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EXHIBIT 10.31
SILICON ENTERTAINMENT, INC.
SUBORDINATED CONVERTIBLE NOTE AND WARRANT
PURCHASE AGREEMENT
SEPTEMBER 9, 1999
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SILICON ENTERTAINMENT, INC.
SUBORDINATED CONVERTIBLE NOTE AND WARRANT
PURCHASE AGREEMENT
This Subordinated Convertible Note Purchase Agreement (the "Agreement")
is made as of the 9th day of September 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 subordinated convertible promissory notes in substantially the form
attached to this Agreement as Exhibit B (the "Notes") and warrants in
substantially the form attached to this Agreement as Exhibit C (the
"Warrants")which shall be convertible on the terms stated therein into equity
securities of the Company as specified in the Notes and Warrants. The Notes and
Warrants 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 shall pay to each Purchaser a placement fee of one
percent (1%) of the principal amount of such Purchaser's Note (the "Placement
Fee"), which Placement Fee shall be deducted from the proceeds paid to the
Company at the Closing. 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 8(f).
(b) SALE AND ISSUANCE OF WARRANTS. Subject to the terms and
conditions of this Agreement, for every One Million Dollars ($1,000,000) of
principal paid by a Purchaser to the Company pursuant to the Note held by such
Purchaser, Company agrees to issue to such Purchaser a warrant to purchase
25,000 shares of the Company's Common Stock at a price of $5.40 per share.
(c) 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 the Company on September 9, 1999, or at such other time,
date and place as are mutually agreeable
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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 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."
(d) 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. 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 as of
August 1, 1999, consists of:
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(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, 5,538,052 of which are
issued and outstanding immediately prior to the Closing and (C) 8,500,000 shares
have been designated Series C Preferred Stock, 6,970,892 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, 5,631,111 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 6,100,000 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 August 1,
1999, options to purchase 2,211,195 shares have been granted and are currently
outstanding.
(iv) Except for outstanding options issued pursuant to
the Stock Plans and warrants to purchase 756,034 shares of Common Stock and
warrants to purchase 128,001 shares of Series B Preferred Stock and 743,281
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) 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 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
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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.
(e) 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.
(f) 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.
(g) 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.
(h) 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.
4. 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
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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 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.
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(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.
5. 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.
6. 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.
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7. 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 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,
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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) TERMINATION. This Section 7 shall terminate as to each
Purchaser at such time as no Obligation under such Purchaser's Note is
outstanding.
8. 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.
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(c) COUNTERPARTS. Note Purchase Agreement and all documents
attached to the Note Purchase Agreement (including Note and Warrants) 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 8(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 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
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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 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:
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(print)
Title:
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SIGNATURE PAGE TO SUBORDINATED CONVERTIBLE NOTE
AND WARRANT PURCHASE AGREEMENT
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EXHIBIT A
SCHEDULE OF PURCHASERS
PRINCIPAL AMOUNT NET PROCEEDS TO COMPANY
NAME OF PURCHASER OF NOTE AFTER 1% PLACEMENT FEE
----------------- ---------------- -----------------------
Galladio Holding B.V. $2,000,000 $1,980,000
Van der Xxx Partnership $500,000 $495,000
Mr. E.M.H. van der Xxx X.X. $500,000 $495,000
Mr. E.W. van der Xxx $1,000,000 $990,000
Manschot Opportunity Fund $1,500,000 $1,485,000
---------- ----------
TOTAL: $5,500,000 $5,445,000
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EXHIBIT B
FORM OF SUBORDINATED
CONVERTIBLE PROMISSORY NOTE
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EXHIBIT C
FORM OF WARRANT
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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.
12% CONVERTIBLE NOTE DUE 2001
No. N- $0,000,0000
SILICON ENTERTAINMENT, INC., a corporation duly organized and existing
under the laws of California (the "Company") for value received, hereby promises
to pay to ___________, or registered assigns, the principal sum of _________
Dollars ($_______) on March 9, 2001, and to pay interest thereon from September
9, 1999 at the rate of 12% per annum, due and payable on March 9, 2001. If the
principal and interest due on this Security are not repaid on or by March 9,
2001, the interest rate shall increase to 18% per annum. Payment of the
principal and interest 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.
The Company shall pay to holder a placement fee of one percent (1%) of
the principal amount of this Security, or _____ Dollars ($_______) (the
"Placement Fee"). Such Placement Fee shall be deducted from the proceeds to the
Company from the issuance and sale of this Security on September 9, 1999.
