EXHIBIT 10.1
_________________________________________________________________
_________________________________________________________________
INTERPLAY ENTERTAINMENT CORP.
__________________________________________
STOCK PURCHASE AGREEMENT
__________________________________________
UP TO 5,000,000 SHARES OF COMMON STOCK
Dated as of March 18, 1999
_________________________________________________________________
_________________________________________________________________
TABLE OF CONTENTS
-----------------
Page No.
--------
1. Authorization of Investor Stock.................................................................. 1
2. Sale and Purchase of Investor Stock.............................................................. 1
3. Closing; Calculation of Shares of Investor Stock; Adjustment of Shares of
Investor Stock................................................................................... 1
3.1 Closing................................................................................... 1
3.2 Sale of Shares of Investor Stock at Closing............................................... 1
3.3 Interim Valuation of Shares of Investor Stock............................................. 1
3.4 Final Valuation of Shares of Investor Stock............................................... 2
3.5 Limitations on Adjustments................................................................ 2
3.6 Collar.................................................................................... 4
4. Register of Investor Stock; Restrictions on Transfer of Securities; Removal of
Restrictions on Transfer of Investor Stock....................................................... 4
4.1 Register of Investor Stock................................................................ 4
4.2 Restrictions on Transfer.................................................................. 4
4.3 Removal of Transfer Restrictions.......................................................... 6
4.4 Standstill................................................................................ 6
5. Representations and Warranties by the Company.................................................... 7
5.1 Organization, Standing, etc............................................................... 7
5.2 Qualification............................................................................. 7
5.3 Capital Stock............................................................................. 7
5.4 Investor Stock............................................................................ 8
i
5.5 Indebtedness for Borrowed Money................................................................... 8
5.6 Shareholder List.................................................................................. 8
5.7 Corporate Acts and Proceedings.................................................................... 9
5.8 Compliance with Laws and Other Instruments........................................................ 9
5.9 Binding Obligations............................................................................... 10
5.10 Securities Laws................................................................................... 10
5.11 No Brokers or Finders............................................................................. 10
5.12 Financial Statements.............................................................................. 10
5.13 Changes........................................................................................... 10
5.14 Material Agreements of the Company................................................................ 11
5.15 Employees......................................................................................... 12
5.16 Tax Returns and Audits............................................................................ 12
5.17 Patents and Other Intangible Assets............................................................... 12
5.18 Employment Benefit Plans; ERISA................................................................... 14
5.19 Title to Property and Encumbrances; Leases........................................................ 14
5.20 Condition of Properties........................................................................... 14
5.21 Insurance Coverage................................................................................ 15
5.22 Litigation........................................................................................ 15
5.23 Registration Rights............................................................................... 15
5.24 Licenses.......................................................................................... 15
5.25 Interested Party Transactions..................................................................... 15
5.26 Minute Books...................................................................................... 16
ii
5.27 Computer Software................................................................................. 16
5.28 Interplay Web Site and Systems.................................................................... 16
5.29 Product Returns................................................................................... 17
5.30 Disclosure........................................................................................ 17
6. Representations and Warranties of Investor............................................................... 17
6.1 Organization, Standing, etc....................................................................... 17
6.2 Corporate Acts and Proceedings.................................................................... 17
6.3 Compliance with Laws and Other Instruments........................................................ 17
6.4 Binding Obligations............................................................................... 17
6.5 No Brokers or Finders............................................................................. 18
7. Conditions of Parties' Obligations....................................................................... 18
7.1 Conditions of Investor's Obligations at the Closing............................................... 18
(a) No Errors, etc............................................................................. 18
(b) Compliance with Agreement.................................................................. 18
(c) No Default................................................................................. 18
(d) Certificate of Company..................................................................... 18
(e) Opinion of the Company's Counsel........................................................... 18
(f) Qualification Under State Securities Laws.................................................. 18
(g) Supporting Documents....................................................................... 19
(h) Proceedings and Documents.................................................................. 19
(i) Universal Agreement........................................................................ 19
(j) Fargo Employment Agreement................................................................. 19
(k) Lender's Consent........................................................................... 19
iii
(l) Due Diligence..................................................................................... 20
(m) NASDAQ-NMS Approval............................................................................... 20
(n) Waiver of Existing Rights Agreement............................................................... 20
(o) Government and Other Consents..................................................................... 20
(p) Waiver by Fargo................................................................................... 20
(q) Proxies from Fargo and Universal.................................................................. 20
