FTS, Visa-Registered Trademark- charges, wire transfers, or such
other means of access to the WCMA Line of Credit as may be permitted by MLBFS
from time to time; it being understood that so long as the WCMA Line of
Credit shall be in effect, any charge or debit the WCMA Account which but for
the WCMA Line of Credit would under the terms of the WCMA Agreement result in
an overdraft, shall be deemed a request by Customer for a WCMA Loan.
(c) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not
be obligated to make any WCMA Loan, and may without notice refuse to honor
any such request by Customer, if at the time of receipt by MLBFS of
Customer's request: (i) the making of such WCMA Loan would cause the Maximum
WCMA Line of Credit to be exceeded; or (ii) the Maturity Date shall have
occurred, or the WCMA Line of Credit shall have otherwise been terminated in
accordance with the terms hereof; or (iii) Customer's subscription to the
WCMA Program shall have been terminated; or (iv) an event shall have occurred
and be continuing which shall have caused any of the General Funding
Conditions to not then be met or satisfied to the reasonable satisfaction of
MLBFS. The making by MLBFS of any WCMA Loan at a time when any one or more of
said conditions shall not have been met shall not in any event be construed
as a waiver of said condition or conditions or of any Default, and shall not
prevent MLBFS at any time thereafter while any condition shall not have been
met from refusing to honor any request by Customer for a WCMA Loan.
(d) LIMITATION OF LIABILITY. MLBFS shall not be responsible, and shall have
no liability to Customer or any other party, for any delay or failure of
MLBFS to honor any request of Customer for a WCMA Loan or any other act or
omission of MLBFS, MLPF&S or any of their affiliates due to or resulting from
any
<PAGE>
system failure, error or delay in posting or other clerical error, loss of
power, fire, Act of God or other cause beyond the reasonable control of
MLBFS, MLPF&S or any of their affiliates unless directly arising out of the
willful wrongful act or active gross negligence of MLBFS. In no event shall
MLBFS be liable to Customer or any other party for any incidental or
consequential damages arising from any act or omission by MLBFS, MLPF&S or
any of their affiliates in connection with the WCMA Line of Credit or this
Loan Agreement. As used herein, the term "active gross negligence" shall mean
gross negligence arising out of an affirmative act by MLBFS. It should be
distinguished from "passive" or "imputed" gross negligence.
(e) INTEREST. (i) An amount equal to accrued interest on the WCMA Loan
Balance shall be payable by Customer monthly on each Interest Due Date
commencing with the Interest Due Date occurring in the calendar month in
which the Activation Date shall occur. Unless otherwise hereafter directed in
writing by MLBFS on or after the first to occur of the Maturity Date or the
date of termination of the WCMA Line of Credit pursuant to the terms hereof,
such interest will be automatically charged to the WCMA Account on the
applicable Interest Due Date, and, to the extent not paid with free credit
balances or the proceeds of sales of any Money Accounts then in the WCMA
Account, as hereafter provided, paid by a WCMA Loan and added to the WCMA
Loan Balance. All interest shall be computed for the actual number of days
elapsed on the basis of a year consisting of 360 days.
(ii) Notwithstanding any provision to the contrary in this Agreement or any
of the Additional Agreements, no provision of this Agreement or any of the
Additional Agreements shall require the payment or permit the collection of
any amount in excess of the maximum amount of interest permitted to be
charged by law ("Excess Interest"). In any Excess Interest is provided for,
or is adjudicated as being provided for, in this Agreement or any of the
Additional Agreements, then: (A) Customer shall not be obligated to pay any
Excess Interest; and (B) any Excess Interest that MLBFS may have received
hereunder or under any of the Additional Agreements shall, at the option of
MLBFS, be: (1) applied as a credit against the then unpaid WCMA Loan Balance,
(2) refunded to the payer thereof, or (3) any combination of the foregoing.
(f) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may
be made by the delivery of checks (other than WCMA Checks), or by means of
FTS or wire transfer of funds (other than funds from the WCMA Line of Credit)
to MLPF&S for credit to Customer's WCMA Account. Notwithstanding anything in
the WCMA Agreement to the contrary, Customer hereby irrevocably authorizes
and directs MLPF&S to apply available free credit balances in the WCMA
Account to the repayment of the WCMA Loan Balance prior to application for
any other purpose. Payments to MLBFS from funds in the WCMA Account shall be
deemed to be made by Customer upon the same basis and schedule as funds are
made available for investment in the Money Accounts in accordance with the
terms of the WCMA Agreement. All funds received by MLBFS from MLPF&S pursuant
to the aforesaid authorization shall be applied by MLBFS to repayment of the
WCMA Loan Balance. The acceptance by or on behalf of MLBFS of a check or
other payment for a lesser amount than shall be due from Customer, regardless
of any endorsement or statement thereon or transmitted therewith, shall not
be deemed an accord and satisfaction or anything other than a payment on
account, and MLBFS or anyone acting on behalf of MLBFS may accept such check
or other payment without prejudice to the rights of MLBFS to recover the
balance actually due or to pursue any other remedy under this Loan Agreement
or applicable law for such balance. All checks accepted by or on behalf of
MLBFS in connection with the WCMA Line of Credit are subject to final
collection.
(g) IRREVOCABLE INSTRUCTIONS TO MLPF&S. In order to minimize the WCMA Loan
Balance, Customer hereby irrevocably authorizes and directs MLPF&S, effective
on the Activation Date and continuing thereafter so long as this Agreement
shall be in effect: (i) to immediately and prior to application for any other
purpose pay to MLBFS to the extent of any WCMA Loan Balance or other amounts
payable by Customer hereunder all available free credit balances from time to
time in the WCMA Account; and (ii) if such available free credit balances are
insufficient to pay the WCMA Loan Balance and such other amounts, and there
are in the WCMA Account at any time any investments in Money Accounts (other
than any investments constituting any Minimum Money Accounts Balance under
the WCMA Directed Reserve Program), to immediately liquidate such investments
and pay to MLBFS to the extent of any WCMA Loan Balance and such other
amounts the available proceeds from the liquidation of any such Money
Accounts.
(h) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such
information should be directed to MLBFS; and any questions with respect to
any other matter in such statements or about or affecting the WCMA Program
should be directed to MLPF&S.
