Loan & Security Agreement

EXHIBIT 10.1


LOAN AND SECURITY AGREEMENT


This LOAN AND SECURITY AGREEMENT is entered into as of March 19, 2003 by and between The 3DO Company, a California corporation ("Borrower"), and IIG Capital LLC, as agent for the IIG Trade Opportunities Fund, N.V. ("Lender").


RECITALS


A. Borrower has requested that Lender provide financial accommodations to Borrower as more fully set forth herein and in the Loan Documents.


B. This Agreement is entered into and will be performed in the Chosen State.


NOW, THEREFORE, in consideration of the premises, and intending to be legally bound hereby, the Parties hereby agree as follows:


AGREEMENT


1 Certain Definitions and Index to Definitions.


1.1 Accounting Terms. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP consistently applied.


1.2 Definitions. All other terms contained in this Agreement which are not specifically defined herein shall have the meanings provided in the UCC to the extent the same are used herein. All references herein to the singular or plural shall also mean the plural or the singular, respectively. As used herein, the following terms shall have the following meanings:


1.2.1 "Account Management Fee" - $1,500.00 per month.


1.2.2 "Advances" - see Section 2.1.1 hereof.


1.2.3 "Agreement" - this Loan and Security Agreement, together with all exhibits and schedules hereto, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated, or replaced.


1.2.4 "Allowable Amount" - the lesser of (i) the Borrowing Base less Availability Reserves, if any and (ii) the Maximum Amount.


1.2.5 "Anniversary Date" - each date which is an anniversary of the date of this Agreement.


1.2.6 "Audit Fee" - $15,000.00 per year or portion thereof.


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1.2.7 "Avoidance Claim" - any claim that any payment received by Lender from or for the account of an Account Debtor is avoidable under the Bankruptcy Code or any other debtor relief statute.


1.2.8 "Availability Reserves" - as of any date of determination, such amounts as Lender may from time to time establish and revise in good faith reducing the amount of Advances which would otherwise be available to Borrower hereunder:


1.2.8.1 To reflect events, conditions, contingencies or
risks which, as determined by Lender in good faith, do or may
reasonably be expected to affect either (i) the Collateral or any
other property which is security for the Obligations or its
value, (ii) the assets, business or prospects of Borrower or any
Obligor, or (iii) the security interest and other rights of
Lender in the Collateral (including the enforceability,
perfection and priority thereof);


1.2.8.2 To reflect Lender's good faith belief that any
financial information furnished by or on behalf of Borrower or
any Obligor to Lender is or may have been incomplete, inaccurate
or misleading in any material respect; or


1.2.8.3 In respect of any state of facts that Lender
determined in good faith constitutes an Event of Default or may
reasonably be expected to, with notice or passage of time or
both, constitute an Event of Default.


1.2.9 "Average Unused Portion of Maximum Amount" - the Maximum Amount less the average Obligations that were outstanding during the immediately preceding month.


1.2.10 "Balance Subject to Interest" - The sum of the unpaid balances of:


1.2.10.1 Advances;


1.2.10.2 Other payments made by Lender arising hereunder for
which Borrower is liable to Lender.


1.2.11 "Borrower" - see Preamble hereof.


1.2.12 "Borrowing Base" - the sum of:


1.2.12.1 60% of the Net Face Amount of Borrower's Eligible
Accounts, plus


1.2.12.2 the lesser of (i) $2,000,000.00 or (ii) 25% of the
value (determined at the lower of cost or market) of Borrower's
Eligible Inventory.


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1.2.13 "Borrowing Base Certificate" - a request for an Advance, in a form acceptable to Lender.


1.2.14 "Business Day" - any day which is not a Saturday, Sunday, or other day on which national banks are authorized or required to be closed.


1.2.15 "Chosen State" - New York.


1.2.16 "Claim" - a claim by an Account Debtor, of any defense, dispute, offset, counterclaim, or rights of return or cancellation with respect to any Account.