(r) Legal Fees........................................................................................ 20
7.2 Conditions of Company's Obligations...................................................................... 20
8. Affirmative Covenants of the Company........................................................................... 20
8.1 Maintain Corporate Rights and Facilities................................................................. 21
8.2 Maintain Insurance....................................................................................... 21
8.3 Pay Taxes and Other Liabilities.......................................................................... 21
8.4 Records and Reports...................................................................................... 21
8.5 Notice of Litigation and Disputes........................................................................ 22
8.6 Directors' Meetings; Election to Board................................................................... 22
8.7 Conduct of Business...................................................................................... 23
8.8 Compliance with Legal Requirements....................................................................... 23
8.9 Replacement of Certificates.............................................................................. 23
8.10 Compliance with Section 7................................................................................ 23
8.11 Securities Law Filings................................................................................... 23
8.12 Compliance With Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws........ 24
8.13 Use of Proceeds.......................................................................................... 24
iv
8.14 Exclusivity.............................................................................................. 24
8.15 Restriction on Transfer of Fargo's Common Stock.......................................................... 24
8.16 Permitted Transaction.................................................................................... 25
8.17 Break-Up Fee............................................................................................. 25
8.18 Key Man Life Insurance................................................................................... 25
8.19 HSR Filing............................................................................................... 25
9. Negative Covenants of the Company.............................................................................. 26
9.1 Senior Securities........................................................................................ 26
9.2 Changes in Type of Business.............................................................................. 26
9.3 Loans; Guarantees........................................................................................ 26
9.4 Restrictive Agreements................................................................................... 26
10. Affirmative Covenants of Investor.............................................................................. 26
10.1 Permitted Transaction.................................................................................... 26
10.2 Compliance with Legal Requirements....................................................................... 26
10.3 Interplay Option......................................................................................... 26
11. Registration of Registrable Stock.............................................................................. 27
11.1 Required Registration.................................................................................... 27
11.2 Registration Procedures.................................................................................. 27
11.3 Expenses................................................................................................. 29
11.4 Indemnification.......................................................................................... 29
11.5 Reporting Requirements Under the Exchange Act............................................................ 31
11.6 Investor Information..................................................................................... 31
v
11.7 Transferability of Registration Rights................................................................... 32
12. Enforcement.................................................................................................... 32
12.1 Survival of Representations and Warranties............................................................... 32
12.2 Indemnification.......................................................................................... 32
12.3 Injunctive Relief........................................................................................ 35
12.4 No Implied Waiver........................................................................................ 35
13. Rights of First Refusal........................................................................................ 35
13.1 Subsequent Offerings..................................................................................... 35
13.2 Exercise of Rights....................................................................................... 35
13.3 Issuance of Equity Securities to Other Persons........................................................... 35
13.4 Excluded Securities...................................................................................... 35
14. Definitions.................................................................................................... 36
15. Miscellaneous.................................................................................................. 39
15.1 Waivers and Amendments................................................................................... 39
15.2 Rights of Investor....................................................................................... 39
15.3 Notices.................................................................................................. 40
15.4 Severability............................................................................................. 41
15.5 Assignment; Parties in Interest.......................................................................... 41
15.6 Headings................................................................................................. 41
15.7 Choice of Law............................................................................................ 41
15.8 Expenses................................................................................................. 41
15.9 Publicity................................................................................................ 42
15.10 Counterparts............................................................................................. 42
vi
15.11 Entire Agreement......................................................................................... 42
15.12 Attorneys' Fees.......................................................................................... 42
15.13 Arbitration.............................................................................................. 42
15.14 Partial and Conditional Termination of Shareholders' Agreement........................................... 43
vii
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into as of March
---------
18, 1999 among INTERPLAY ENTERTAINMENT CORP., a Delaware corporation (the
"Company"), ▇▇▇▇▇ INTERACTIVE SA, a French corporation ("▇▇▇▇▇" or the
------- -----
"Investor"), and to the extent expressly provided herein, ▇▇▇▇▇ ▇▇▇▇▇, an
--------
individual ("Fargo"). Capitalized terms not otherwise defined herein shall have
-----
the meanings ascribed thereto in Section 14 hereof.