(i) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. The proceeds of each WCMA
Loan shall be used by Customer solely for working capital in the ordinary
course of its business, or, with the prior written consent of MLBFS, for
other lawful business purposes of Customer not prohibited hereby. CUSTOMER
AGREES THAT UNDER NO CIRCUMSTANCES WILL FUNDS BORROWED FROM MLBFS THROUGH THE
WCMA LINE OF CREDIT BE USED: (i) FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES
OF ANY PERSON WHATSOEVER, OR (ii) TO PURCHASE, CARRY OR TRADE IN SECURITIES,
OR REPAY DEBT INCURRED TO PURCHASE, CARRY OR TRADE IN SECURITIES, WHETHER IN
OR IN CONNECTION WITH THE WCMA ACCOUNT, ANOTHER ACCOUNT OF CUSTOMER WITH
MLPF&S OR AN ACCOUNT OF CUSTOMER AT ANY OTHER BROKER OR DEALER IN SECURITIES.
(j) RENEWAL AT OPTION OF MLBFS; RIGHT OF CUSTOMER TO TERMINATE. MLBFS may at
any time, in its sole discretion and at its sole option, renew the WCMA Line
of Credit for one or more Renewal Years; it being understood, however, that
no such renewal shall be effective unless set forth in a writing executed by
a duly authorized representative of MLBFS and delivered to Customer. Unless
any such renewal is accompanied by a proposed change in the terms of the WCMA
Line of Credit (other than the extension of the Maturity Date), no such
renewal shall require Customer's approval. Customer shall, however, have the
right to terminate the WCMA Line of Credit at any time upon written notice to
MLBFS.
(k) LINE FEES. (i) In consideration of the extension of the WCMA Line of
Credit by MLBFS to Customer during the period from the Activation Date to and
including the last day of November in the calendar year immediately following
the calendar year in which the Activation Date shall occur (the "Initial Line
Period"), Customer has paid or shall pay the initial Line Fee to MLBFS. If
the initial Line Fee has not heretofore been paid by Customer, Customer
hereby authorizes MLBFS, at its option, to either cause the initial Line Fee
to be paid on the Activation Date with a WCMA Loan, or invoice Customer for
such initial Line Fee (in which event Customer shall pay said fee within 5
Business Days after receipt of such invoice). No delay in the Activation
Date, howsoever caused, shall entitle Customer to any rebate or reduction in
the Line Fee or to any extension of the Initial Maturity Date.
<PAGE>
(iii) Customer shall pay an additional Line Fee for each 12-month period
following the Initial Line Period to the Initial Maturity Date, and for each
Renewal Year. In connection therewith, Customer hereby authorizes MLBFS, at
its option, to either cause each such additional Line Fee to be paid with a
WCMA Loan on or at any time after the first Business Day of such 12-month
period or Renewal Year, as applicable, or invoiced to Customer at such time
(in which event Customer shall pay such Line Fee within 5 Business Days after
receipt of such invoice). Each Line Fee shall be deemed fully earned by MLBFS
on the date payable by Customer, and no termination of the WCMA Line of
Credit, howsoever caused, shall entitle Customer to any rebate or refund of
any portion of such Line Fee; provided, however, that if Customer shall
terminate the WCMA Line of Credit not later than 5 Business Days after the
receipt by Customer of notice from MLBFS of a renewal of the WCMA Line of
Credit, Customer shall be entitled to a refund of any Line Fee charged by
MLBFS for the ensuing Renewal Year.
4. REPRESENTATIONS AND WARRANTIES.
Customer represents and warrants to MLBFS that:
(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of California
and is qualified to do business and in good standing in each other state
where the nature of its business or the property owned by it make such
qualification necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and
performance by Customer of this Loan Agreement and by Customer and each
Guarantor of such of the Additional Agreements to which it is a party: (i)
have been duly authorized by all requisite action, (ii) do not and will not
violate or conflict with any law or other governmental requirement, or any of
the agreements, instruments or documents which formed or govern Customer or
any such Guarantor, and (iii) do not and will not breach or violate any of
the provisions of, and will not result in a default by Customer or any such
Guarantor under, any other agreement, instrument or document to which it is a
party or by which it or its properties are bound.
(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no
notice to or consent or approval of any governmental body or authority or
other third party whatsoever (including, without limitation, any other
creditor) is required in connection with the execution, delivery or
performance by Customer or any Guarantor of such of this Loan Agreement and
the Additional Agreements to which it is a party.
(d) ENFORCEABILITY. This Loan Agreement and such of the Additional Agreements
to which Customer or any Guarantor is a party are the respective legal, valid
and binding obligations of Customer and such Guarantor, enforceable against
it or them, as the case may be, in accordance with their respective terms,
except as enforceability may be limited by bankruptcy and other similar laws
affecting the rights of creditors generally or by general principles of
equity.
(e) FINANCIAL STATEMENTS. Except as expressly set forth in Customer's
financial statements, all financial statements of Customer furnished to MLBFS
have been prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct in all material respects, and
fairly present the financial condition of it as at such dates and the results
of its operations for the periods then ended (subject, in the case of interim
unaudited financial statements, to normal year-end adjustments); and since
the most recent date covered by such financial statements, there has been no
material adverse change in any such financial condition or operation. All
financial statements furnished to MLBFS of any Guarantor are true and correct
in all material respects and fairly represent such Guarantor's financial
condition as of the date of such financial statements, and since the most
recent date of such financial statements, there has been no material adverse
change in such financial condition.
(f) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer or any Guarantor, which would, if adversely determined, materially
and adversely affect the liens and security interests of MLBFS hereunder or
under any of the Additional Agreements, the financial condition of Customer
or any such Guarantor or the continued operations of Customer.
(g) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer any each Guarantor have been
filed with the appropriate governmental agencies and all taxes due and
payable by Customer and each Guarantor have been timely paid (except to the
extent that any such failure to file or pay will not materially and adversely
affect either the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
Guarantor, or the continued operations of Customer).
Each of the foregoing representations and warranties: (i) has been and will be
relied upon as an inducement to MLBFS to prove the WCMA Line of Credit, and
(ii) is continuing and shall be deemed remade by Customer concurrently with
each request for a WCMA Loan.
5. FINANCIAL AND OTHER INFORMATION
Customer shall furnish or cause to be furnished to MLBFS during the term of
this Loan Agreement all of the following:
(a) SEC REPORTS. Not later than 15 days after filing with the SEC, Customer
shall furnish or cause to be furnished to MLBFS a copy of each of its 10K,
10Q and 8K report filed with the SEC.
(b) OTHER INFORMATION. Customer shall furnish or cause to be furnished to
MLBFS such other information as MLBFS may from time to time reasonably
request relating to Customer or any Guarantor.
<PAGE>
6. OTHER COVENANTS
Customer further covenants and agrees during the term of this Loan Agreement
that:
(a) FINANCIAL RECORDS; INSPECTION. Customer will: (i) maintain at its
principal place of business complete and accurate books and records, and
maintain all of its financial records in a manner consistent with the
financial statements heretofore furnished to MLBFS, or prepared on such other
basis as may be approved in writing by MLBFS; and (ii) permit MLBFS or its
duly authorized representatives, upon reasonable notice and at reasonable
times, to inspect its properties (both real and personal), operations, books
and records.
