Loan and Security Agreement

Exhibit 10.14


LOAN AND SECURITY AGREEMENT


DATED AS OF JUNE 27, 2002


BETWEEN


GE CAPITAL COMMERCIAL SERVICES, INC.,


AS LENDER


AND


THE 3DO COMPANY,


AS BORROWER


TABLE OF CONTENTS


Page(s)
------- 1. AMOUNT AND TERMS OF CREDIT ........................................................... 1
1.1 Revolving Credit Loan .......................................................... 1
(a) Revolving Credit Advances ............................................. 1
(b) Adjustments to Maximum Amount ......................................... 1
1.2 Borrowing Procedures ........................................................... 1
(a) Borrowing Base ........................................................ 2
(b) Term and Prepayment ................................................... 2
(c) Over Advance .......................................................... 2
(d) Prepayment ............................................................ 2
(e) Use of Proceeds ....................................................... 2
(f) Reserves .............................................................. 2
1.3 Single Loan .................................................................... 3
1.4 Interest ....................................................................... 3
(a) Revolving Credit Rate ................................................. 3
(b) Payment of Interest ................................................... 3
(c) Default Interest Rate ................................................. 3
1.5 Cash Management System ......................................................... 3
1.6 Fees ........................................................................... 3
1.7 Receipt of Payments ............................................................ 3
1.8 Application and Allocation of Payments ......................................... 4
1.9 Accounting ..................................................................... 4
1.10 Indemnity ...................................................................... 5
1.11 Borrowing Base; Reserves ....................................................... 5
1.12 Accounts Management Services ................................................... 5


2. CONDITIONS PRECEDENT ................................................................. 5
2.1 Conditions to the Initial Loans ................................................ 5
2.2 Further Conditions to the Loans ................................................ 7


3. REPRESENTATIONS, WARRANTIES AND AFFIRMATIVE COVENANTS ................................ 8
3.1 Corporate Existence; Compliance with Law ....................................... 8
3.2 Executive Offices; Corporate or Other Names .................................... 8
3.3 Corporate Power; Authorization; Enforceable Obligations ........................ 8
3.4 Financial Statements and Projections; Books and Records ........................ 9
3.5 Material Adverse Change ........................................................ 9
3.6 Real Estate; Property .......................................................... 9
3.7 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness ...... 10
3.8 Government Regulation; Margin Regulations ...................................... 10
3.9 Taxes; Charges ................................................................. 10
3.10 Payment of Obligations ......................................................... 11
3.11 ERISA .......................................................................... 11


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3.12 Litigation ............................................... 11
3.13 Intellectual Property .................................... 11
3.14 Full Disclosure .......................................... 12
3.15 Hazardous Materials ...................................... 12
3.16 Insurance ................................................ 12
3.17 Deposit and Disbursement Accounts ........................ 13
3.18 Accounts ................................................. 13
3.19 Conduct of Business ...................................... 13
3.20 Further Assurances ....................................... 13


4. FINANCIAL MATTERS; REPORTS ........................................ 14
4.1 Reports and Notices ...................................... 14
4.2 Financial Covenants ...................................... 15
4.3 Other Reports and Information ............................ 15


5. NEGATIVE COVENANTS ................................................ 15


6. SECURITY INTEREST ................................................. 17
6.1 Grant of Security Interest ............................... 17
6.2 Lender's Rights .......................................... 18
6.3 Lender's Appointment as Attorney-in-fact ................. 19


7. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ............................ 19
7.1 Events of Default ........................................ 19
7.2 Remedies ................................................. 22
7.3 Waivers by Credit Parties ................................ 23
7.4 Proceeds ................................................. 23