1. Conversion.
(a) Optional Conversion. Notwithstanding Section 5 of this
Security, the holder of this Security is entitled at any time on or after
September 9, 1999 and before the close of business on March 9, 2001 (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 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 $5.00 of principal amount of Security (or at the current adjusted rate if
an adjustment has been made as provided below) (the "Conversion Ratio").
(b) 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,
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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. 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.
(c) The Conversion Ratio shall be subject to adjustments from
time to time as follows:
(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.
(d) Whenever the Conversion Ratio is adjusted as provided in
Section 1(c), the Company shall compute the adjusted Conversion Ratio in
accordance with Section 1(c) 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.
(e) In case:
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18
(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(c); 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
(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(e).
(f) 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.
(g) 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
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19
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.
(h) 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(g), the Company will pay all taxes, liens and
charges with respect to the issue thereof.
(i) 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 convertible as specified in
Section 1(a) 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(i) 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(i) 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.
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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21
(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 30 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 30 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 30 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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23
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 whole or in part at any time
beginning ninety (90) days after September 9, 1999 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: September 9, 1999. SILICON ENTERTAINMENT, INC.
By:
--------------------------------
Printed Name:
----------------------
Title:
-----------------------------
Attest:
By:
--------------------------------
Printed Name:
----------------------
Title:
-----------------------------
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EXHIBIT A
NET PROCEEDS TO COMPANY AFTER
NAME OF PURCHASER PRINCIPAL AMOUNT OF NOTE 1% PLACEMENT FEE
----------------- ------------------------ -----------------------------
12
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THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF SUCH SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT.
No. 1999-
WARRANT TO PURCHASE COMMON STOCK
OF
SILICON ENTERTAINMENT, INC.
(void after September 9, 2004)
1. Number of Shares Subject to Warrant. FOR VALUE RECEIVED, subject to
the terms and conditions herein set forth, Holder (as defined below) is entitled
to purchase from Silicon Entertainment, Inc., a California Corporation (the
"Company"), at any time before 5:00 p.m. California time on September 9, 2004
("Termination Date"), at a price per share equal to the Warrant Price (as
defined below), the Warrant Stock (as defined below) upon exercise of this
Warrant pursuant to Section 6 hereof.
2. Definitions. As used in this Warrant, the following terms shall have
the definitions ascribed to them below:
(a) "Holder" shall mean _____________ or its assigns.
(b) "Securities" shall mean ________ shares of Common Stock.
(c) "Warrant Price" shall be $5.40 per share.
(d) "Warrant Stock" shall mean the Securities purchasable upon
exercise of this Warrant or issuable upon conversion of this Warrant.
3. Fractional Shares. No fractional shares shall be issuable upon
exercise or conversion of the Warrant and the number of shares to be issued
shall be rounded down to the nearest whole share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying the Holder an amount computed
by multiplying the fractional interest by the fair market value of a full share.
4. No Shareholder Rights. This Warrant, by itself, as distinguished from
any shares purchased hereunder, shall not entitle its Holder to any of the
rights of a shareholder of the Company.
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5. Reservation of Stock. The Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Warrant Stock upon the exercise conversion of this Warrant. Issuance
of this Warrant shall constitute full authority to the Company's officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Warrant Stock issuable upon the
exercise or conversion of this Warrant.
6. Exercise of Warrant. This Warrant may be exercised in whole or part
by the Holder, at any time after the date hereof prior to the termination of
this Warrant, by the surrender of this Warrant, together with the Notice of
Exercise and Investment Representation Statement in the forms attached hereto as
Attachments 1 and 2, respectively, duly completed and executed at the principal
office of the Company, specifying the portion of the Warrant to be exercised and
accompanied by payment in full of the Warrant Price in cash or by check with
respect to the shares of Warrant Stock being purchased. This Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
date of its surrender for exercise as provided above, and the person entitled to
receive the shares of Warrant Stock issuable upon such exercise shall be treated
for all purposes as Holder of such shares of record as of the close of business
on such date. As promptly as practicable after such date, the Company shall
issue and deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of full shares of Warrant Stock
issuable upon such exercise. If the Warrant shall be exercised for less than the
total number of shares of Warrant Stock then issuable upon exercise, promptly
after surrender of the Warrant upon such exercise, the Company will execute and
deliver a new Warrant, dated the date hereof, evidencing the right of the Holder
to the balance of the Warrant Stock purchasable hereunder upon the same terms
and conditions set forth herein.
7. Conversion. In lieu of exercising this Warrant or any portion hereof,
the Holder hereof shall have the right to convert this Warrant or any portion
hereof into Warrant Stock by executing and delivering to the Company at its
principal office the written Notice of Conversion and Investment Representation
Statement in the forms attached hereto as Attachments 2 and 3, specifying the
portion of the Warrant to be converted, and accompanied by this Warrant. The
number of shares of Warrant Stock to be issued to Holder upon such conversion
shall be computed using the following formula:
X = (P)(Y)(A-B)/A
where X = the number of shares of Securities to be issued to the
Holder for the portion of the Warrant being converted.