(b) TAXES. Customer and each Guarantor will pay when due all taxes,
assessments and other governmental charges, howsoever designated, and all
other liabilities and obligations, except to the extent that any such failure
to pay will not materially and adversely affect either any liens and security
interest of MLBFS under any Additional Agreements, the financial condition of
Customer or any Guarantor or the continued operations of Customer.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Neither Customer nor any Guarantor
will violate any law, regulation or other governmental requirement, any
judgment or order of any court or governmental agency or authority, or any
agreement, instrument or document to which it is a party or by which it is
bound, if any such violation will materially and adversely affect either any
liens and security interests of MLBFS under any Additional Agreements, the
financial condition of Customer or any Guarantor, or the continued
operations of Customer.
(d) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt
written notification of: (i) any Default; (ii) any materially adverse change
in the business, financial condition or operations of Customer; and (iii) any
information which indicates that any financial statements of Customer or any
Guarantor fail in any material respect to present fairly the financial
condition and results of operations purported to be presented in such
statements. Each notification by Customer pursuant hereto shall specify the
event or information causing such notification, and, to the extent
applicable, shall specify the steps being taken to rectify or remedy such
event or information.
(e) NOTICE OF CHANGE. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
(f) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Customer shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer
or lease all or any substantial part of its assets, if any such action would
result in either: (A) a material change in the principal business, ownership
or control of Customer, or (B) a material adverse change in the financial
condition or operations of Customer; (ii) Customer shall preserve its
existence and good standing in the jurisdiction(s) of establishment and
operation; (iii) Customer shall not engage in any material business
substantially different from its business in effect as of the date of
application by Customer for credit from MLBFS, or cease operating any such
material business; (iv) Customer shall not cause or permit any other person
or entity to assume or succeed to any material business or operations of
Customer; and (v) Customer shall not cause or permit any material change in
its controlling ownership.
7. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. If the WCMA Loan Balance shall
at any time exceed the Maximum WCMA Line of Credit and Customer shall fail to
deposit sufficient funds into the WCMA Account to reduce the WCMA Loan
Balance below the Maximum WCMA Line of Credit within five (5) Business Days
after written notice thereof shall have been given by MLBFS to Customer.
(b) OTHER FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into
the WCMA Account when due any other amount owing or required to be paid or
deposited by Customer under this Loan Agreement, or shall fail to pay when
due any other Obligations, and any such failure shall continue for more than
five (5) Business Days after written notice thereof shall have been given by
MLBFS to Customer.
(c) FAILURE TO PERFORM. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of
this Section), and such default shall continue unremedied for ten (10)
Business Days after written notice thereof shall have been given by MLBFS to
Customer.
(d) BREACH OF WARRANTY. Any representation or warranty made by Customer or
any Guarantor contained in this Loan Agreement or any of the Additional
Agreements shall at any time prove to have been incorrect in any material
respect when made.
(e) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer
or any Guarantor shall occur under the terms of any other agreement,
instrument or document with or intended for the benefit of MLBFS, MLPF&S or
any of their affiliates, and any required notice shall have been given and
required passage of time shall have elapsed.
(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or
performance by Customer or any Guarantor of any of their respective
liabilities or obligations under this Loan Agreement or any of the Additional
Agreements to which Customer or such Guarantor is a party has been materially
impaired. The existence of such a material impairment shall be determined in
a manner consistent with the intent of Section 1-208 of the UCC.
<PAGE>
(h) ACCELERATION OF DEBT OTHER CREDITORS. Any event shall occur which results
in the accelerating of the maturity of any indebtedness of $100,000.00 or
more of Customer or any Guarantor to another creditor under any indenture,
agreement, undertaking, or otherwise.
8. REMEDIES
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all
of the following, at such time and in such order as MLBFS any in its sole
discretion choose:
(i) TERMINATION. MLBFS may without notice terminate the WCMA Line of Credit
and all obligations to provide the WCMA Line of Credit or otherwise extend
any credit to or for the benefit of Customer at being understood, however,
that upon the occurrence of any Bankruptcy Event the WCMA Line of Credit and
all such obligations shall automatically terminate without any action on the
part of MLBFS); and upon any such termination MLBFS shall be relieved of all
such obligations.
(ii) ACCELERATION. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other
notice or formality of any kind, all of which are hereby expressly waived;
provided, however, that upon the occurrence of any Bankruptcy Event all such
principal, interest and other Obligations shall automatically become due and
payable without any action of the part of MLBFS.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and
during the continuance of an Event of Default to set-off, appropriate and
apply toward payment of any of the Obligations, in such order of application
as MLBFS may from time to time and at any time elect, any cash, credit,
deposits, accounts, securities and any other property of Customer which is in
transit to or in the possession, custody or control of MLBFS, MLPF&S or any
agent, bailee, or affiliate of MLBFS or MLPF&S, including, without
limitation, the WCMA Account and any Money Accounts, and all cash, securities
and other financial assets therein or controlled thereby, and all proceeds
thereof. Customer hereby collaterally assigns and grants to MLBFS a
continuing security interest in all such property as additional security for
the Obligations. Upon the occurrence and during the continuance of an Event
of Default, MLBFS shall have all rights in such property available to
collateral assignees and secured parties under all applicable laws,
including, without limitation, the UCC.
(c) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and
any one or more of such rights and remedies may be exercised simultaneously
or successively.
9. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the party of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the
Additional Agreements shall operate as a waiver thereof, and no single or
partial exercise of any such right, power or remedy shall preclude any other
or further exercise thereof, or the exercise of any other right, power or
remedy. Neither any waiver of any provision of this Loan Agreement or any of
the Additional Agreements, nor any consent to any departure by Customer
therefrom, shall be effective unless the same shall be in writing and signed
by MLBFS. Any waiver of any provision of this Loan Agreement or any of the
Additional Agreements and any consent to any departure by Customer from the
terms of this Loan Agreement or any of the Additional Agreements shall be
effective only in the specific instance and for the specific purpose for
which given. Except as otherwise expressly provided herein, no notice to or
demand on Customer shall in any case entitle Customer to any other or further
notice or demand in similar or other circumstances.
(b) DISCLOSURE. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or
not an Event of Default shall have occurred) obtain from and disclose to each
other any and all financial and other information about Customer. In
connection with said authorization, the parties recognize that in order to
provide a WCMA Line of Credit certain information about Customer is required
to be made available on a computer network accessible by certain affiliates
of MLBFS, including MLPF&S.