8. SUCCESSORS AND ASSIGNS ............................................ 23


9. MISCELLANEOUS ..................................................... 24
9.1 Complete Agreement; Modification of Agreement ............ 24
9.2 Expenses ................................................. 24
9.3 No Waiver ................................................ 24
9.4 Severability; Section Titles ............................. 25
9.5 Authorized Signature ..................................... 25
9.6 Notices .................................................. 25
9.7 Counterparts ............................................. 26
9.8 Time of the Essence ...................................... 26
9.9 GOVERNING LAW ............................................ 26
9.10 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL ......... 26
9.11 Press Releases ........................................... 27
9.12 Reinstatement ............................................ 27


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INDEX OF EXHIBITS AND SCHEDULES


Schedule A - Definitions Schedule B - Lender's and Borrower's Addresses for Notices Schedule C - Cash Management System Schedule D - Fees Schedule E - Schedule of Documents Schedule F - Accounts Management Services Schedule G - Financial Covenants


Disclosure Schedule (3.2) - Places of Business; Corporate Names Disclosure Schedule (3.6) - Real Estate Disclosure Schedule (3.7) - Stock; Affiliates Disclosure Schedule (3.9) - Taxes Disclosure Schedule (3.11) - ERISA Disclosure Schedule (3.12) - Litigation Disclosure Schedule (3.13) - Intellectual Property Disclosure Schedule (3.15) - Environmental Matters Disclosure Schedule (3.16) - Insurance Disclosure Schedule (3.18) - Contracts (Offset Risk) Disclosure Schedule (5(b)) - Indebtedness Disclosure Schedule (5(e)) - Liens Disclosure Schedule (6.1) - Actions to Perfect Liens


Exhibit A - Form of Notice of Revolving Credit Advance Exhibit B - Other Reports and Information Exhibit D - Form of Accounts Payable Analysis Exhibit E - Form of Accounts Receivable Rollforward Analysis Exhibit F - [Intentionally Omitted] Exhibit G - Form of Secretarial Certificate Exhibit H - Form of Power of Attorney Exhibit I - Form of Certificate of Compliance Exhibit J - [Intentionally Omitted] Exhibit K - Form of Landlord's Waiver and Consent Exhibit L - Form of Guarantee Exhibit M - Form of Opinion of Counsel to Borrower Exhibit N - Form of U.C.C. Schedule Exhibit O - Form of Payment of Proceeds Letter


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GE Capital


TRANSACTION SUMMARY AS OF THE DATE OF THIS AGREEMENT


REVOLVING CREDIT LOAN


Maximum Amount: $15,000,000, with seasonal sublimits.


Term: 2 years.


Interest Rate: The Index Rate plus 0.75%.


Borrowing Base: shall mean at any time an amount equal to fifty percent
(50%) of the value (as determined by Lender) of
Borrower's Eligible Accounts. Lender may, in its sole
discretion, decrease the ratio of its advances against
Eligible Accounts if Dilution exceeds 35%, and any such
decrease shall become effective immediately for
purposes of calculating new advances hereunder.


Commitment Fee: $50,000, of which $25,000 was paid on May 17, 2002,
and the balance is due on August 15, 2002


Service Fee: 0.45% of the gross amount of Accounts assigned to
Lender.


Minimum Annual


Service Fee: $300,000.


Set Up Fee: $2,500.


Prepayment Fee: $300,000 in year one, less the amount of Service Fees
collected; $300,000 in year two, less the amount of
Service Fees collected in year two, and at all times
thereafter.


The Revolving Credit Advances described generally here are established and governed by the terms and conditions set forth below in this Agreement and the other Loan Documents, and if there is any conflict between this general description and the express terms and conditions below or elsewhere in the Loan Documents, such other express terms and conditions shall control.


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This LOAN AND SECURITY AGREEMENT is dated as of June 27, 2002, and agreed to by and between THE 3DO COMPANY, a California corporation ("Borrower"), any other Credit Party executing this Agreement, and GE CAPITAL COMMERCIAL SERVICES, INC., a North Carolina corporation ("Lender").


RECITALS


A. Borrower desires to obtain Revolving Credit Advances and other financial accommodations from Lender and Lender is willing to provide Revolving Credit Advances and accommodations all in accordance with the terms of this Agreement.


