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EXHIBIT 10.30
SILICON ENTERTAINMENT, INC.
SECURED SUBORDINATED CONVERTIBLE NOTE
PURCHASE AGREEMENT
JUNE 30, 1999
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SILICON ENTERTAINMENT, INC.
SECURED SUBORDINATED CONVERTIBLE NOTE AND WARRANT
PURCHASE AGREEMENT
This Secured Subordinated Convertible Note Purchase Agreement (the
"Agreement") is made as of the 30th day of June 1999 by and between Silicon
Entertainment, Inc., a California corporation (the "Company"), and each of the
investors listed on Exhibit A attached to this Agreement (each a "Purchaser" and
together the "Purchasers").
RECITALS
The Company desires to issue and sell and the Purchasers desire to
purchase secured subordinated convertible promissory notes in substantially the
form attached to this Agreement as Exhibit B (the "Notes") which shall be
convertible on the terms stated therein into equity securities of the Company as
specified in the Notes. The Notes and the equity securities issuable upon
conversion or exercise thereof (and the securities issuable upon conversion of
such equity securities) are collectively referred to herein as the "Securities."
AGREEMENT
In consideration of the mutual promises contained herein and other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
to this Agreement agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) SALE AND ISSUANCE OF NOTES. Subject to the terms and conditions
of this Agreement, each Purchaser agrees to purchase at the Closing and the
Company agrees to sell and issue to each Purchaser a Note in the principal
amount specified with respect to such Purchaser on Exhibit A to this Agreement.
The Company's agreements with each of the Purchasers are separate agreements,
and the sales of the Notes to each of the Purchasers are separate sales and
issuances; provided that any amendments of this Agreement must be in accordance
with Section 9(g).
(b) CLOSINGS. The first closing (the "Closing") of the sale and
purchase of the Notes, Warrants and Call Options under this Agreement shall take
place at the offices of Xxxx Xxxx Xxxx & Freidenrich, LLP, 000 Xxxxxxxx Xxxxxx,
Xxxx Xxxx, Xxxxxxxxxx at 10:00 a.m. on June 30, 1999, or at such other time,
date and place as are mutually agreeable to the Company and the Purchasers,
provided that the aggregate purchase price for the Notes at the time of the
Initial Closing shall be not less than $5,000,000. Subsequent closings (each a
"Subsequent Closing") of the sale and purchase of Securities under this
Agreement shall take place at the offices of Xxxx Xxxx Xxxx & Freidenrich, LLP,
no later than December 31, 1999. In no event shall the aggregate purchase price
for the Notes at the time of the Initial Closing or any Subsequent Closing
exceed $10,000,000. The Initial Closing and the Subsequent Closings, if any,
shall hereinafter be referred to individually as a "Closing" and collectively as
the "Closings" and the date of any Closing shall hereinafter be referred to as a
"Closing Date." At each Closing
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other than the Initial Closing, Exhibit A shall be amended to include additional
Purchasers and such new Purchasers shall become parties to this Agreement. The
date of the Closing shall hereinafter be referred to as a "Closing Date."
(c) DELIVERY. At the Closing, the Company will deliver to each
Purchaser the Note to be purchased by such Purchaser against receipt by Company
of the purchase price set forth opposite the Purchasers name on the Schedule of
Purchasers.
2. SUBORDINATION. The indebtedness evidenced by the Notes shall be
expressly subordinated, to the extent and in the manner set forth in the Notes,
in right of payment to the prior payment in full of all of the Company's Senior
Indebtedness (as defined in the Note), and each Purchaser hereby agrees to enter
into such agreements and take such additional action as may be necessary to
perfect such subordination.
3. SECURITY INTEREST. The indebtedness represented by the Notes shall be
secured by all of the assets of the Company in accordance with the provisions of
a security agreement among the Company and the Purchasers in the form attached
to this Agreement as Exhibit C (the "Security Agreement").
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that except as set forth in the
Schedule of Exceptions attached hereto as Exhibit D:
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted.
(b) AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the authorization, sale, issuance
and delivery of the Notes and the Warrants, the shares of the Company's capital
stock issuable on conversion or exercise thereof, and the performance of all
obligations of the Company hereunder and thereunder has been taken or will be
taken prior to the Closing. The Agreement, the Notes, and the Warrants
(collectively, the "Transaction Documents") when executed and delivered by the
Company, shall constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and other laws of general application affecting enforcement of
creditors' rights generally, as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable remedies.
(c) CAPITALIZATION. The authorized capital of the Company consists,
or will consist, immediately prior to the Closing, of:
(i) 20,000,000 shares of Preferred Stock, of which (A) 3,266,667
shares have been designated Series A Preferred Stock, 3,266,667 of which are
issued and outstanding immediately prior to the Closing, (B) 6,222,531 shares
have been designated Series B Preferred Stock, 5,528,776 of which are issued and
outstanding immediately prior to the
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Closing and (C) 8,500,000 shares have been designated Series C Preferred Stock,
6,974,414 of which are issued and outstanding immediately prior to the Closing.
All of the outstanding shares of Preferred Stock have been duly authorized,
fully paid and are nonassessable.
(ii) 40,000,000 shares of Common Stock, 4,309,752 shares of
which are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly authorized, fully paid and are
nonassessable and issued in compliance with all applicable federal and state
securities laws. The Company has reserved shares of Common Stock for issuance
upon conversion of the Preferred Stock.
(iii) The Company has reserved 4,360,000 shares of Common Stock
for issuance to officers, directors, employees and consultants of the Company
pursuant to its Stock Option and Stock Bonus Plans, duly adopted by the Board of
Directors and approved by the Company's shareholders (collectively, the "Stock
Plans"). Of such reserved shares of Common Stock, as of June 1, 1999, options to
purchase 3,837,299 shares have been granted and are currently outstanding, and
522,701 shares of Common Stock remain available for issuance to officers,
directors, employees and consultants pursuant to the Stock Plan.
(iv) Except for outstanding options issued pursuant to the Stock
Plans and warrants to purchase 631,834 shares of Common Stock and warrants to
purchase 53,334 shares of Series B Preferred Stock and 717,644 shares of Series
C Preferred Stock, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights)
or agreements, orally or in writing, for the purchase or acquisition from the
Company of any shares of its capital stock.