(c) COMMUNICATIONS. All notices and other communications required or
permitted hereunder shall be in writing, and shall be either delivered
personally, mailed by postage prepaid certified mail or sent by express
overnight courier or by facsimile. Such notices and communications shall be
deemed to be given on the date of personal delivery, facsimile transmission
or actual delivery of certified mail, or one Business Day after delivery to
an express overnight courier. Unless otherwise specified in a notice sent or
delivered in accordance with the terms hereof, notices and other
communications in writing shall be given to the parties hereto at their
respective addresses set forth at the beginning of this Loan Agreement, or,
in the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(d) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay or reimburse
MLBFS for: (i) all Uniform Commercial Code filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in any collateral for the
Obligations; (ii) any and all stamp, transfer and other taxes and fees
payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses
(including, but not limited to, reasonable fees and expenses of outside
counsel) incurred by MLBFS in connection with the collection of any sum
payable hereunder or under any of the Additional Agreements not paid when
due, the enforcement of this Loan Agreement or any of the Additional
Agreements and the protection of MLBFS' rights hereunder or thereunder,
excluding, however, salaries and normal overhead attributable to MLBFS'
employees. The obligations of Customer under this paragraph shall survive the
expiration or termination of this Loan Agreement and the discharge of the
other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or
thing which it has covenanted to do under this Loan Agreement or any
representation or warranty on the part of Customer contained in this Loan
Agreement shall be breached, MLBFS may, in its sole discretion, after 5
Business
<PAGE>
Days written notice is sent to Customer (or such lesser notice, including no
notice, as is reasonable under the circumstances), do the same or cause it to
be done or remedy any such breach, and may expend its funds for such purpose.
Any and all reasonable amounts so expended by MLBFS shall be repayable to
MLBFS by Customer upon demand, with interest at the Interest Rate during the
period from and including the date funds are so expended by MLBFS to the date
of repayment, and all such amounts shall be additional Obligations. The
payment or performance by MLBFS of any of Customer's obligations hereunder
shall not relieve Customer of said obligations or of the consequences of
having failed to pay or perform the same, and shall not waive or be deemed a
cure of any Default.
(f) LATE CHARGE. Any payment required to be made by Customer pursuant to this
Loan Agreement not paid within ten (10) days of the applicable due date shall
be subject to a late charge in an amount equal to the lesser of: (i) 5% of
the overdue amount, or (ii) the maximum amount permitted by applicable law.
Such late charge shall be payable on demand, or, without demand, may in the
sole discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan
Balance in the same manner as provided herein for accrued interest.
(g) FURTHER ASSURANCES. Customer agrees to do such further acts and things
and to execute and deliver to MLBFS such additional agreements, instruments
and documents as MLBFS may reasonably require or deem advisable to effectuate
the purposes of this Loan Agreement or any of the Additional Agreements.
(h) BINDING EFFECT. This Loan Agreement and the Additional Agreements shall
be binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its
rights or delegate any of its obligations under this Loan Agreement or any of
the Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.
(i) HEADINGS. Captions and section and paragraph headings in this Loan
Agreement are inserted only as a matter of convenience, and shall not affect
the interpretation hereof.
(j) GOVERNING LAW. This Loan Agreement, and, unless otherwise expressly
provided therein, each of the Additional Agreements, shall be governed in all
respects by the laws of the State of Illinois.
(k) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
Loan Agreement and the Additional Agreements shall be interpreted in such
manner as to be effective and valid under applicable law. Any provision of
this Loan Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions of this Loan Agreement and the
Additional Agreements or affecting the validity or enforceability of such
provision in any other jurisdiction.
(l) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall
be in effect or there shall be any Obligations outstanding.
(m) COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same agreement.
(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION,
IN ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER
CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR
FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES
ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER
WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION
EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY
EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER
PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE WCMA LINE OF CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL
AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF
THIS LOAN AGREEMENT.
(o) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL
AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND
FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER
HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS
OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE
FOREGOING, CUSTOMER ACKNOWLEDGES THAT EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
HEREIN: (i) NO PROMISE OR COMMITMENT HAS BEEN MADE TO IT BY MLBFS, MLPF&S OR
ANY OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR REPRESENTATIVES TO EXTEND THE
AVAILABILITY OF THE WCMA LINE OF CREDIT OR THE MATURITY DATE, OR TO INCREASE
THE MAXIMUM WCMA LINE OF CREDIT, OR OTHERWISE EXTEND ANY OTHER CREDIT TO
CUSTOMER OR ANY OTHER PARTY; (ii) NO PURPORTED EXTENSION OF THE MATURITY
DATE, INCREASE IN THE MAXIMUM WCMA LINE OF CREDIT OR OTHER EXTENSION OR
AGREEMENT TO EXTEND CREDIT SHALL BE VALID OR BINDING UNLESS EXPRESSLY SET
FORTH IN A WRITTEN INSTRUMENT SIGNED BY MLBFS; AND (iii) THIS LOAN AGREEMENT
SUPERSEDES AND REPLACES ANY AND ALL PROPOSALS, LETTERS OF INTENT AND APPROVAL
AND COMMITTMENT LETTERS FROM MLBFS TO CUSTOMER, NONE OF WHICH SHALL BE
CONSIDERED AN ADDITIONAL AGREEMENT. NO AMENDMENT OR MODIFICATION OF THIS
AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS TO WHICH CUSTOMER IS A PARTY
SHALL BE EFFECTIVE UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and
year first above written.
THE 3DO COMPANY
By: /s/ Trip Hawkins /s/ John Adams
----------------------------------------------------------------------------
Signature (1) Signature (2)
TRIP HAWKINS JOHN ADAMS
-------------------------------------------------------------------------------
Printed Name Printed Name
CEO CFO
-------------------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois;
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES, INC.