P = the portion of the Warrant being converted expressed
as a decimal fraction.
Y = the total number of shares of Securities issuable
upon exercise of the Warrant in full.
A = the fair market value of one share of Warrant Stock
which shall mean (i) the fair market value of the
Company's stock issuable
2
30
upon conversion of such share as of the last business
day immediately prior to the date the notice of
conversion is received by the Company, as determined
in good faith by the Company's Board of Directors, or
(ii) if this Warrant is being converted in conjunction
with a public offering of stock the price to the
public per share pursuant to the offering.
B = the Warrant Price on the date of conversion.
Any portion of this Warrant that is converted shall be immediately canceled.
This Warrant or any portion hereof shall be deemed to have been converted
immediately prior to the close of business on the date of its surrender for
conversion as provided above, and the person entitled to receive the shares of
Warrant Stock issuable upon such conversion shall be treated for all purposes as
Holder of such shares of record as of the close of business on such date. As
promptly as practicable after such date, the Company shall issue and deliver to
the person or persons entitled to receive the same a certificate or certificates
for the number of full shares of Warrant Stock issuable upon such conversion. If
the Warrant shall be converted for less than the total number of shares of
Warrant Stock then issuable upon conversion, promptly after surrender of the
Warrant upon such conversion, the Company will execute and deliver a new
Warrant, dated the date hereof, evidencing the right of the Holder to the
balance of the Warrant Stock purchasable hereunder upon the same terms and
conditions set forth herein.
8. Adjustment of Exercise Price and Number of Shares. The number of
shares issuable upon exercise of this Warrant (or any shares of stock or other
securities or property at the time receivable or issuable upon exercise of this
Warrant) and the Warrant Price therefor are subject to adjustment upon the
occurrence of the following events:
(a) Adjustment for Stock Splits, Stock Dividends,
Recapitalizations, etc. The Warrant Price and the number of shares issuable upon
exercise of this Warrant shall each be proportionally adjusted to reflect any
stock dividend, stock split, reverse stock split, combination of shares,
reclassification, recapitalization or other similar event altering the number of
outstanding shares of the Company's capital stock.
(b) Adjustment for Other Dividends and Distributions. In case
the Company shall make or issue, or shall fix a record date for the
determination of eligible holders entitled to receive, a dividend or other
distribution with respect to the shares payable in securities of the Company
then, and in each such case, the Holder, on exercise of this Warrant at any time
after the consummation, effective date or record date of such event, shall
receive, in addition to the Warrant Stock (or such other stock or securities)
issuable on such exercise prior to such date, the securities of the Company to
which such Holder would have been entitled upon such date if such Holder had
exercised this Warrant immediately prior thereto (all subject to further
adjustment as provided in this Warrant).
9. Adjustment for Capital Reorganization, Consolidation, Merger. If any
capital reorganization of the capital stock of the Company, or any consolidation
or merger of the Company with or into another corporation, or the sale of all or
substantially all of the Company's
3
31
assets to another corporation shall be effected in such a way that holders of
the Company's capital stock will be entitled to receive stock, securities or
assets with respect to or in exchange for the Company's capital stock, and in
each such case the Holder, upon the exercise of this Warrant, at any time after
the consummation of such capital reorganization, consolidation, merger, or sale,
shall be entitled to receive, in lieu of the stock or other securities and
property receivable upon the exercise of this Warrant prior to such
consummation, the stock or other securities or property to which such Holder
would have been entitled upon such consummation if such Holder had exercised
this Warrant immediately prior to the consummation of such capital
reorganization, consolidation, merger, or sale, all subject to further
adjustment as provided in this Section 9; and in each such case, the terms of
this Warrant shall be applicable to the shares of stock or other securities or
property receivable upon the exercise of this Warrant after such consummation.
10. Transfer of Warrant. This Warrant may be transferred or assigned by
the Holder hereof in whole or in part, provided that (i) the transferor
provides, at the Company's request, an opinion of counsel satisfactory to the
Company that such transfer does not require registration under the Act and the
securities law applicable with respect to any other applicable jurisdiction, and
(ii) the Company, in its sole discretion, consents to such assignment or
transfer.
11. Termination. This Warrant shall terminate at 5:00 p.m. California
time on the Termination Date.