(d) REPORTS OF THE COMPANY; NO MATERIAL ADVERSE CHANGES. The Company
has furnished Purchasers with copies of its April 30, 1999 financial statements
(collectively, the "Financial Statements"). Said Financial Statements, as of
their respective dates, were accurate and complete in all material respects and
did not omit any material information required to be set forth therein. Since
April 30, 1998 there has not been any change in the assets, liabilities,
financial condition or operating results of the Company from that reflected in
the Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse.
(e) INTELLECTUAL PROPERTY RIGHTS.
(i) To the best of its knowledge, the Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights, and processes
(collectively, "Intellectual Property") necessary for its business as now
conducted and as proposed to be conducted to the Company's knowledge, without
any conflict with or infringement of the rights of others;
(ii) Except for agreements with its own employees or
consultants, there are not outstanding options, licenses, or agreements of any
kind relating to the matters listed in subsection (i) above or that grant rights
to any other person to manufacture, license, produce, assemble, market or sell
the Company's products, nor is the Company bound by or a party to any options,
licenses, or agreements of any kind with respect to the Intellectual Property
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of any other person or entity, other than licenses or agreements relating to the
Company's use of certain trademarks of Nascar, and various drivers, race tracks
and teams.
(iii) The Company has not received any communications alleging
that the Company or its employees has violated or infringed or, by conducting
its business as proposed, would violate or infringe any of the Intellectual
Property of any other person or entity; and
(iv) The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants, or commitments of
any nature) or other agreement, or subject to any judgment, decree, or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company with respect to
the Intellectual Property of the Company or otherwise or that would conflict
with the Company's business as proposed to be conducted.
(f) SECURITY INTERESTS. The grant of security interests in the
Security Agreement, when effective by execution of such Security Agreement (and
the filings required under the Uniform Commercial Code of the State of
California and U.S. Patent and Trademark Office, when completed), creates a
valid, binding, and effective security interest in the Collateral (as defined in
Section 1 of the Security Agreement), free from any other liens and
encumbrances.
(g) COMPLIANCE WITH OTHER INSTRUMENTS AND LAWS. The Company is not
in violation or default in any material respect of any provision of its
certificate of incorporation or bylaws or in any material respect of any
provision of any material mortgage, indenture, agreement, instrument, or
contract to which it is a party or by which it is bound, or of any federal or
state judgment, order, writ, decree, or any federal or state statute, rule,
regulation or restriction applicable to the Company. The execution, delivery,
and performance by the Company of the Transaction Documents, and the
consummation of the transactions contemplated hereby and thereby, will not
result in any such violation or be in material conflict with or constitute, with
or without the passage of time or giving of notice, either a material default
under any such provision or an event that results in the creation of any
material lien, charge or encumbrance upon any assets of the Company or the
suspension, revocation, impairment, forfeiture or nonrenewal of any material
permit, license, authorization, or approval applicable to the Company, its
business or operations, or any of its assets or properties.
(h) LITIGATION. There is no action, suit, proceeding, or
investigation pending or, to the best knowledge of the Company, threatened
against the Company that questions the validity of the Transaction Documents, or
the right of the Company to enter into such agreements, or to consummate the
transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse change in the assets,
business properties, prospects or financial condition of the Company.
(i) TAXES. The Company has no material liability for any federal,
state or local taxes, except for taxes which have accrued and are not yet
payable or are being contested by the Company in good faith. The Company has
paid all payroll taxes required to be paid by it.
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(j) OFFERING. Assuming the accuracy of the representations and
warranties of each Purchaser contained in Section 6 hereof, the offer, issue,
and sale of the Securities is and will be exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and has been registered or qualified (or are exempt from
registration and qualification) under the registration, permit, or qualification
requirements of all applicable state securities laws.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company that:
(a) PURCHASE ENTIRELY FOR OWN ACCOUNT. The Securities to be acquired
by the Purchaser will be acquired for investment for the Purchaser's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and the Purchaser has no present intention of
selling, granting any participation in, or otherwise distributing the same. The
Purchaser has not been formed for the specific purpose of acquiring any of the
Securities.
(b) DISCLOSURE OF INFORMATION. The Purchaser is aware of the
Company's business affairs and financial condition and has acquired sufficient
information about the Company to reach an informed and knowledgeable decision to
acquire the securities.
(c) RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale. The
Purchaser further acknowledges that if an exemption from registration or
qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the holding period
for the Securities, and on requirements relating to the Company which are
outside of the Purchaser's control, and which the Company is under no obligation
and may not be able to satisfy.
(d) NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company, that the
Company has made no assurances that a public market will ever exist for the
Securities.
(e) LEGENDS. The Purchaser understands that the Securities, and any
securities issued in respect thereof or exchange therefor, may bear one or all
of the following legends:
(i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE
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BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933."
(ii) Any legend required by the Blue Sky laws of any state to
the extent such laws are applicable to the shares represented by the certificate
so legended.
(f) ACCREDITED INVESTOR. The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Act.
(g) FOREIGN INVESTORS. If a Purchaser is not a United States person
(as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as
amended), such Purchaser hereby represents that it has satisfied itself as to
the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Securities or any use of this Agreement,
including (i) the legal requirements within its jurisdiction for the purchase of
the Securities, (ii) any foreign exchange restrictions applicable to such
purchase, (iii) any governmental or other consents that may need to be obtained
and (iv) the income tax and other tax consequences, if any, that may be relevant
to the purchase, holding, redemption, sale or transfer of the Securities. Such
Purchaser's subscription and payment for, and his or her continued beneficial
ownership of the Securities, will not violate any applicable securities or other
laws of Purchaser's jurisdiction.
6. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 5 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
(b) QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be obtained and effective as of
the Closing.
(c) CONSENTS AND WAIVERS. The Company shall have obtained any and
all consents (including all governmental or regulatory consents, approvals or
authorizations required in connection with the valid execution and delivery of
this Agreement, the Security Agreement and the Amendment to the Rights
Agreement), permits and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement, the Security Agreement and the
Amendment to the Rights Agreement.
(d) LEGAL INVESTMENT. At the time of the Closing, the purchase of
the Notes and Warrants by the Purchasers hereunder shall be legally permitted by
all laws and regulations to which the Purchasers and the Company are subject.
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(e) AMENDMENT TO RIGHTS AGREEMENT. The Company, each Purchaser and
the other parties listed as signatories thereto shall have executed and
delivered Amendment No. 1 to that certain Third Amended and Restated Rights
Agreement dated December 31, 1998 in the form attached hereto as Exhibit E.