By: /s/ ILLEGIBLE
-----------------------------------------
<PAGE>
[LOGO] MERRILL LYNCH SECRETARY'S CERTIFICATE
-------------------------------------------------------------------------------
The undersigned hereby certifies to MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC. that the undersigned is the duly appointed and active Secretary (or
Assistant Secretary) of THE 3DO COMPANY, a corporation duly organized,
validly existing and in good standing under the laws of the State of
California; and that the following is a true, accurate and compared
transcript of resolutions duly, validly and lawfully adopted on the 10th day
of November 1998 by the Board of Directors of said Corporation acting in
accordance with the laws of the state of incorporation and the charter and
by-laws of said Corporation;
"RESOLVED, that this Corporation is authorized and empowered, now and from
time to time hereafter, to borrow and/or obtain credit from, and/or enter
into other financial arrangements with, MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") and in connection therewith to grant to MLBFS liens
and security interests on any or all property belonging to this Corporation;
all such transactions to be on such terms and conditions as may be mutually
agreed from time to time between this Corporation and MLBFS; and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer,
Secretary or other officer of this Corporation, or any one or more of them, be
and each of the hereby is authorized and empowered to: (a) execute and
deliver to MLBFS on behalf of this Corporation any and all loan agreements,
promissory notes, security agreements, pledge agreements, financing
statements, mortgages, deeds of trust, leases and/or all other agreements,
instruments and documents required by MLBFS in connection therewith, and any
present or future extensions, amendments, supplements, modifications and
restatements thereof; all in such form as any such officer shall approve, and
conclusively evidenced by his or her signature thereon, and (b) do and perform
all such acts and things deemed by any such officer to be necessary or
advisable to carry out and perform the undertakings and agreements of this
Corporation in connection therewith; and any and all prior acts of each of
said officers in these premises are hereto ratified and confirmed in all
respects; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from
an authorized officer of this Corporation, which change or revocation shall
not in any event affect the obligations of this Corporation with respect to
any transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that: (a) the foregoing resolutions have
not been rescinded, modified or repealed in any manner, are not in conflict
with any agreement of said Corporation and are in full force and effect as of
the date of this Certificate, and (b) the following individuals are now the
duly elected and acting officers of said Corporation and the signatures set
forth below are the true signatures of said officers:
President:
----------------------------------------------------
Vice President:
-----------------------------------------------
Treasurer: /s/ James Alan Cook
----------------------------------------------------
Secretary: /s/ James Alan Cook
----------------------------------------------------
--------------------------------------------------------------
Additional Title
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said Corporation hereto, pursuant to due authorization,
all as of this 23rd day of November 1998.
(CORPORATE SEAL) /s/ James Alan Cook
----------------------------------------
Secretary
Printed Name: James Alan Cook
----------------------------------------
<PAGE>
[LOGO] MERRILL LYNCH FINANCIAL ASSETS SECURITY AGREEMENT
-------------------------------------------------------------------------------
FINANCIAL ASSETS SECURITY AGREEMENT ("Security Agreement") dated as of
November 3, 1998, given by THE 3DO COMPANY, a corporation organized and
existing under the laws of the State of California ("Customer") to MERRILL
LYNCH FINANCIAL SERVICES INC. ("MLBFS").
1. DEFINITIONS. (a) In addition to terms defined elsewhere in this Security
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Bankruptcy Event" shall mean any of the following: (A) a proceeding
under any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt or receivership law or statute shall be filed or consented to by
Customer; or (B) any such proceeding shall be filed against Customer and
shall not be dismissed or withdrawn within sixty (60) days after filing; or
(C) Customer shall make a general assignment for the benefit of creditors; or
(D) Customer shall become insolvent or generally fail to pay or admit in
writing its inability to pay is debts as they become due; or (E) Customer
shall be adjudicated as bankrupt or insolvent.
(ii) "Business Day" shall mean any day other than Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(iii) "Collateral" shall mean: (A) the Securities Account, (B) any free
credit balances now or hereafter credited to or owing from MLPF&S to Customer
in respect of the Securities Account, (C) all financial assets (including,
without limitation, all stock, bonds, mutual funds, certificates of deposit,
commodities, contracts and other securities), money market deposit accounts,
instruments, general intangibles and other property of whatever kind or
description now and hereafter in or controlled by the Securities Account or
listed on any confirmation or periodic report from MLPF&S as being in or
controlled by the Securities Account, whether now owned or hereafter
acquired, (D) all proceeds of the sale, exchange, redemption or exercise of
any of the foregoing, including, without limitation, all dividends, interest
payments and other distributions of cash or property in respect thereof, and
(E) all rights incident to the ownership of any of the foregoing.
(iv) "Loan Agreement" shall mean that certain WCMA LOAN AGREEMENT NO.
26M-07P21 between Customer and MLBFS, as the same may from time to time be or
have been amended, restated, extended or supplemented.
(v) "Minimum Value" shall mean $22,000,000.00.
(vi) "MLPF&S" shall mean MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
and its successors and assigns.
(vii) "Obligations" shall mean all obligations, liabilities and indebtedness
of every kind and nature now or hereafter owing, arising, due or payable from
Customer to MLBFS, howsoever created, arising, or evidenced, whether direct
or indirect, absolute or contingent, or due or to become due, including,
without limitation, interest accruing after the filing of any petition in
bankruptcy, and all present and future obligations, liabilities and
indebtedness of Customer to MLBFS under the Loan Agreement and the
agreements, instruments and documents executed pursuant thereto, including,
without limitation, this Security Agreement.
(viii) "Permitted Liens" shall mean: (A) liens in favor of MLBFS; (B) liens
for current taxes not delinquent and, if MLBFS' rights to and interest in the
Collateral are not materially and adversely affected thereby, liens for taxes
being contested in good faith by appropriate proceedings; (C) any trade
settlement liens of MLPF&S; and (D) other liens permitted in writing by MLBFS.
(ix) "Securities Account" shall mean that certain MLPF&S securities account
number 26M-07P20 in the name of Customer and any and all successor securities
accounts at MLPF&S.
(b) All terms used in this Security Agreement which are defined in the
Uniform Commercial Code of Illinois ("UCC") shall have the meanings set
forth in the UCC. Without limiting the foregoing, the term "financial assets"
shall have the meaning set forth in Section 8-102 of the UCC.
2. GRANT OF SECURITY INTEREST. In order to secure payment and performance of
the Obligations, Customer hereby pledges, grants and conveys and assigns to
MLBFS a continuing first lien and security interest upon the Collateral
subject only to any Permitted Liens. In furtherance thereof, Customer hereby
irrevocably: (i) authorizes and directs MLPF&S to name or rename the
Securities Account on its books and records as the "THE 3DO COMPANY PLEDGED
COLLATERAL ACCOUNT F/B/O MLBFS", (ii) authorizes and directs MLPF&S and every
other person or entity now or hereafter holding or otherwise having
possession or control of any collateral to hold, possess or control such
Collateral as agent for MLBFS and subject to the rights, direction, control
and security interest of MLBFS, (iii) authorizes and directs MLPF&S and all
such other persons or entities to comply with any and all present and future
orders or directions of MLBFS with respect to all or any part of the
Collateral, notwithstanding any contrary direction or dispute by Customer or
any other party (unless prohibited by law or the order of a judicial body
having appropriate jurisdiction), and without making any inquiry whatsoever
as to MLBFS' right or authority to give such order to direction or as to the
application of any payment pursuant thereto, and (iv) waives and releases
MLPF&S and all such other persons and entities from, and agrees to indemnify
and hold harmless MLPF&S and all such other persons and entities from and
against, any liability whatsoever for complying with any such orders or
directions of MLBFS. So long as no Event of Default shall have occurred and
be continuing, MLBFS will not issue any orders or directions to MLPF&S with
respect to the Collateral unless such orders or directions are approved in
writing by Customer.