1.2.17 "Clearance Days" - 3 banking days.


1.2.18 "Collateral" - All Borrower's present and future Accounts, Chattel Paper, Goods (including Inventory and Equipment), Instruments, Investment Property, Documents, and General Intangibles, and the proceeds thereof.


1.2.19 "Collateral Management Fee" - 0.4% per month of the average monthly balance of the gross face amount of the outstanding Accounts.


1.2.20 "Contractual Termination Date" - The end of a Term.


1.2.21 "Credit Accommodation" - any advance or other extension of credit by Lender to or on behalf of Borrower hereunder.


1.2.22 "Default Rate" - 8% per annum in excess of the Interest Rate.


1.2.23 "Default Waiver Fee" - $2,500.00.


1.2.24 "Delinquent Account" - see Section 1.2.26.1.


1.2.25 "Early Termination Fee" - the greater of (x) total interest for the immediately preceding three months, or (y) $300,000.00.


1.2.26 "Eligible Account" - an Account, excluding the following:


1.2.26.1 Any Account which remain uncollected for more than
90 days from invoice date (each a "Delinquent Account");


1.2.26.2 Any Account due from an Account Debtor that is
insolvent;


1.2.26.3 Any Account due from an Account Debtor affiliated
with Borrower in any manner;


1.2.26.4 Any Account which is not unconditionally due and
owing;


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1.2.26.5 Any Account with respect to which the Account
Debtor is not a resident or citizen of, located in, or subject to
service of process in, the United States, and which are not
either (i) covered by credit insurance in form and amount, and by
an insurer, satisfactory to Lender, or (ii) supported by one or
more letters of credit issued by a financial institution,
acceptable to Lender;


1.2.26.6 Any Account due from an Account Debtor who is any
national, federal state or municipal government, including,
without limitation, any instrumentality, division, agency, body
or department thereof, except where the Account Debtor is bound
to make payment directly to Lender;


1.2.26.7 That portion of Accounts due from an Account Debtor
which is in excess of 25% percent of Borrower's aggregate dollar
amount of all outstanding Accounts Receivable;


1.2.26.8 Accounts which are not free of all liens,
encumbrances, charges, rights and interest of any kind, except
liens in favor of Lender, subordinate liens existing as of the
date of this Agreement, and subordinate liens hereafter acquired
with Lender's consent, which consent shall not be unreasonably
withheld;


1.2.26.9 Accounts which are supported or represented by a
promissory note, post-dated check or letter of credit unless
Lender holds a first perfected security interest therein;


1.2.26.10 Accounts that represent progress payments or other
advance billings that are due prior to the completion of
performance by Borrower of the subject contract for goods or
services;


1.2.26.11 Accounts for which Borrower is or may become
indebted to the Account Debtor, except Accounts owing from an
Account Debtor which has signed an estoppel letter acceptable to
Lender whereby it agrees not to assert its claims against
Borrower as a defense to payment of Accounts; and


1.2.26.12 Accounts which are unsuitable as collateral, as
determined by Lender in the exercise of its commercially
reasonable discretion.


1.2.27 "Eligible Inventory" - Inventory of Borrower which is:


1.2.27.1 Subject to Lender's first, perfected security
interest;


1.2.27.2 Not owned by Borrower for more than 60 days; and


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1.2.27.3 Otherwise acceptable to Lender in its reasonable
sole discretion.


1.2.28 "Event of Default" - see Section 12 hereof.


1.2.29 "Exposed Payments" - Payments received by Lender from an Account Debtor which has become subject to a bankruptcy proceeding, to the extent such payments cleared said Account Debtor's deposit account within ninety days of the commencement of said bankruptcy case.


1.2.30 "GAAP" - means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and pronouncements of the Financial Accounting Standards Board (or any successor authority) that are applicable as of the date of determination.


1.2.31 "Guarantors" - all individuals and entities now or hereafter guaranteeing the Obligations.