(f) SECURITY AGREEMENT. The Company and the Purchasers shall have
executed the Security Agreement.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 6 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
(b) QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be obtained and effective as of
the Closing.
8. COVENANTS OF THE COMPANY.
(a) NO OTHER INDEBTEDNESS. The Company shall not incur any
indebtedness for money borrowed (other than equipment lease financing
transaction) to the extent that the Company's aggregate payment obligations
thereunder would exceed Ten Million Dollars ($10,000,000) without the Majority
Purchasers' prior written consent, which shall not be unreasonably withheld.
(b) NO DIVIDENDS. No payment or declaration of a cash dividend,
shall be made on the Common Stock of the Company while any Obligation under the
Note is outstanding.
(c) FINANCIAL STATEMENTS. No later than 30 days following the end of
each quarter, the Company shall deliver to the Purchasers its balance sheet as
at the end of such period and its income statement for such period and for that
portion of the Company's financial reporting year ending with such period. In
addition, no later than 90 days following the end of each financial reporting
year, the Company shall deliver to the Purchasers its audited balance sheet,
income statement, and statement of cash flows for such year.
(d) STAY, EXTENSION AND USURY LAWS. The Company convenants (to the
extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, how or at any time hereafter
in force, that might affect the covenants or the performance of its obligations
under this Agreement and the Notes; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power
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granted to the holders of Notes pursuant to this Agreement, but will suffer and
permit the execution of every such power as though no such law has been enacted.
(e) LIMITATION ON TRANSACTIONS WITH AFFILIATES. Neither the Company
nor any of its subsidiaries shall enter into any transaction or series of
transactions to sell, lease, transfer, exchange or otherwise dispose of any of
its properties or assets to or to purchase any property or assets from, or for
the direct or indirect benefit of, an affiliate of the Company or of any
subsidiary of the Company, make any investment in or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the direct or
indirect benefit of, an affiliate of the Company or of any subsidiary of the
Company (each, including any series of transactions with one or more affiliates,
an "Affiliate Transaction"), unless the Board of Directors of the Company or the
relevant subsidiary determines, as evidenced by a Board resolution, that the
terms of such Affiliate Transaction are fair and reasonable to the Company and
no less favorable to the Company or the relevant subsidiary than those that
could have been obtained at that time in a comparable arms-length transaction by
the Company or such subsidiary with an unrelated Person.
(f) MAINTENANCE OF PROPERTIES. The Company will cause all properties
used or useful in the conduct of its business or the business of any subsidiary
of the Company to be maintained and kept in good condition, repair and working
order, subject to normal wear and tear, and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this section (f) shall prevent the Company from
discontinuing the operation or maintenance of any such properties if such
discontinuance is, as determined by the Company in good faith, desirable in the
conduct of its business or the business of any subsidiary and not
disadvantageous in any material respect to the holders of the Notes.
(g) COMPLIANCE WITH LAWS. The Company shall comply, and shall cause
each of its subsidiaries to comply, with all applicable statutes, rules,
regulations, orders and restrictions of the United States of America, all states
and municipalities thereof, and of any governmental department, commission,
board, regulatory authority, bureau, agency and instrumentality of the
foregoing, in respect of the conduct of their respective businesses and the
ownership of their respective properties, except such as are being contested in
good faith and by appropriate proceedings and except for such noncompliance as
well not in the aggregate have a Material Adverse Effect.
(h) EUROPEAN OPERATIONS. Company covenants that it will use best
efforts to form in either 2001 or 2002 a new corporation to be called Silicon
Entertainment-Europe, Inc. ("Affiliated European Entity") which will be granted
the right by the Company to operate NASCAR Silicon Motor Speedway or related
version based on Formula One or GT racing in Europe in return for a royalty
payment of 6.5% of net revenues to the Company. The Affiliated European Entity
will be owned sixty percent (60%) by the Company and forty percent (40%) by the
holders of the Notes. Any development required is intended to be performed by
the Company and paid by the Affiliated European Entity. The financing of the
Affiliated European Entity shall be determined later. If by July 1, 2002 the
Affiliated European Entity has not been
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formed, the holders of the Notes may require the Company to repurchase rights to
operate in Europe for the cash payment of $600,000.
(i) TERMINATION. This Section 9 (except subsection (h)) shall
terminate as to each Purchaser at such time as no Obligation under such
Purchasers Note is outstanding.
9. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(c) COUNTERPARTS. Note Purchase Agreement and all documents attached
to the Note Purchase Agreement (including Note, warrants, Security Agreement and
Amendment No. 1 to Amended and Restated Investors Rights Agreement. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one instrument.
(d) TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the U.S. mail as certified or
registered mail with postage prepaid, if such notice is addressed to the party
to be notified at such party's address or facsimile number as set forth below or
as subsequently modified by written notice.
(f) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the Company and the holders
of at least a majority in interest of the Notes. Any amendment or waiver
effected in accordance with this Section 10(f) shall be binding upon all the
Purchasers and all transferees of the Securities, each future holder of all such
Securities, and the Company.
(g) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith, in order to maintain the economic position enjoyed
by each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
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excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(h) ENTIRE AGREEMENT. This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto are expressly canceled.
(i) EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Securities.
(j) CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
[Signature Pages Follow]
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The parties have executed this Secured Subordinated Convertible Note and
Warrant Purchase Agreement as of the date first written above.
COMPANY:
SILICON ENTERTAINMENT, INC.
By: /s/
------------------------------------------
Name:
Title:
Address:
PURCHASERS:
/s/
---------------------------------------------
(Purchaser)
By:________________________________________
Name:______________________________________
(print)
Title:_____________________________________
SIGNATURE PAGE TO SECURED SUBORDINATED CONVERTIBLE NOTE
AND WARRANT PURCHASE AGREEMENT
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EXHIBIT A
SCHEDULE OF PURCHASERS
ORIGINAL PRINCIPAL AMOUNT
NAME/ADDRESS OF PURCHASER OF NOTE TOTAL PURCHASE PRICE
------------------------- ------------------------- --------------------
Galladio Holding B.V. $2,260,000 $2,000,000
Attn: Xx. Xxxxxxxx Xxxxxxxx
Xxxxxxxxxxx 0
0000 XX Xxx Xxxxx
Xxx Xxxxxxxxxxx
Wagenaarkwartier's - Gravenhage 2,260,000 2,000,000
B.V.