<PAGE>
3. RIGHTS AND LIMITATIONS OF CUSTOMER. (a) Except upon the prior written
consent of MLBFS, Customer shall not: (i) purchase any financial assets or
other property with funds in the Securities Account other than: (A) publicly
held domestic money market funds, (B) obligations of or guaranteed or
insured by the U.S. Government (including insured certificates of deposit),
or (C) if the overall investment quality of the Collateral is not thereby
materially reduced, stocks, bonds and other financial assets purchased with
the proceeds of other Collateral which has been sold by Customer, (ii) borrow
any funds on margin or otherwise from anyone other than MLBFS using the
Securities Account, any financial assets in or controlled by the Securities
Account or any other Collateral as collateral; (iii) otherwise grant or
permit to exist any lien or security interest upon any part of the Collateral
other than Permitted Liens, or (iv) directly or indirectly withdraw any
financial assets or other property from the Securities Account except in
connection with a sale permitted hereby.
(b) So long as no Event of Default shall have occurred and be continuing,
Customer may without the consent of MLBFS: (i) retain any financial assets
and other property which are in or controlled by the Securities Account on
the date hereof; (ii) sell any such financial assets or other property at any
time so long as the proceeds are either held in the Securities Account or
used to purchase other financial assets permitted hereby which are held in or
controlled by the Securities Account; and (iii) exercise any voting and
consensual rights with respect to the financial assets and other property
included in the Collateral for any purpose not inconsistent with this
Security Agreement.
4. WARRANTIES. Customer warrants to MLBFS on a continuing basis that:
(a) OWNERSHIP AND PRIORITY. Except for the rights of MLBFS hereunder and for
any Permitted Liens: (i) Customer is the owner of the Securities Account and
all other Collateral free and clear of any interest or lien of any third
party, and (ii) upon the acknowledgment of this Security Agreement by MLPF&S,
the filing of all Uniform Commercial Code financing statements executed by
Customer with respect to the Collateral in the appropriate jurisdiction(s)
and/or the completion of any other action required by applicable law to
perfect its security interest hereunder, MLBFS will have a valid and
perfected first lien and security interest upon all of the Collateral.
(b) COLLATERAL NOT RESTRICTED; ENFORCEABILITY. Except as enforceability may
be limited by bankruptcy and other similar laws affecting the rights of
creditors generally or by general principles of equity: (i) neither Customer
nor any part of the Collateral is subject to any legal, contractual or other
restrictions which might hinder or prevent the grant to or enforcement by
MLBFS of the security interest in the Collateral pursuant to this Security
Agreement, and (ii) this Security Agreement is the legal, valid and binding
obligation of Customer, enforceable against Customer in accordance with its
terms.
(c) RIGHT, POWER AND AUTHORITY. Customer has the full right, power and
authority to make, execute and deliver this Security Agreement.
5. COVENANTS.
(a) NO OTHER LIENS. Except upon the prior written consent of MLBFS, Customer
will not cause or permit to exist any security interests or liens upon the
Collateral other than Permitted Liens.
(b) MAINTENANCE OF PERFECTION. Customer will execute and deliver to MLBFS
such Uniform Commercial Code financing statements, continuation statements
and other agreements, instruments and documents as MLBFS may from time
reasonably require in order to establish, perfect and maintain perfected the
lien and security interest of MLBFS hereunder.
(c) CHANGE IN PRINCIPAL PLACE OF BUSINESS. Customer will provide not less
than 30 days prior written notice of any change in Customer's principal place
of business.
(d) CHANGE WITH MLPF&S. Customer will provide MLBFS with prompt written
notice of any change known to Customer in the account number of the
Securities Account, the Financial Consultant at MLPF&S assigned to Customer or
the address of said Financial Consultant's office at MLPF&S.
(e) MINIMUM COLLATERAL VALUE. Customer further warrants and agrees that the
aggregate immediate market value of the Collateral will at all times be not
less than the Minimum Value. In determining the value of the Collateral for
the purposes of this Section, no value will be given to any shares or
securities in or controlled through the Securities Account for less than 30
calendar days where such shares or securities either: (i) have been issued by
an open-end investment company (including money market funds and other
open-end mutual funds) other than in connection with reinvestment of
dividends; or (ii) are part of a new issue with respect to which MLPF&S
participated as a member of the selling group or syndicate.
6. EVENT OF DEFAULT. The occurrence of any of the following will constitute
an "Event of Default" hereunder: (a) the occurrence of an Event of Default
under the terms of the Loan Agreement; or (b) if Customer shall breach or
violate any of its covenants or warranties herein contained, and does not
cure such breach or violation within 10 Business Days after notice from
MLBFS; or (c) a default or Event of Default by Customer shall occur under the
terms of any other agreement, instrument or document with or intended for the
benefit of MLBFS, MLPF&S or any of their affiliates; or (d) if Customer's
subscription to the Securities Account shall be terminated for any reason; or
(e) any event shall occur which shall reasonably cause MLBFS to in good faith
believe that the prospect of payment or performance by Customer has been
materially impaired (determined in a manner consistent with the intent of
Section 1-208 of the UCC); or (f) if at any time the aggregate immediate
market value of the Collateral shall be or become an amount less than the
Minimum Value (determined in a manner consistent with Section 5(e) hereof),
and Customer shall not within 1 Business Day of written demand by MLBFS
deposit into the Securities Account additional financial assets acceptable to
MLBFS sufficient to increase such aggregate immediate market value to at
least the Minimum Value; or (g) any Bankruptcy Event shall occur.