12. Miscellaneous. This Warrant shall be governed by the laws of the
State of California, as such laws are applied to contracts to be entered into
and performed entirely in California by California residents. The headings in
this Warrant are for purposes of convenience and reference only, and shall not
be deemed to constitute a part hereof. Neither this Warrant nor any term hereof
may be changed or waived orally, but only by an instrument in writing signed by
the Company and the Holder of this Warrant. All notices and other communications
from the Company to the Holder of this Warrant shall be delivered personally or
mailed by first class mail, postage prepaid, to the address furnished to the
Company in writing by the last Holder of this Warrant who shall have furnished
an address to the Company in writing, and if mailed shall be deemed given three
days after deposit in the United States mail.
SILICON ENTERTAINMENT, INC.
-----------------------------------
Xxxxx X. Xxxxx, President
4
32
Attachment 1
NOTICE OF EXERCISE
TO: SILICON ENTERTAINMENT, INC.
1. The undersigned hereby elects to purchase ____________ shares of the
Warrant Stock of Silicon Entertainment, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares
of Warrant Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------------
(Name)
-----------------------------------------
(Address)
----------------------------------- -----------------------------------
(Date) (Name of Warrant Holder)
By:
--------------------------------
Title:
-----------------------------
A-1-1
33
Attachment 2
INVESTMENT REPRESENTATION STATEMENT
Shares of the Securities
(as defined in the attached Warrant) of
SILICON ENTERTAINMENT, INC.
In connection with the purchase of the above-listed securities, the
undersigned hereby represents to Silicon Entertainment, Inc. (the "Company") as
follows:
(a) The securities to be received upon the exercise of the Warrant (the
"Securities") will be acquired for investment for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and the undersigned has no present intention of selling, granting
participation in or otherwise distributing the same, but subject, nevertheless,
to any requirement of law that the disposition of its property shall at all
times be within its control. By executing this Statement, the undersigned
further represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participation to such
person or to any third person, with respect to any Securities issuable upon
exercise of the Warrant.
(b) The undersigned understands that the Securities issuable upon
exercise of the Warrant at the time of issuance may not be registered under the
Securities Act of 1933, as amended (the "Act"), and applicable state securities
laws, on the ground that the issuance of such securities is exempt pursuant to
Section 4 (2) of the Act and state law exemptions relating to offers and sales
not by means of a public offering, and that the Company's reliance on such
exemptions is predicated on the undersigned's representations set forth herein.
(c) The undersigned agrees that in no event will it make a disposition
of any Securities acquired upon the exercise of the Warrant unless and until (i)
it shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (ii) it shall have furnished the Company with an
opinion of counsel satisfactory to the Company and Company's counsel to the
effect that (A) appropriate action necessary for compliance with the Act and any
applicable state securities laws has been taken or an exemption from the
registration requirements of the Act and such laws is available, and (B) the
proposed transfer will not violate any of said laws.
(d) The undersigned acknowledges that an investment in the Company is
highly speculative and represents that it is able to fend for itself in the
transactions contemplated by this Statement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investments, and has the ability to bear the economic risks
(including the risk of a total loss) of its investment. The undersigned
represents that it has had the opportunity to ask questions of the Company
concerning the Company's business and assets and to obtain any additional
information which it considered necessary to verify the accuracy of or to
amplify the Company's disclosures, and has had all questions which have been
asked by it satisfactorily answered by the Company.
A-2-1
34
(e) The undersigned acknowledges that the Securities issuable upon
exercise of the Warrant must be held indefinitely unless subsequently registered
under the Act or an exemption from such registration is available. The
undersigned is aware of the provisions of Rule 144 promulgated under the Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain current
public information about the Company, the resale occurring not less than one
year after a party has purchased and paid for the security to be sold, the sale
being through a "broker's transaction" or in transactions directly with a
"market makers" (as provided by Rule 144(f)) and the number of shares being sold
during any three-month period not exceeding specified limitations.
Dated:
-----------------------------
-----------------------------------
(Typed or Printed Name)
By:
--------------------------------
(Signature)
-----------------------------------
(Title)
A-2-2
35
Attachment 3
NOTICE OF CONVERSION
TO: SILICON ENTERTAINMENT, INC.
1. The undersigned hereby elects to acquire ___________ shares of the
Securities of Silicon Entertainment, Inc. pursuant to the terms of the attached
Warrant, by conversion of _____ percent (___%) of the Warrant.
2. Please issue a certificate or certificates representing said shares
of Securities in the name of the undersigned or in such other name as is
specified below:
-----------------------------------------
(Name)
-----------------------------------------
(Address)
----------------------------------- -----------------------------------
(Date) (Name of Warrant Holder)
By:
--------------------------------
Title:
-----------------------------
A-3-1