Attn: Xx. Xxxxxxxx Xxxxxxxx
Xxxxxxxxxxx 0
0000 XX Xxx Xxxxx
Xxx Xxxxxxxxxxx
Van der Xxx Partnership 1,130,000 1,000,000
Xx. Xxxxxxxx Xxxxxxxx
Xxxxxxxxxxx 0
0000 XX Xxx Xxxxx
Xxx Xxxxxxxxxxx
TOTAL: $5,650,000 $5,000,000
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EXHIBIT B
FORM OF SECURED SUBORDINATED
CONVERTIBLE PROMISSORY NOTE
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EXHIBIT C
FORM OF SECURITY AGREEMENT
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THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES AND OTHER JURISDICTIONS.
SILICON ENTERTAINMENT, INC.
8.5% CONVERTIBLE NOTE DUE 2002
No. R- $000,000
SILICON ENTERTAINMENT, INC., a corporation duly organized and existing
under the laws of California (the "Company") for value received, hereby promises
to pay to ____________ or registered assigns, the principal sum of ____________
on June 30, 2002 and to pay interest thereon, from June 30, 2000, or from the
most recent interest payment date to which interest has been paid or duly
provided for, semi-annually on June 30 and December 30 in each year, commencing
December 30, 2000, at the rate of 8.5 % per annum, until the principal hereof is
due. The interest so payable, and punctually paid or duly provided for, on any
interest payment date will be paid to the person in whose name this Security (or
one or more predecessor Securities) is registered at the close of business on
the regular record date for such interest, which shall be the June 30 or
December 30 (whether or not a business day), as the case may be, next preceding
such interest payment date. Payment of the principal of this Security shall be
made upon the surrender of this Security to the Company, at its office at 000
Xxxxxxxx Xxxxxx, Xxxxxxxx, XX 00000, or such other office within the United
States as shall be notified by the Company to the holder hereof) (the
"Designated Office"), in such coin or currency of the United States of America
as at the time of payment shall be legal tender for the payment of public and
private debts. Payment of interest on this Security shall be made by wire
transfer to a U.S. dollar account maintained by the payee with a bank in the
United States of America, provided that if the holder shall not have furnished
wire instructions in writing to the Company no later than the record date
relating to an interest payment date, such payment may be made by U.S. dollar
check mailed to the address of the Person entitled thereto as such address shall
appear in the Company security register. Each of the Company and the holder of
this Security hereby acknowledges and agrees that the principal amount of this
Security shall equal one hundred thirteen percent (113%) of the total purchase
price paid by such holder to the Company, and that such additional amount shall
represent, and shall be expensed by the Company as, the first full year of
interest payable on this Security.
1. Conversion.
(a) Optional Conversion. The holder of this Security is entitled at
any time on or after June 30, 1999 and before the close of business on June 30,
2002 (or in case the holder hereof has exercised his right to require the
Company to repurchase this Security or a portion hereof, then in respect of this
Security or such portion hereof, as the case may be, until and including, but
(unless the Company defaults in making the payment due upon repurchase) not
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after, the close of business on the Repurchase Date) to convert this Security
into fully paid and nonassessable shares (calculated as to each conversion to
the nearest share) of Common Stock of the Company at the rate of one (1) share
of Common Stock for each $7.50 of principal amount of Security (or at the
current adjusted rate if an adjustment has been made as provided below) (the
"Conversion Ratio"); provided, however that should this Security be converted by
the holder at any time prior to June 30, 2000, the principal amount of this
Security shall be reduced by an amount equal to the product of (i) the number of
full months elapsed from June 30, 1999 through the date of conversion of this
Security divided by twelve (12); (ii) thirteen percent (13%); and (iii) the
total purchase price of this Security as set forth on Exhibit A attached hereto.
(b) Automatic Conversion. This Security shall automatically be
converted into fully paid and nonassessable shares (calculated as to each
conversion to the nearest share) of Common Stock of the Company at the rate of
one (1) share of Common Stock for each $7.50 of principal amount of Security (or
at the Conversion Rate if an adjustment has been made as provided below) one (1)
business day after the earlier to occur of (i) the closing of the sale of Common
Stock of the Company in an underwritten public offering registered under the
Securities Act of 1933, as amended (the "IPO"), at a public offering price of
greater than $7.50 per share (as adjusted for any combinations, stock splits,
stock dividend, recapitalizations and the like) or (ii) following the IPO, such
time that the average closing price of the Company's Common Stock exceeds $10.00
per share for any continuous (4) week period; provided, however that should this
Security be converted by the holder at any time prior to June 30, 2000, the
principal amount of this Security shall be reduced by an amount equal to the
product of (i) the number of full months elapsed from June 30, 1999 through the
date of conversion of this Security divided by twelve (12); (ii) thirteen
percent (13%); and (iii) the total purchase price of this Security as set forth
on Exhibit A attached hereto.
(c) Procedure for Conversion. The holder of this Security may
exercise the conversion rights as to such Security, or any portion thereof, by
surrender of this Security, duly endorsed or assigned to the Company or in blank
to the Company at the Designated Office, accompanied by written notice to the
Company that the holder hereof elects to convert this Security (or if less than
the entire principal amount hereof is to be converted, specifying the portion
hereof to be converted). Conversion shall be deemed to have been effected on the
date when such delivery is made, or the conditions for automatic conversion set
forth in Section 1(b) above have been satisfied. Upon surrender of this Security
for conversion, the holder will be entitled to receive the interest accruing on
the principal amount of this Security then being converted from the interest
payment date next preceding the date of such conversion to such date of
conversion. No payment or adjustment is to be made on conversion for dividends
on the Common Stock issued on conversion hereof. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but instead of
any fractional interest, the Company shall pay a cash adjustment, computed on
the basis of the Closing Price of the Common Stock on the date of conversion,
or, at its option, the Company shall round up to the next higher whole share.
(d) The Conversion Ratio shall be subject to adjustments from time
to time as follows:
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(1) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company payable in shares of
Common Stock, the Conversion Ratio in effect at the opening of business on the
day following the Determination Date for such dividend or other distribution
shall be increased by dividing such Conversion Ratio by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on such Determination Date and the denominator shall be the sum of
such number of shares and the total number of shares constituting such dividend
or other distribution, such increase to become effective immediately after the
opening of business on the day following such Determination Date. For the
purposes of this paragraph (1), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company will not pay any dividend or
make any distribution on shares of Common Stock held in the treasury of the
Company.
(2) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the Conversion Ratio
in effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion Ratio in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision or
combination becomes effective.