7. REMEDIES. Upon the occurrence of any Event of Default and at any time
thereafter during the continuance thereof, MLBFS may, at its option, and in
addition to all other rights and remedies available to MLBFS: (a) by written
notice to MLPF&S, terminate all rights of Customer with respect to control of
the Collateral (it being understood, however, that upon the occurrence of any
Bankruptcy Event all rights of Customer with respect to control of the
Collateral shall automatically terminate without notice or other action on
the part of MLBFS), and thereby obtain the right to exclusive control over
the Collateral,
2
<PAGE>
including, without limitation, the right to cancel any open orders and close
any and all outstanding contracts, liquidate all or any part of the
Collateral, transfer the Securities Account or any other Collateral to the
name of MLBFS or its nominee, and withdraw any Collateral from the Securities
Account; and (b) exercise any one or more of the rights and remedies of a
secured party under the UCC. Any sale of Collateral pursuant to this
Paragraph may be made at MLBFS' discretion on any exchange or other market
where such business is usually transacted, or at public auction or private
sale, and MLBFS or MLPF&S' agent may at any such sale by the purchaser for
the account of MLBFS or such agent. The proceeds of sale or other disposition
of any of the Collateral shall be applied by MLBFS on account of the
Obligations, with any excess paid over to Customer or its successors or
assigns, as their interests and rights may appear, or whoever else may then
be adjudged entitled thereto. To the fullest extent permitted by law,
Customer waives notice of any sale, advertisement and all other notices and
formalities whatsoever. All rights and remedies available to MLBFS hereunder
shall be cumulative and in addition to all other rights and remedies
otherwise available to it at law, in equity or otherwise, and one or more of
such rights and remedies may be executed simultaneously or successively. No
waiver by MLBFS of any Event of Default shall waive any other or subsequent
Event of Default. None of the provisions hereof shall be held to have been
waived by any act or knowledge of MLBFS, but only by a written instrument
executed by an officer of MLBFS and delivered to Customer.
8. POWER OF ATTORNEY. Customer further agrees that MLBFS shall have and
hereby irrevocably grants to MLBFS, effective upon the occurrence and during
the continuance of any Event of Default, the full and irrevocable right,
power and authority in the name of Customer or in MLBFS' own name, to demand,
collect, withdraw, receipt for and sue for the Securities Account and any or
all of the other Collateral, and all amounts due or to become due and payable
upon or with respect to the Collateral; to execute any withdrawal receipts
respecting any or all of the Collateral; to endorse the name of Customer on
any and all commercial paper and other instruments given in payment therefor;
and, in its discretion, to take any and all further action (including,
without limitation, the transfer of the Securities Account or any other
Collateral to the name of MLBFS or its nominee) which MLBFS shall deem
necessary or appropriate to preserve or protect its interests hereunder.
9. RIGHTS ABSOLUTE. The rights of MLBFS hereunder and with respect to the
Collateral are absolute and unconditional, and nothing that MLBFS does or
leaves undone shall affect such rights of MLBFS. Without limiting the
foregoing, MLBFS shall not as a condition of such rights be required to
resort to any other collateral or security, pursue or exhaust any remedy
against Customer or any other party or observe any formality of notice or
otherwise (except as expressly provided herein); and (ii) Customer hereby
consents to, and waives notice of, any extension, renewal or modification
from time to time of the Loan Agreement or any other agreement, instrument or
document evidencing or securing the Obligations, any extensions,
forbearances, compromises or releases of any of the Obligations, and the
release of any party primarily or secondarily obligated for the Obligations
or of any other collateral therefor.
10. LIMITATION OF MLBFS' OBLIGATIONS. MLBFS shall not as a result of this
Security Agreement be subjected to any obligation or liability of Customer of
any manner or type with respect to the Collateral, including, but not limited
to, the duty to perform any covenants and agreements made by Customer, all of
which obligations and liabilities shall continue to rest upon Customer as
though this Security Agreement had not been made.
11. MLPF&S NOT AUTHORIZED. CUSTOMER ACKNOWLEDGES AND AGREES THAT
NOTWITHSTANDING THE AFFILIATION BETWEEN MLBFS AND MLPF&S, AND THE AGENCY
RELATIONSHIP ACKNOWLEDGED BY MLPF&S IN THE CONSENT HERETO, NEITHER MLPF&S NOR
ANY OF ITS EMPLOYEES ARE AUTHORIZED TO WAIVE ON BEHALF OF MLBFS ANY PROVISION
HEREOF, OR CONSENT ON BEHALF OF MLBFS TO ANY ACTION OR INACTION BY CUSTOMER,
OR OTHERWISE BIND MLBFS.
12. TERM. This Security Agreement shall become effective when signed by
Customer, and shall continue in effect so long thereafter as the Loan
Agreement shall be in effect or there shall be any Obligations outstanding.
13. MISCELLANEOUS.
(a) Customer waives notice of the acceptance hereof by MLBFS.
(b) Titles to Paragraphs are for convenience only and shall not be considered
in the interpretation hereof.
(c) This Security Agreement shall be binding upon Customer and Customer's
heirs, personal representatives, successors and assigns, as applicable, and
shall inure to the benefit of MLBFS and its successors and assigns. If there
is more than one "Customer", their obligations hereunder are joint and
several.
(d) This written Security Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof, may be modified only
by a written instrument executed by both MLBFS and Customer, and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral
agreements between the parties. There are no unwritten oral agreements
between the parties.
(e) This Security Agreement shall be governed in all respects by the laws of
the State of Illinois. Without limiting the right of MLBFS to enforce this
Security Agreement in any jurisdiction and venue permitted by applicable law,
Customer agrees that this Security Agreement may at the option of MLBFS be
enforced by MLBFS in any jurisdiction and venue in which the Loan Agreement
may be enforced. Customer further agrees that any claim by Customer against
MLBFS hereunder or with respect to any of the transactions contemplated
hereby shall be brought against MLBFS only in an action or proceeding in a
Federal or state court in the County of Cook and State of Illinois, and
Customer waives the right to bring any such action or proceeding or assert
any counterclaim against MLBFS in any other jurisdiction or before any other
forum.
(f) Customer and MLBFS hereby each expressly waive any and all rights to a
trial by jury in any action, proceeding or counterclaim brought by either of
the parties against the other party in any way related to or arising out of
this Security Agreement, the Loan Agreement or any of the transactions
contemplated hereby or thereby.
3
<PAGE>
Dated as of the day and year first above written.
THE 3DO COMPANY
By: /s/ Trip Hawkins /s/ John Adams
------------------------------------------------------------------
Signature (1) Signature (2)
Trip Hawkins John Adams
------------------------------------------------------------------
Printed Name Printed Name
CEO CFO
------------------------------------------------------------------
Title Title
ACCEPTED AT CHICAGO, ILLINOIS:
MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC.