1.2.32 "Interest Rate" - The greater of (i) 5% percent per annum in excess of the Prime Rate or (ii) 9.5% per annum. Any change in the Interest Rate shall be effective as of the date of any change in the Prime Rate.


1.2.33 "Key Employees" - William M. Hawkins III.


1.2.34 "Lender" - See Preamble.


1.2.35 "Loan Documents" - this Agreement, together with any documents, instruments and agreements, executed and/or delivered in connection herewith, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.


1.2.36 "Loan Fee" - 1.5% of the Maximum Amount.


1.2.37 "Maximum Amount" - $10,000,000.


1.2.38 "Minimum Quarterly Income" - $300,000.


1.2.39 "Misdirected Payment Fee" - the greater of (i) $2,000 or (ii) 3% of any payment described in Section 3.2.2.7 hereof.


1.2.40 "Missed Payoff Fee" - (a) 2% of the unpaid balance of the Obligations of Borrower on the Termination Date, if Borrower pays Lender the unpaid balance of the Obligations in full between one and five Business Days after the Termination Date, (b) 3% of the unpaid balance of the Obligations of Borrower on the Termination Date, if Borrower pays Lender the unpaid balance of the Obligations in full between six and ten Business Days after the Termination Date; and (c) 5% of the unpaid balance of the Obligations of Borrower on the


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Termination Date, if Borrower pays Lender the unpaid balance of the Obligations in full more than 10 Business Days after the Termination Date.


1.2.41 "Missing Notation Fee" - the greater of (i) $2,000 or (ii) 3% of the Net Face Amount.


1.2.42 "Monetary Collateral" - cash, checks or other proceeds of Collateral in tangible form.


1.2.43 "Net Face Amount" - with respect to an Account, the gross face amount of such Account less all trade discounts or other deductions and claims to which the Account Debtor is contractually entitled.


1.2.44 "Obligated Party" - any entity obligated with respect to any Collateral.


1.2.45 "Obligations" - all present and future obligations owing by Borrower to Lender whether or not for the payment of money, whether direct or indirect, absolute or contingent, joint or several, whether arising before, during or after the commencement of any Bankruptcy Case in which Borrower is a debtor.


1.2.46 "Obligors" - Borrower and all Guarantors.


1.2.47 "Prime Rate" - The prime rate as reflected in the Wall Street Journal from time to time. If the prime rate is reflected as a range, than the Prime Rate as used herein shall be the highest amount in said range.


1.2.48 "Subordinating Creditor" - any creditor of the Borrower which has executed a Subordination Agreement.


1.2.49 "Subordination Agreement" - a subordination agreement in form and substance acceptable to Lender whereby Subordinating Creditor subordinates in favor of Lender obligations owed to it by Borrower.


1.2.50 "Term" - one year from the date hereof, or if this Agreement is extended pursuant to Section 17.2 hereof, one year from the date of such extension.


1.2.51 "Termination Date" - the earlier of (i) the Contractual Termination Date or (ii) the date on which Lender elects to terminate this Agreement pursuant to the terms herein.


1.2.52 "UCC" - The Uniform Commercial Code in effect in the Chosen State at the date on which a determination thereunder is to be made.


1.2.53 "Unused Line Fee" - 0.5% percent per annum of the Average Unused Portion of the Maximum Amount.


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1.2.54 "Value of Eligible Inventory" - As determined by Lender in good faith, the lower of (a) cost, computed on a first-in-first-out basis in accordance with GAAP, or (b) market value.


2 Credit Facilities.


2.1 Advances. Subject to the terms and conditions of this Agreement, from the date on which this Agreement becomes effective until the Termination Date:


2.1.1 Lender, shall, from time to time, at the request of Borrower, make advances ("Advances") to Borrower, less any Availability Reserves, so long as, before and after such Advance, the Obligations do not exceed the Allowable Amount.