(e) Whenever the Conversion Ratio is adjusted as provided in Section
1(d), the Company shall compute the adjusted Conversion Ratio in accordance with
Section 1(d) and shall prepare a certificate signed by the chief financial
officer of the Company setting forth the adjusted Conversion Ratio and showing
in reasonable detail the facts upon which such adjustment is based, and shall
promptly deliver such certificate to the holder of this Security.
(f) In case:
(1) the Company shall declare a dividend or other distribution
on its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require any adjustment pursuant to
Section 1(d); or
(2) the Company shall authorize the granting to the holders of
its Common Stock of rights, options or warrants to subscribe for or purchase any
shares of capital stock of any class or of any other rights; or
(3) of any reclassification of the Common Stock of the Company,
or of any consolidation, merger or share exchange to which the Company is a
party and for which approval of any shareholders of the Company is required, or
of the conveyance, sale, transfer or lease of all or substantially all of the
assets of the Company; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
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(5) the Company or any Subsidiary shall commence a tender offer
for all or a portion of the Company's outstanding shares of Common Stock (or
shall amend any such tender offer);
then the Company shall cause to be delivered to the holder of this Security, at
least 20 days (or 10 days in any case specified in clause (1) or (2) above)
prior to the applicable record, expiration or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights, options or warrants, or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights, options or
warrants are to be determined, (y) the date on which the right to make tenders
under such tender offer expires or (z) the date on which such reclassification,
consolidation, merger, conveyance, transfer, sale, lease, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, sale, lease, dissolution, liquidation or winding up. Neither the
failure to give such notice nor any defect therein shall affect the legality or
validity of the proceedings described in clauses (1) through (5) of this Section
1(f).
(g) The Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of the Security, the full number of shares
of Common Stock then issuable upon the conversion of this Security.
(h) Except as provided in the next sentence, the Company will pay
any and all taxes and duties that may be payable in respect of the issue or
delivery of shares of Common Stock on conversion of the Security. The Company
shall not, however, be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue and delivery of shares of Common
Stock in a name other than that of the holder of this Security, and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Company the amount of any such tax or duty, or has
established to the satisfaction of the Company that such tax or duty has been
paid.
(i) The Company agrees that all shares of Common Stock which may be
delivered upon conversion of the Security, upon such delivery, will have been
duly authorized and validly issued and will be fully paid and nonassessable (and
shall be issued out of the Company's authorized but unissued Common Stock) and,
except as provided in Section 1(h), the Company will pay all taxes, liens and
charges with respect to the issue thereof.
(j) In case of any consolidation of the Company with any other
person, any merger of the Company into another person or of another person into
the Company (other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company) or any conveyance, sale, transfer or lease of all or substantially
all of the properties and assets of the Company, the person formed by such
consolidation or resulting from such merger or which acquires such properties
and assets, as the case may be, shall execute and deliver to the holder of this
Security a supplemental agreement providing that such holder have the right
thereafter, during the period this Security shall be
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convertible as specified in Sections 1(a) and 1(b), to convert this Security
only into the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, conveyance, sale, transfer or lease (including
any Common Stock retainable) by a holder of the number of shares of Common Stock
of the Company into which this Security might have been converted immediately
prior to such consolidation, merger, conveyance, sale, transfer or lease,
assuming such holder of Common Stock of the Company (i) is not a person with
which the Company consolidated, into which the Company merged or which merged
into the Company or to which such conveyance, sale, transfer or lease was made,
as the case may be (a "Constituent Person"), or an Affiliate of a Constituent
Person and (ii) failed to exercise his rights of election, if any, as to the
kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer or lease (provided that if the
kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer, or lease is not the same for
each share of Common Stock of the Company held immediately prior to such
consolidation, merger, conveyance, sale, transfer or lease by others than a
Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-electing Share"), then for the
purpose of this Section 1(j) the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer
or lease by the holders of each Non-electing Share shall be deemed to be the
kind and amount so receivable per share by a plurality of the Non-electing
Shares). Such supplemental agreement shall provide for adjustments which, for
events subsequent to the effective date of such supplemental agreement, shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 1. The above provisions of this Section 1(j) shall similarly apply
to successive consolidations, mergers, conveyances, sales, transfers or leases.
In this paragraph, "securities of the kind receivable" upon such consolidation,
merger, conveyance, transfer, sale or lease by a holder of Common Stock means
securities that, among other things, are registered and transferable under the
Securities Act, and listed and approved for quotation in all securities markets,
in each case to the same extent as such securities so receivable by a holder of
Common Stock.
(k) The Company (i) will effect all registrations with, and obtain
all approvals by, all governmental authorities that may be necessary under any
United States Federal or state law (including the Securities Act of 1933, the
Securities Exchange Act of 1934 and state securities and Blue Sky laws) for the
shares of Common Stock issuable upon conversion of this Security to be lawfully
issued and delivered as provided herein, and thereafter publicly traded (if
permissible under such Securities Act) and qualified or listed as contemplated
by clause (ii) (it being understood that the Company shall not be required to
register the Common Stock issuable on conversion hereof under the Securities
Act, except pursuant to the Rights Agreement between the Company and the initial
holder of this Security); and (ii) will list the shares of Common Stock required
to be issued and delivered upon conversion of Securities, prior to such issuance
or delivery, on each national securities exchange on which outstanding Common
Stock is listed or quoted at the time of such delivery, or if the Common Stock
is not then listed on any securities exchange, to qualify the Common Stock for
quotation on the Nasdaq National Market or such other inter-dealer quotation
system, if any, on which the Common Stock is then quoted.
2. Repurchase upon Change in Control.
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(a) In the event that a Change in Control (as hereinafter defined)
shall occur, then the holder of this Security shall have the right, at such
holder's option, to require the Company to repurchase, and upon the exercise of
such right the Company shall repurchase, this Security, or any portion of the
principal amount hereof that is equal to $1,000 or any integral multiple
thereof, on the date (the "Repurchase Date") that is 30 days after the date on
which the Company gives notice thereof to the holder of this Security, at a
purchase price equal to 101% of the principal amount of this Security to be
repurchased, plus interest accrued to the Repurchase Date (the "Repurchase
Price"); provided, however, that installments of interest on this Security whose
stated maturity is on or prior to the Repurchase Date shall be payable to the
holder of this Security, or one or more predecessor Securities, registered as
such on the relevant Record Date according to their terms. The Company agrees to
give the holder of this Security notice of any Change in Control, by facsimile
transmission confirmed in writing by overnight courier service, promptly and in
any event within two days of the occurrence thereof.