By: [ILLEGIBLE]
--------------------------------
<PAGE>
[LOGO] MERRILL LYNCH SECRETARY'S CERTIFICATE
-------------------------------------------------------------------------------
(FINANCIAL ASSET SECURITY AGREEMENT)
THE UNDERSIGNED HEREBY CERTIFIES that the undersigned is the duly appointed
and acting Secretary (or Assistant Secretary) of THE 3DO COMPANY, a
corporation duly organized, validly existing and in good standing under the
laws of the State of California, and that the following is a true, accurate
and compared transcript of resolutions duly, validly and lawfully adopted on
the 10th day of November, 1998 by the Board of Directors of said corporation
acting in accordance with the laws of the state of incorporation and the
charter and by-laws of said corporation:
"RESOLVED, that it is advisable and in the best interests of this
Corporation that this Corporation grant to MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC. ("MLBFS") a security interest in Merrill Lynch
Account No. 26M-07P20, each successor account at Merrill Lynch, and all
securities and other financial assets now and hereafter therein or
controlled thereby (collectively, the "Account") as collateral for its
obligations to MLBFS; and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer,
Secretary or other officer of this Corporation, or any one or more of
them, be and each of them hereby is authorized and empowered for and on
behalf of this Corporation to: (a) grant to MLBFS a first and prior
security interest on the Account and any other property of this
Corporation; (b) execute and deliver to MLBFS: (i) a Financial Assets
Security Agreement and all other agreements, instruments and documents
now and hereafter required by MLBFS, and (ii) any present or future
amendments to any of the foregoing; all in such form as such officer
shall approve, as conclusively evidenced by his signature thereon; and
(c) do and perform all such acts and things deemed by any such officer to
be necessary or advisable to carry out and perform the undertakings and
agreements of this Corporation in connection therewith; and all prior
acts of said officers in these premises are hereby ratified and
confirmed; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation,
which change or revocation shall not in any event affect the obligations
of this Corporation with respect to any transaction committed to by MLBFS
or having its inception prior to the receipt of such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that the foregoing resolutions have not been
rescinded, modified or repealed in any manner and are in full force and
effect as of the date of this Certificate, and that the following individuals
are now the duly elected and acting officers of said Corporation, and the
signatures set forth below are the true signatures of said officers:
President:
-----------------------------------
Vice President:
------------------------------
Secretary: /s/ James Alan Cook
-----------------------------------
Treasurer: /s/ James Alan Cook
-----------------------------------
IN WITNESS WHEREOF, the undersigned has executed this Certificate and has
affixed the seal of said corporation hereto, pursuant to due authorization,
all as of this 23 day of November, 1998.
(CORPORATE SEAL) /s/ James Alan Cook
------------------------------
Secretary
James Alan Cook
------------------------------
Printed Name
<PAGE>
FR G-3
OMB No. 7100-0018
Approval Expires May 1989
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENT OF PURPOSE FOR AN EXTENSION OF CREDIT SECURED BY MARGIN SECURITIES
BY A PERSON SUBJECT TO REGISTRATION UNDER REGULATION G
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
(Federal Reserve Form G-3)
This form is required by law (15 U.S.C. 78g and 78w; 12 CFR 207).
INSTRUCTIONS
1. This form must be completed when a lender subject to registration under
Regulation G extends credit secured directly or indirectly, in whole or in
part, by any margin stock.
2. The term "margin stock" is defined in Regulation G (12 CFR 207) and
includes, principally: (1) stocks that are registered on a national
securities exchange, stocks that are on the Federal Reserve Board's List of
Marginable OTC Stocks, or any OTC security designated for trading in the
National Market System; (2) debt securities (bonds) that are convertible into
margin securities; and (3) shares of most mutual funds.
3. Please print or type (if space is inadequate, attach separate sheet).
PART I To be completed by Borrower(s)
1. What is the amount of the credit being extended? $20,000,000.00
2. Will any part of this credit be used to purchase or carry margin
securities? Yes / / No /X/
IF THE ANSWER IS "NO", describe the specific purpose of the credit: To
maintain a cash position in the $15MM-$20MM range at each quarter end and
year end.
I (We) have read this form and certify that to the best of my (our) knowledge
and belief the information given is true, accurate, and complete.
Signed: THE 3DO COMPANY
/s/ Trip Hawkins /s/ John Adams
--------------------------------------------------------------------------------
Borrower's signature Date Borrower's signature Date
Trip Hawkins John Adams
--------------------------------------------------------------------------------
Print or type name Date Print or type name Date
THIS FORM SHOULD NOT BE SIGNED IN BLANK
A BORROWER WHO FALSELY CERTIFIES THE PURPOSE OF A CREDIT ON THIS FORM OR
OTHERWISE WILLFULLY OR INTENTIONALLY EVADES THE PROVISIONS OF REGULATION G
WILL ALSO VIOLATE FEDERAL RESERVE X, "RULES GOVERNING BORROWERS WHO OBTAIN
SECURITIES CREDIT".
<PAGE>
PART II To be completed by lender only if the purpose of the credit is to
purchase or carry margin securities (Part I(2) answered "yes")
1. List the margin stock securing this credit; do not include debt securities
convertible into margin stock. The maximum loan value of margin stock is
________ per cent of its current market value under the current Supplement to
Regulation G.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
No. of shares Issue Market Price Date and source of Total market value
per share valuation per issue
(See note below)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
</TABLE>
2. List the debt securities convertible into margin stock securing this
credit. The maximum loan value of such debt securities is _________ per cent
of the current market value under the current Supplement to Regulation G.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Principal Amount Issue Market Price Date and source of Total market value
valuation per issue
(See note below)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
</TABLE>
3. List other collateral including non-margin securities securing this
credit.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Describe briefly Market Price Date and source of valuation Good faith
(See note below) loan value
--------------------------------------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------------------------------------
</TABLE>
Note: Lender need not complete "Date and and source of valuation" if the
market value was obtained from regularly published information in a journal
of general circulation.
PART III To be signed by an authorized representative of the lender in all
instances
I am a duly authorized representative of the lender and understand that this
credit secured by margin stock may be subject to the credit restrictions of
Regulation G. I have read this form and any attachments, and I have accepted
the customer's statement in Part I in good faith as required by Regulation G;
and I certify that to the best of my knowledge and belief, all the
information given is true, accurate, and complete.
12/3/98 /s/ Ellen Lee
-----------------------------------------------------------------
Date Authorized representative's signature
Div. Documentation Manager Ellen Lee
-----------------------------------------------------------------
Title Print or type name
TO ACCEPT THE CUSTOMER'S STATEMENT IN GOOD FAITH, THE AUTHORIZED
REPRESENTATIVE OF THE LENDER MUST BE ALERT TO THE CIRCUMSTANCES SURROUNDING
THE CREDIT AND IN POSSESSION OF ANY INFORMATION THAT WOULD CAUSE A PRUDENT
PERSON NOT TO ACCEPT THE STATEMENT WITHOUT INQUIRY, MUST HAVE INVESTIGATED
AND BE SATISFIED THAT THE STATEMENT IS TRUTHFUL. AMONG THE FACTS WHICH WOULD
REQUIRE SUCH INVESTIGATION ARE RECEIPT OF THE STATEMENT THROUGH THE MAIL OR
FROM A THIRD PARTY.
This form must be retained by the creditor for
three years after the credit is extinguished.