2.1.2 Lender may, in its discretion, from time to time, upon not less than five (5) days prior notice to Borrower, reduce the Borrowing Base to the extent that Lender determines in good faith that:


2.1.2.1 The dilution with respect to the Accounts for any
period (based on the ratio of (a) the aggregate amount of
reductions in Accounts other than as a result of payments in cash
to (b) the aggregate amount of total sales) has increased in any
material respect or may be reasonably anticipated to increase in
any material respect above historical levels;


2.1.2.2 The general creditworthiness of Account Debtors has
declined, or


2.1.2.3 The number of days of the turnover of the Inventory
for any period has changed in any material respect, or (a) the
liquidation value of the Eligible Inventory, or any category
thereof, has decreased, or (b) the nature and quality of the
Inventory has deteriorated.


2.2 General Provisions.


2.2.1 Borrowing Base Certificate. Each request from Borrower for a Credit Accommodation shall be accompanied by a Borrowing Base Certificate in the form attached hereto as Exhibit A, completed and signed by Borrower.


2.2.2 Crediting Borrower's Account. All Credit Accommodations by Lender may be made by deposits or transfers to any demand deposit account of Borrower.


2.2.3 Authorization for Credit Accommodations. Subject to the terms and conditions of this Agreement, Lender is authorized to make Credit Accommodations:


2.2.3.1 Upon telephonic, facsimile or other instructions
received from any of Borrower's representatives listed on Exhibit
B hereto, as such schedule may be amended from time to time upon
five (5) days notice to Lender; or


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2.2.3.2 At the sole discretion of Lender, and
notwithstanding any other provision in this Agreement, if
necessary to meet any Obligations, including but not limited to
any interest not paid when due.


2.3 Limitations on Credit Accommodations. Notwithstanding anything to the contrary contained herein, Lender shall not be obligated to make a Credit Accommodation if, before or as a result thereof, the Obligations shall exceed the Allowable Amount.


3 Payments by Borrower.


3.1 In General.


3.1.1 Place of Payments. All payments hereunder shall be made by Borrower to Lender at Lender's address set forth herein or at such other place as Lender may designate in writing.


3.1.2 ACH Debits. In order to satisfy any of the Obligations, Lender is hereby authorized by Borrower to initiate electronic debit entries through the ACH or other electronic payment system to any account maintained by Borrower. At the Lender's request, Borrower shall execute and deliver to Lender an authorization agreement for ACH debits.


3.2 Interest and Fees.


3.2.1 Interest.


3.2.1.1 Basic Interest. Subject to Section 3.2.1.3 hereof,
interest on the Balance Subject to Interest shall be payable
monthly, in arrears, shall be computed at the Interest Rate, and
shall be due on the first (1st) day of each month following the
accrual thereof. Lender is authorized to debit Borrower's loan
account on the first business day of each month for interest
accrued hereunder during the preceding month.


3.2.1.2 Minimum Quarterly Income. Any amount by which the
interest and fees (other than Loan Fees) earned in any quarter
(prorated for partial periods) is less than the Minimum Quarterly
Income, to be paid on the first day of the following quarter.


3.2.1.3 Default Interest. Immediately upon the occurrence of
an Event of Default, interest shall be charged on the Balance
Subject to Interest computed at the Default Rate. Lender's
failure to assess interest at the Default Rate as provided
hereunder shall not be deemed a waiver by Lender to charge such
Default Rate.


3.2.1.4 Calculation of Interest. All interest charged
hereunder shall be computed on the basis of a three hundred sixty
(360) day year for the actual number of days elapsed.


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3.2.1.5 Application of Collections. Lender shall, for the
purpose of the computation of interest due hereunder, add the
Clearance Days to any payments, which is acknowledged by the
parties to constitute an integral aspect of the pricing of
Lender's facility to Borrower, and shall apply irrespective of
the characterization of whether receipts are owned by Borrower or
Lender. Should any check or item of payment not be honored when
presented for payment, then Borrower shall be deemed not to have
made such payment, and interest shall be recalculated
accordingly.