(b) To exercise a repurchase right, the holder shall deliver to the
Company on or before the 5th day prior to the Repurchase Date, together with
this Security, written notice of the holder's exercise of such right, which
notice shall set forth the name of the holder, the principal amount of this
Security to be repurchased (and, if this Security is to be repurchased in part,
the portion of the principal amount thereof to be repurchased and the name of
the person in which the portion thereof to remain outstanding after such
repurchase is to be registered) and a statement that an election to exercise the
repurchase right is being made thereby. Such written notice shall be
irrevocable, except that the right of the holder to convert this Security (or
the portion hereof with respect to which the repurchase right is being
exercised) shall continue until the close of business on the Repurchase Date.
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid to the holder
the Repurchase Price in cash, together with accrued and unpaid interest to the
Repurchase Date; provided, however, that installments of interest that mature on
or prior to the Repurchase Date shall be payable in cash, to the holders of this
Security, or one or more predecessor Securities, registered as such at the close
of business on the relevant regular record date.
(d) If this Security (or portion thereof) is surrendered for
repurchase and is not so paid on the Repurchase Date, the principal amount of
this Security (or such portion hereof, as the case may be) shall, until paid,
bear interest to the extent permitted by applicable law from the Repurchase Date
at the rate per annum borne by this Security, and shall remain convertible into
Common Stock until the principal of this Security (or portion thereof, as the
case may be) shall have been paid or duly provided for.
(e) If this Security is to be repurchased only in part, it shall be
surrendered to the Company at the Designated Office (with, if the Company so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company duly executed by, the holder hereof or his attorney
duly authorized in writing), and the Company shall execute and make available
for delivery to the holder without service charge, a new Security or Securities,
containing identical terms and conditions, each in an authorized denomination in
aggregate principal amount equal to and in exchange for the unrepurchased
portion of the principal of the Security so surrendered.
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(f) For purposes of this Section 2
(1) the term "beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934; and
(2) a "Change in Control" shall be deemed to have occurred at
the time, after the original issuance of this Security, of:
(i) the acquisition by any person of beneficial ownership,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of capital stock of the Company
entitling such person to exercise 50% or more of the total voting power of all
shares of capital stock of the Company entitled to vote generally in the
elections of directors (any shares of voting stock of which such person is the
beneficial owner that are not then outstanding being deemed outstanding for
purposes of calculating such percentage) other than any such acquisition by the
Company or any employee benefit plan of the Company; or
(ii) any consolidation or merger of the Company with or
into, any other person, any merger of another person with or into the Company,
or any conveyance, transfer, sale, lease or other disposition of all or
substantially all of the assets of the Company to another person (other than (a)
any such transaction (x) which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock and
(y) pursuant to which holders of Common Stock immediately prior to such
transaction have the entitlement to exercise, directly or indirectly, 50% or
more of the total voting power of all shares of capital stock entitled to vote
generally in the election of directors of the continuing or surviving person
immediately after such transaction and (b) any merger which is effected solely
to change the jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of Common Stock
into solely shares of common stock).
3. Events of Default. (a) "Event of Default", wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or Harder of any court or
any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon this Security
when it becomes due and payable, and continuance of such default for a period of
15 days; or
(2) default by the Company in the performance of its obligations
in respect of any conversion of this Security (or any portion hereof) in
accordance with Section 1; or
(3) failure by the Company to give any notice of a Change of
Control required to be delivered in accordance with Section 2(a); or
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(4) default in the performance, or breach, of any material
covenant or warranty of the Company herein (other than a covenant or warranty a
default in the performance or breach of which is specifically dealt with
elsewhere in this Section 3(a)) and continuance of such default or breach for a
period of 15 days after there has been given, by registered or certified mail,
to the Company by the holders of at least 25 % of the outstanding principal
amount of this Security a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(5) a default under any bond, debenture, note or other evidence
of indebtedness for money borrowed by the Company, or under any agreement,
mortgage, indenture or instrument under-which there may be issued or by which
there may be secured or evidenced any indebtedness for money borrowed by the
Company, with a principal amount then outstanding in excess of $1,000,000,
whether such indebtedness now exists or shall hereafter be created, which
default shall constitute a failure to pay the principal of such indebtedness (in
whole or in any part greater than $1,000,000) when due and payable or shall have
resulted in such indebtedness (in whole or in any part greater than $1,000,000)
becoming or being declared due and payable prior to the date on which it would
otherwise have become due and payable, without such indebtedness having been
discharged, or such acceleration having been rescinded or annulled, within a
period of 15 days after there shall have been given, by registered or certified
mail, to the Company by the holders of at least 25 % of the outstanding
principal amount of this Security a written notice specifying such default and
requiring the Company to cause such indebtedness to be discharged or cause such
acceleration to be rescinded or annulled and stating that such notice is a
"Notice of Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days; or
(7) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by it to the entry of a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by it of a petition or
answer or consent seeking reorganization or similar relief under any applicable
Federal or State law, or the consent by it to the filing of such petition or to
the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors,
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or the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company in furtherance
of any such action.
(b) If an Event of Default (other than an Event of Default specified
in Section 3(a)(6) or 3(a)(7)) occurs and is continuing, then in every such case
the holder of this Security may declare the principal hereof to be due and
payable immediately, by a notice in writing to the Company, and upon any such
declaration such principal and all accrued interest thereon shall become
immediately due and payable. If an Event of Default specified in Section 3(a)(6)
or 3(a)(7) occurs and is continuing, the principal of, and accrued interest on,
this Security shall ipso facto become immediately due and payable without any
declaration or other act of the holders.
4. Subordination. The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all the Company's Senior
Indebtedness, as hereinafter defined.
(a) Senior Indebtedness. As used in this Note, the term "Senior
Indebtedness" shall mean the principal of and unpaid accrued interest on (i) up
to $2,000,000 of indebtedness of the Company or with respect to which the
Company is a guarantor to any bank or other financial institution whose
principal business is lending funds on a secured basis, (ii) any indebtedness of
the Company with respect to equipment financing transactions which indebtedness
shall not exceed the sum of $1.25 million times the number of stores in
operation by the Company and (iii) any such indebtedness or any debentures,
notes or other evidence of indebtedness issued solely in exchange for such
Senior Indebtedness, or any indebtedness arising solely from the satisfaction of
such Senior Indebtedness by a guarantor.