THE PARTIES hereby agree as follows:
1. Authorization of Investor Stock. The Company has authorized the
-------------------------------
issue and sale of up to Five Million (5,000,000) shares (the "Investor Stock")
--------------
of its Common Stock, par value $.001 per share ("Common Stock").
------------
2. Sale and Purchase of Investor Stock. Upon the terms and subject to the
-----------------------------------
conditions herein contained, the Company agrees to sell to Investor, and
Investor agrees to purchase from the Company, at the Closing (as hereinafter
defined) on the Closing Date (as hereinafter defined) the Investor Stock at a
price in the aggregate of Ten Million Dollars ($10,000,000) (the "Purchase
--------
Payment").
-------
3. Closing; Calculation of Shares of Investor Stock; Adjustment of Shares
----------------------------------------------------------------------
of Investor Stock.
-----------------
3.1 Closing. The closing of the sale to and purchase by Investor of
-------
the Investor Stock (the "Closing") shall occur at the offices of Paul, Hastings,
-------
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇-▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, at the hour of 10:00 A.M., Pacific time, on March 18, 1999 or at
such different time or day as the Investor and the Company shall agree (the
"Closing Date"). At the Closing, the Company shall deliver to Investor a
------------
certificate evidencing the Investor Stock which shall be registered in
Investor's name, against delivery to the Company of payment by check or wire
transfer in an amount equal to the Purchase Payment.
3.2 Sale of Shares of Investor Stock at Closing. The number of shares
-------------------------------------------
of Investor Stock to be issued to Investor and registered in Investor's name at
Closing shall be equal to Two Million Five Hundred Thousand (2,500,000) (the
"Initial Shares").
--------------
3.3 Interim Valuation of Shares of Investor Stock. On June 30, 1999
---------------------------------------------
(the "Interim Valuation Date"), additional shares of Investor Stock, if any (the
----------------------
"Interim Additional Shares"), shall be issued to Investor and registered in
-------------------------
Investor's name in an amount equal to the difference between (a) the quotient of
(i) the Purchase Payment divided by (ii) the price per share of Common Stock as
of the Interim Valuation Date, less (b) the number of Initial Shares. The
"price per share of Common Stock as of the Interim Valuation Date" shall be the
average closing price of the Common Stock on the NASDAQ National Market System,
as reported in The Wall Street Journal or other nationally recognized
-----------------------
publication or service that reports such data, for the ten (10) consecutive
trading days immediately preceding the Interim Valuation Date.
3.4 Final Valuation of Shares of Investor Stock. On August 20, 1999
-------------------------------------------
(the "Final Valuation Date"), the final number of shares of Investor Stock, if
--------------------
any, in addition to the Initial Shares (the "Final Additional Shares") shall be
-----------------------
determined. Such number shall be equal to the difference between (a) the
quotient of (i) the Purchase Payment divided by (ii) the price per share of
Common Stock as of the Final Valuation Date, less (b) the number of Initial
Shares. The price per share of Common Stock as of the Final Valuation Date shall
be the average closing price of the Common Stock on the NASDAQ National Market
System, as reported in The Wall Street Journal or other nationally recognized
-----------------------
publication or service that reports such data, for the ten (10) consecutive
trading days immediately preceding the Final Valuation Date. In the event that
the number of Interim Additional Shares is less than the number of Final
Additional Shares, the Company shall promptly deliver to Investor a certificate
evidencing the number of shares of Investor Stock, equal to the difference
between the Final Additional Shares and the Interim Additional Shares, which
shall be registered in Investor's name, and in the event that the number of
Interim Additional Shares is greater than the number of Final Additional Shares,
the Investor shall promptly return to the Company for cancellation the
certificate or certificates evidencing the Interim Additional Shares for a
certificate evidencing a number of shares equal to the Final Additional Shares.