3.2.2 Fees.


3.2.2.1 Audit Fee. Borrower shall immediately pay to Lender
an Audit Fee, in addition to Lender's related out-of-pocket
expenses, in connection with each audit Lender performs or causes
to be performed hereunder.


3.2.2.2 Collateral Management Fee. Borrower shall pay the
Collateral Management Fee to Lender monthly, in arrears, on the
first (1st) day of each month following the accrual thereof.


3.2.2.3 Loan Fee. Borrower shall pay the Loan Fee to Lender
on the date hereof, and on each Anniversary Date on which (a) any
portion of the Obligation is outstanding and (b) this Agreement
has not been terminated, which amounts shall be debited to
Borrower's loan account. Any portion not paid when due shall
accrue interest at the applicable interest rate set forth herein.


3.2.2.4 Default Waiver Fee. Borrower shall pay the Default
Waiver Fee to Lender, immediately upon the waiver by Lender of
any Event of Default hereunder, so long as the waiver was done at
the Borrower's request.


3.2.2.5 Early Termination Fee. Borrower shall promptly pay
to Lender the Early Termination Fee if Borrower terminates this
Agreement, becomes subject to a Bankruptcy proceeding, or repays
the Obligations (whether by acceleration or otherwise) prior to
the next Contractual Termination Date.


3.2.2.6 Account Management Fee. The Account Management Fee,
on the first day of each month until the last to occur of (i)
payment in full of all Obligations, and (ii) termination of this
Agreement.


3.2.2.7 Misdirected Payment Fee. Borrower shall pay the
Misdirected Payment Fee to Lender, promptly on its accrual, on
the amount of any payment on an Account, which has been received
by Borrower and not delivered in kind by Borrower to Lender
within three (3) Business Days of receipt thereof.


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3.2.2.8 Missed Payoff Fee. Borrower shall pay the Missed
Payoff Fee to Lender promptly upon its accrual.


3.2.2.9 Missing Notation Fee. Borrower shall promptly pay to
Lender the Missing Notation Fee on any invoice that is sent by
Borrower to an Account Debtor that does not contain the notice as
required by Section 6.1 hereof.


3.2.2.10 Unused Line Fee. Borrower shall pay the Unused Line
Fee to Lender on the first (1st) day of each month during the
term of this Agreement.


4 Grant of Security Interest.


4.1 To secure the performance of the Obligations, Borrower grants to the Lender a security interest in the Collateral, and all proceeds and products thereof.


4.2 Notwithstanding anything to the contrary herein, upon Borrower's request and so long as Borrower is not in default under this Agreement at the time of such request, Lender agrees to subordinate its security interest in any trademarks, patents, copyrights, trade secrets and other intellectual property to the security interest granted by Borrower to any other secured party; provided, that such other party executes an intercreditor agreement with Lender in the form attached hereto as Exhibit C or such other form as shall be reasonably agreed upon between Lender and such other secured party.


5 Authorization to File Financing Statements.


5.1 The Borrower irrevocably authorizes the Lender to file in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto that:


5.1.1 Indicate the Collateral as all assets of the Borrower or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC, or as being of an equal or lesser scope or with greater detail;


5.1.2 Contain any other information required by part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether the Borrower is an organization, the type of organization, and any organization identification number issued to the Borrower and, (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates; and


5.1.3 Contain a notification that the Borrower has granted a negative pledge to the Lender, and that any subsequent lienor may be tortuously interfering with Lender's rights;


5.1.4 Advises third parties that any notification of Borrower's Account Debtors will interfere with Lender's collection rights.


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5.2 The Borrower agrees to furnish any of the foregoing information to the Lender promptly upon request.


5.3 The Borrower ratifies its authorization for the Lender to have filed any like initial financing statements or amendments thereto if filed prior to the date hereof.


5.4 The Lender may add any s ...