(b) Default on Senior Indebtedness. If there should occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshaling of the assets and
liabilities of the Company, or if this Note shall be declared due and payable
upon the occurrence of an event of default with respect to any Senior
Indebtedness, then (i) no amount shall be paid by the Company in respect of the
principal of or interest on this Note at the time outstanding, unless and until
the principal of and interest on the Senior Indebtedness then outstanding shall
be paid in full, and (ii) no claim or proof of claim shall be filed with the
Company by or on behalf of the Holder of this Note that shall assert any right
to receive any payments in respect of the principal of and interest on this
Note, except subject to the payment in full of the principal of and interest on
all of the Senior Indebtedness then outstanding. If there occurs an event of
default that has been declared in writing with respect to any Senior
Indebtedness, or in the instrument under which any Senior Indebtedness is
outstanding, permitting the holder of such Senior Indebtedness to accelerate the
maturity thereof, then, unless and until such event of default shall have been
cured or waived or shall have ceased to exist, or all Senior Indebtedness shall
have been paid in full, no payment shall be made in respect of the principal of
or interest on this Note, unless within 90 days after the happening of such
event of default, the maturity of such Senior Indebtedness shall not have been
accelerated.
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(c) Effect of Subordination. Subject to the rights, if any, of the
holders of Senior Indebtedness under this Section 4 to receive cash, securities
or other properties otherwise payable or deliverable to the Holder of this Note,
nothing contained in this Section 4 shall impair, as between the Company and the
Holder, the obligation of the Company, subject to the terms and conditions
hereof, to pay to the Holder the principal hereof and interest hereon as and
when the same become due and payable, or shall prevent the Holder of this Note,
upon default hereunder, from exercising all rights, powers and remedies
otherwise provided herein or by applicable law.
(d) Subrogation. Subject to the payment in full of all Senior
Indebtedness and until this Note shall be paid in full, the Holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent of
payments or distributions previously made to such holders of Senior Indebtedness
pursuant to the provisions of Section 4 above) to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between the Company and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the Company to or on
account of this Note; and for the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness to which the Holder would be
entitled except for the provisions of this Section 4 shall, as between the
Company and its creditors, other than the holders of Senior Indebtedness and the
Holder, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness.
(e) Undertaking. By its acceptance of this Note, the Holder agrees
to execute and deliver such documents as may be reasonably requested from time
to time by the Company or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 4.
5. Prepayment. This Note may be prepaid in while or in part at any time
by the Company without the prior written consent of Holder. Any such prepayment
will be applied first to the payment of expenses due under this Note, second to
interest accrued on this Note and third, if the amount of prepayment exceeds the
amount of all such expenses and accrued interest, to the payment of principal of
this Note.
6. Other.
(a) No provision of this Security shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of and interest on this Security at the times, places and rate, and in
the coin or currency, herein prescribed or to convert this Security as herein
provided.
(b) The Company will give prompt written notice to the holder of
Security of any change in the location of the Designated Office.
(c) The transfer of this Security is registrable on the Security
Register of the Company Upon surrender of this Security for registration of
transfer at the Designated Office, duly endorsed by, Or accompanied by a written
instrument of transfer in form satisfactory to the Company duly executed by, the
holder hereof or his attorney duly authorized in writing, and
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thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees. Such Securities are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. No service
charge shall be made for any such registration of transfer, but the Company may
require payment of a sum sufficient to recover any tax or other governmental
charge payable in connection therewith. Prior to due presentation of this
Security for registration of transfer, the Company and any agent of the Company
may treat the person in whose name this Security is registered as the owner
thereof for all purposes, whether or not this Security be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
(d) This Security shall be governed by and construed in accordance
with the laws of the State of California, United States of America.
[Signatures to Follow]
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IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed under its corporate seal.
Dated: June 30, 1999.
SILICON ENTERTAINMENT, INC.
By: ___________________________________
Printed Name: _________________________
Title: ________________________________
Attest:
By: __________________________________
Printed Name: ________________________
Title: ________________________________
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EXHIBIT A
-------------------------------------------------------------------------------------------------
NAME/ADDRESS OF PURCHASER ORIGINAL PRINCIPAL AMOUNT TOTAL PURCHASE PRICE
OF NOTE
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
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SECURITY AGREEMENT
This Security Agreement (the "Agreement") is made as of May __, 1999 by
and between Silicon Entertainment, Inc., a California corporation (the "Debtor")
in favor of each of the parties listed on Exhibit A hereto (each a "Secured
Party" and collectively the "Secured Parties").
RECITALS
The Debtor and the Secured Parties are parties to a Secured Subordinated
Convertible Note Purchase Agreement of even date with this Agreement (the
"Purchase Agreement") pursuant to which the Secured Parties shall purchase Notes
(as defined in the Purchase Agreement) from the Debtor. The parties intend that
the Debtor's obligations to repay the Notes be secured by all of the assets of
the Debtor, subject to the rights of Senior Indebtedness (as defined below in
the Note).
AGREEMENT
In consideration of the purchase of the Notes by the Secured Parties and
for other good and valuable consideration, the Debtor hereby agrees with the
Secured Parties as follows:
1. GRANT OF SECURITY INTEREST. To secure the Debtor's full and timely
performance of all of the Debtor's obligations and liabilities to the Secured
Parties pursuant to the Notes (including, without limitation, Debtor's
obligation to timely pay the principal amount of, and interest on, the Notes)
(the "Obligations"), the Debtor hereby grants to the Secured Parties a
continuing security interest (the "Security Interest") in and to all of the
property described on Exhibit B to this Agreement (the "Collateral").
2. AGREEMENT AMONG THE SECURED PARTIES.
(a) PAYMENT PRO RATA. Payment to the Secured Parties under the Notes
shall be made in proportion to the principal and accrued interest then
outstanding on any such date of payment to each, until such obligations are paid
or retired in full.
(b) SHARING OF PAYMENTS. If any Secured Party shall at any time
receive any payment of principal, interest or other charge arising under a Note,
or upon any other obligation of Debtor or any sums by virtue of counterclaim,
offset, or other lien that may be exercised, or from any security, other than
payments made on the same date to all Secured Parties, such Secured Party shall
share such payment or payments ratably with the other Secured Parties as to
maintain as near as possible the unpaid balance of the loans pro rata according
to the Secured Parties' aggregate proportionate interests.