B. Capitalized terms used herein shall have the meanings assigned to them in Schedule A and, for purposes of this Agreement and the other Loan Documents, the rules of construction set forth in Schedule A shall govern. All schedules, attachments, addenda and exhibits hereto, or expressly identified to this Agreement, are incorporated herein by reference, and taken together with this Agreement, constitute but a single agreement.


AGREEMENT


NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows:


1. AMOUNT AND TERMS OF CREDIT


1.1 Revolving Credit Loan.


(a) Revolving Credit Advances. Subject to the terms and conditions of this Agreement, from the Closing Date and until the Revolving Credit Loan Termination Date, upon the request of Borrower, Lender shall make advances (each, a "Revolving Credit Advance") to Borrower in an aggregate amount outstanding at any time not to exceed the Borrowing Availability at such time. The Revolving Credit Advances shall be repayable in accordance with the terms of this Agreement.


(b) Adjustments to Maximum Amount. Seasonal increases in the Maximum Amount shall not be made if, any of the following exist as of the date the schedule increase (i) Dilution, as measured on the date of the scheduled increase in the Maximum Amount, exceeds 35%, (ii) Borrower does not receive a required equity investment as set forth in Schedule G, (iii) there is a Material Adverse Effect, or (iv) a Default has occurred and is continuing.


1.2 Borrowing Procedures. Borrower shall request each Revolving Credit Advance by written notice to Lender substantially in the form of Exhibit A (each a "Notice of Revolving Credit Advance") given no later than 10:00 am (pacific time) on the Business Day of the proposed advance. A Notice of Revolving Credit Advance received by Lender after 10:00 am (pacific time) shall be deemed to have been received by Lender on the next Business Day. Lender shall be fully protected under this Agreement in relying upon, and shall be entitled to rely upon, (i) any Notice of Revolving Credit Advance believed by Lender to be genuine, and (ii) the assumption that the Persons making electronic requests or executing and delivering a Notice of


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Revolving Credit Advance were duly authorized, unless the responsible individual acting thereon for Lender shall have actual knowledge to the contrary. As an accommodation to Borrower, Lender may permit telephonic, electronic or facsimile requests for a Revolving Credit Advance and electronic or facsimile transmittal of instructions, authorizations, agreements or reports to Lender by Borrower. Unless Borrower specifically directs Lender in writing not to accept or act upon telephonic, facsimile or electronic communications from Borrower, Lender shall have no liability to Borrower for any loss or damage suffered by Borrower as a result of Lender's honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it telephonically, by facsimile or electronically and purporting to have been sent to Lender by Borrower and Lender shall have no duty to verify the origin of any such communication or the identity or authority of the Person sending it.


(a) Borrowing Base. In making any Revolving Credit Advance hereunder Lender shall be entitled to rely upon information available to Lender.


(b) Term and Prepayment. (i) Upon the Revolving Credit Loan Termination Date the obligation of Lender to consider Borrower's requests for Revolving Credit Advances and other credit hereunder shall immediately terminate and Borrower shall pay to Lender in full, in cash: (i) all outstanding Revolving Credit Advances and all accrued but unpaid interest thereon; and (ii) all other non-contingent Obligations due to or incurred by Lender.


(c) Over Advance. If the Revolving Credit Loan shall at any time exceed the Borrowing Availability, then Borrower shall repay the Revolving Credit Loan in the amount of such excess within two Business Days following notice from Lender.


(d) Prepayment. Borrower shall have the right, at any time upon 60 days prior written notice to Lender to (i) terminate voluntarily Borrower's right to borrow any moneys or obtain other credit extensions or financial accommodations from Lender under this Agreement, and (ii) prepay all of the Obligations. The effective date of termination of the Revolving Credit Loan specified in such notice shall be the Revolving Credit Loan Termination Date. If Borrower exercises its right of termination and prepayment, or if Borrower's right to borrow any moneys or obtain other credit extensions or financial accommodations from Lender under this Agreement is terminated prior to the Stated Expiry Date then in effect as a result of the occurrence of an Event of Default, Borrower shall pay to Lender the applicable Prepayment Fee.