(c) SHARING OF COLLATERAL. For purposes of this Agreement, "Event of
Default" means Debtor's failure to pay or discharge the Obligations in full in
accordance with the terms of the Notes. Upon the occurrence of any Event of
Default, and if the Secured Parties proceed to any exercise rights with respect
to the Collateral, the Secured Parties shall share the Collateral and the
proceeds of such Collateral ratably, without priority of one over the other.
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(d) APPOINTMENT OF AGENT. The Secured Parties agree that Secured
Parties holding a majority in interest of the principal amount of Notes
outstanding may act together as the agent of all Secured Parties to execute and
deliver in their names such instruments, documents, statements and amendments
thereto as may be necessary or appropriate to perfect or continue the perfection
of the security interest granted in this Agreement.
(e) ENFORCEMENT. Enforcement of the Secured Parties' rights
hereunder shall be taken by Secured Parties holding a majority in interest of
the principal amount of Notes outstanding acting together as the agent for all
of the Secured Parties. The action of such percentage taken in accordance with
the preceding sentence, shall in each case bind all the Secured Parties. Each of
the Secured Parties agrees that any Secured Parties acting under Sections 2(d)
and 2(e) shall not be liable for any acts taken in good faith in enforcing the
rights of the Secured Parties hereunder.
3. PERFORMANCE BY SECURED PARTIES OF DEBTOR'S OBLIGATIONS. If the Debtor
fails to perform or comply with any of its agreements or covenants contained in
this Agreement and the Secured Parties perform or comply, or otherwise cause
performance or compliance, with such agreement or covenant in accordance with
the terms of this Agreement, then the reasonable expenses of the Secured Parties
incurred in connection with such performance or compliance shall be payable by
the Debtor to the Secured Parties on demand and shall constitute Obligations
secured by this Agreement.
4. REMEDIES. If an Event of Default has occurred and is continuing, the
Secured Parties may exercise, in addition to all other rights and remedies
granted to them in this Agreement and in any other instrument or agreement
relating to the Obligations, all rights and remedies of a secured party under
the California Uniform Commercial Code, as amended from time to time (the
"Code"). Without limiting the foregoing, the Secured Parties, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law) to or upon the Debtor or any other
person (all of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances collect, receive, appropriate and realize
upon any or all of the Collateral, and/or may sell, lease, assign, give option
or options to purchase, or otherwise dispose of and deliver any or all of the
Collateral (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or office of a
Secured Party or elsewhere upon such terms and conditions as the Secured Parties
may deem advisable, for cash or on credit or for future delivery without
assumption of any credit risk. The Secured Parties shall have the right upon any
such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase all or any part of the Collateral so sold,
free of any right or equity of redemption in the Debtor, which right or equity
is hereby waived or released. The Secured Parties shall apply the net proceeds
of any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable expenses incurred therein or connection with the
care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Secured Parties under this Agreement (including,
without limitation, reasonable attorneys' fees and expenses) to the payment in
whole or in part of the Obligations, in such order as the Secured Parties may
elect, and only after such application and after the payment by the Secured
Parties of any other amount required by any provision of law, need the Secured
Parties account for the surplus, if any, to the Debtor. To the extent permitted
by applicable law, the
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Debtor waives all claims, damages and demands it may acquire against the Secured
Parties arising out of the exercise by the Secured Parties of any of their
rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least five (5) days before such sale or other disposition.
The Debtor shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Collateral are insufficient to pay the Obligations and
the fees and disbursements of any attorneys employed by the Secured Parties to
collect such deficiency.
5. LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL. The sole
duty of a Secured Party with respect to the custody, safekeeping and
preservation of the Collateral, under Section 9207 of the Code or otherwise,
shall be to deal with it in the same manner as such Secured Party deals with
similar property for its own account. Neither the Secured Parties nor any of
their directors, officers, employees or agents shall be liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Debtor or otherwise.
6. POWERS COUPLED WITH AN INTEREST. All authorizations and agencies
contained in this Agreement with respect to the Collateral are irrevocable and
powers coupled with an interest.
7. NO WAIVER; CUMULATIVE REMEDIES. The Secured Parties shall not by any
act (except by a written instrument pursuant to Section 10(a) hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default under the Notes or in any breach
of any of the terms and conditions of this Agreement. No failure to exercise,
nor any delay in exercising, on the part of the Secured Parties, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Secured Parties of any right or remedy under this
Agreement on any one occasion shall not be construed as a bar to any right or
remedy which the Secured Parties would otherwise have on any subsequent
occasion. The rights and remedies provided in this Agreement are cumulative, may
be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
8. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended with the written consent of the Debtor and of Secured Parties holding a
majority in interest of the principal amount of Notes outstanding.
Notwithstanding the foregoing or any other provision of this Agreement, no
amendment or waiver that adversely affects a Secured Party in a manner different
from all of the Secured Parties may be effected without the written consent of
such Secured Party. Any amendment or waiver effected in accordance with this
Section 10(a) shall be binding upon the parties and their respective successors
and assigns.
(b) TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions of
this Agreement shall be binding upon the Debtor and its successors and assigns
and inure to the benefit of the each Secured Party and its successors and
assigns. Nothing in this Agreement,
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express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
(c) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(d) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(e) TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(f) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the U.S. mail as certified or
registered mail with postage prepaid, if such notice is addressed to the party
to be notified at such party's address or facsimile number as set forth below or
on Exhibit A hereto, or as subsequently modified by written notice.
(g) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith in order to maintain the economic position enjoyed
by each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(h) ENTIRE AGREEMENT. This Agreement, and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the parties hereto concerning such subject matter are expressly
canceled.
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The Debtor and Secured Parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
DEBTOR:
SILICON ENTERTAINMENT, INC.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
Address: ________________________________
Facsimile Number: _______________________
SECURED PARTIES:
_________________________________________
By:______________________________________
Name: ___________________________________
Title: __________________________________
SIGNATURE PAGE TO SECURITY AGREEMENT
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EXHIBIT A
NAME/ADDRESS AND FACSIMILE ORIGINAL PRINCIPAL
NUMBER OF PURCHASER AMOUNT OF NOTE
35
EXHIBIT B
The Collateral shall consist of all right, title and interest of Debtor
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Debtor's custody or possession or in transit
and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and Debtor's
books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Debtor
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Debtor, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Debtor and Debtor's books relating
to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Debtor's books relating to the foregoing;
(f) All copyrights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor devices, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