(e) Use of Proceeds. Borrower shall use the proceeds of the Revolving Credit Advances for working capital and other general corporate purposes.


(f) Reserves. Anything to the contrary in this Agreement notwithstanding, Lender shall have the right to establish reserves in such amounts, and with respect to such matters that indicate a decline in the video game industry or the likelihood of a possible Material Adverse Effect, as Lender in its reasonable discretion shall deem necessary or appropriate, against the Borrowing Base and Maximum Amount, including reserves with respect to (i) sums that Borrower is required to pay (such as Taxes, assessments, insurance premiums, or, in the case of leased assets or warehousing arrangements, rents or other amounts payable under such leases and warehousing arrangements) and has failed to pay under any Section of this Agreement or any other Loan Document, and (ii) amounts owing by Borrower to any Person to


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the extent secured by a Lien on, or trust over, any of the Collateral (other than any existing Permitted Encumbrances set forth on Disclosure Schedule 5(e) which is specifically identified thereon as entitled to have priority over the Lender's Liens), which Lien or trust, in the discretion of Lender likely would have a priority superior to the Lender's Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or other Taxes where given priority under applicable law) in and to such item of the Collateral.


1.3 Single Loan. The Revolving Credit Advances and all of the other Obligations of Borrower to Lender shall constitute one general obligation of Borrower secured by all of the Collateral.


1.4 Interest.


(a) Revolving Credit Rate. Borrower shall pay interest to Lender on the aggregate outstanding Revolving Credit Advances at a floating rate equal to the Index Rate plus .75% (the "Revolving Credit Rate"). All computations of interest shall be made by Lender on the basis of a three hundred sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest or fee is payable. Each determination by Lender of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error. In no event will Lender charge interest at a rate that exceeds the highest rate of interest permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable.


(b) Payment of Interest. Interest shall be payable on the outstanding Revolving Credit Advances (i) in arrears on the last day of each calendar month, (ii) on the Revolving Credit Loan Termination Date, and (iii) if any interest accrues or remains payable after the Revolving Credit Loan Termination Date, upon demand by Lender. If any interest or any other payment to Lender under this Agreement becomes due and payable on a day other than a Business Day, such payment date shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension. Lender may charge Borrower's loan account for all interest charges hereunder.


(c) Default Interest Rate. Effective upon the occurrence of any Event of Default and for so long as any Event of Default shall be continuing, the Revolving Credit Rate shall automatically be increased by two percentage points (2%) per annum (such increased rate, the "Default Rate"), and all outstanding Obligations shall continue to accrue interest from the date of such Event of Default at the Default Rate applicable to such Obligations.


1.5 Cash Management System. On or prior to the Closing Date and until the Termination Date, Borrower will establish and maintain the cash management system described in Schedule C. All payments in respect of the Collateral shall be made in accordance with the procedures set forth in Schedule C.


1.6 Fees. Borrower agrees to pay to Lender the Fees set forth in Schedule D.


1.7 Receipt of Payments. Borrower shall place a legend on each invoice instructing all of the Account Debtors to make payments to Lender. Lender shall from time to


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time notify customers or Account Debtors of Borrower that the Accounts have been assigned to Lender and that Lender has a security interest therein. Lender shall collect the Accounts directly from the Account Debtors in a manner consistent with the collection practices generally employed by Lender for the benefit of Lender's clients. So long as no Event of Default has occurred and is continuing, the sole charge for the collection efforts employed by Lender shall be the Servicing Fees. Upon the occurrence of an Event of Default and so long as it is continuing, Lender shall be entitled to charge Borrower with the collection costs and expenses. In this connection, the Servicing Fees, as well as any other applicable collection costs and expenses, shall be charged to Borrower's loan account. In the event any payment on an Account is paid directly to Borrower, then upon receipt by Borrower of such payment, Borrower shall immediately send to Lender such payment in the form received. Borrower agrees that all payments received by Borrower in connection with the Accounts and any other Collateral shall be held in trust for Lender as Lender's trustee. The receipt of any wire transfer of funds, check, or other item of payment received by Lender shall be applied to conditionally reduce Borrower's Obligations, but shall not be considered a payment on account unless such wire transfer is of immediately available federal funds and is made to the Collection Account or unless and until such check or other item of payment is honored when presented for payment. For purposes of computing interest and Fees, all payments shall be deemed received by Lender three (3) Business Days following receipt of immediately available funds in the Collection Account. For purposes of determining the Borrowing Availability, payments shall be deemed received by Lender upon receipt of immediately available funds in the Collection Account.


1.8 Application and Allocation of Payments. Borrower irrevocably agrees that Lender shall have the continuing and exclusive right to apply any and all payments against the then due and payable Obligations in such order as Lender may deem advisable. Lender is authorized to, and at its option may (without prior notice or precondition and at any time or times), but shall not be obligated to, make or cause to be made Revolving Credit Advances on behalf of Borrower for: (a) payment of all Fees, expenses, indemnities, charges, costs, principal, interest, or other Obligations owing by Borrower under this Agreement or any of the other Loan Documents, (b) the payment, performance or satisfaction of any of Borrower's obligations with respect to preservation of the Collateral, or (c) any premium in whole or in part due in respect of any of the policies of insurance required by this Agreement, even if the making of any such Revolving Credit Advance causes the outstanding balance of the Revolving Credit Loan to exceed the Borrowing Availability, and Borrower agrees to repay within two Business Days following notice from Lender, in cash, any amount by which the Revolving Credit Loan exceeds the Borrowing Availability.


1.9 Accounting. Lender is authorized to record on its books and records the date and amount of each Revolving Credit Advance and each payment of principal thereof and such recordation shall constitute prima facie evidence of the accuracy of the information so recorded. Lender shall provide Borrower on a monthly basis a statement and accounting of such recordations but any failure on the part of the Lender to keep any such recordation (or any errors therein) or to send a statement thereof to Borrower shall not in any manner affect the obligation of Borrower to repay any of the Obligations. Except to the extent that Borrower shall, within 45 days after such statement and accounting is sent, notify Lender in writing of any objection Borrower may have thereto (stating with particularity the basis for such objection), such


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statement and accounting shall be deemed final, binding and conclusive upon Borrower, absent manifest error.


1.10 Indemnity. Borrower and each other Credit Party executing this Agreement jointly and severally agree to indemnify and hold Lender and its Affiliates, and their respective employees, attorneys and agents (each, an "Indemnified Person"), harmless from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses of any kind or nature whatsoever (including attorneys' fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal) which may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents or with respect to the execution, delivery, enforcement, performance and administration of, or in any other way arising out of or relating to, this Agreement and the other Loan Documents or any other documents or transactions contemplated by or referred to herein or therein and any actions or failures to act with respect to any of the foregoing, including any and all product liabilities, Environmental Liabilities, Taxes and legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Loan Documents (collectively, "Indemnified Liabilities"), except to the extent that any such Indemnified Liability is finally determined by a court of competent jurisdiction to have resulted solely from such Indemnified Person's gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY CREDIT PARTY, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR ANY ACT OR FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.


1.11 Borrowing Base; Reserves. The Borrowing Base shall be determined by Lender (including the eligibility of Accounts) based on information available to Lender. The Revolving Credit Loan shall be subject to Lender's continuing right to withhold from Borrowing Availability pursuant to Section 1.2(f).


1.12 Accounts Management Services. Lender shall render for Borrower the services described in Schedule F attached hereto.


2. CONDITIONS PRECEDENT


2.1 Conditions to the Initial Loans. Lender shall not be obligated to consider Borrower's requests for any of the Revolving Credit Advances or to perform any other action hereunder, until the following conditions have been satisfied in a manner satisfactory to Lende ...