3.5 Limitations on Adjustments.
--------------------------
(a) Notwithstanding Sections 3.3 or 3.4 hereof, in no event
shall the issuance of either the Interim Additional Shares or the Final
Additional Shares result in the Investor purchasing a number of shares hereunder
(including the Initial Shares) which exceeds 3,661,772 shares of Common Stock
(the "Issuance Limit") (such occurrence, an "Excess Issuance") unless such
-------------- ---------------
issuance has been approved by vote of the Company's stockholders in accordance
with Delaware law prior to the date of such issuance (the "Required Approval").
-----------------
Investor agrees to vote all shares of Common Stock held by it, and all shares of
Common Stock for which Investor holds proxies with respect to such issuance, in
favor of such issuance.
(b) In the event that the number of Interim Additional Shares
calculated pursuant to Section 3.3 hereof would result in an Excess Issuance and
the Required Approval is not obtained prior to the Interim Valuation Date, then,
in lieu of the actions required by such Section, (a) the Company shall issue to
Investor and register in Investor's name a number of shares of Common Stock
which, when added to the Initial Shares, equals the Issuance Limit, and (b) the
Company shall issue to the Investor an
2
unsecured promissory note (the "Initial Note") in a principal amount equal to
------------
(x) Ten Million Dollars ($10,000,000), less (y) the product of the Issuance
Limit and the price per share of the Common Stock as of the Interim Valuation
Date. The Initial Note shall bear interest at the rate of ten percent (10%) per
annum from the Closing Date until the date paid, shall be payable on January 1,
2000 (subject to subsections (d) and (e) below), and otherwise shall be in form
reasonably acceptable to the Investor.
(c) In the event that the number of Final Additional Shares
calculated pursuant to Section 3.4 hereof would result in an Excess Issuance and
the Required Approval is not obtained prior to the Final Valuation Date, then,
in lieu of the actions required by such Section:
(i) If the number of Final Additional Shares calculated
pursuant to Section 3.4 is greater than the number of Interim Additional Shares
calculated pursuant to Section 3.3, the Company shall, if applicable, issue to
Investor and register in Investor's name a number of shares of Common Stock
which, when added to the Initial Shares and the Interim Additional Shares,
equals the Issuance Limit, and (b) the Company shall issue to the Investor an
unsecured promissory note (the "Additional Note") in a principal amount equal to
---------------
(x) Ten Million Dollars ($10,000,000), less (y) the product of the Issuance
Limit and the price per share of the Common Stock as of the Final Valuation
Date, less (z) the principal amount of the Initial Note (if any).
(ii) If the number of Final Additional Shares calculated
pursuant to Section 3.4 is less than the number of Interim Additional Shares
calculated pursuant to Section 3.3, Investor shall promptly return the Initial
Note to the Company for cancellation in exchange for an unsecured promissory
note (the "Replacement Note") in a principal amount equal to (x) Ten Million
-----------------
Dollars ($10,000,000), less (y) the product of the Issuance Limit and the price
per share of the Common Stock as of the Final Valuation Date.
The Additional Note or the Replacement Note, as applicable, shall bear
interest at the rate of ten percent (10%) per annum from the Closing Date until
the date paid, shall be payable on January 1, 2000 (subject to subsection (e)
below), and otherwise shall be in form reasonably acceptable to the Investor.
(d) In the event that the Required Approval is obtained between
the Interim Valuation Date and the Final Valuation Date, then, in lieu of the
actions required by Section 3.3(c), the Investor shall promptly return the
Initial Note to the Company for cancellation (including cancellation of any
accrued interest thereon) in exchange for a certificate representing a number of
shares of Common Stock equal to (i) the sum of the Initial Shares and the Final
Additional Shares, less (ii) the Issuance Limit, which shares shall be
registered in Investor's name.
(e) In the event that the Required Approval is obtained between
the Final Valuation Date and January 1, 2000 then, in lieu of payment of the
notes set forth in this Section and any accrued interest thereon, the Company
shall issue
3
to the Investor a certificate representing a number of shares of Common Stock
equal to (i) the sum of the Initial Shares and the Final Additional Shares, less
(ii) the Issuance Limit, which shares shall be registered in Investor's name.
3.6 Collar. Notwithstanding Sections 3.2, 3.3, 3.4 or 3.5 hereof, in
------
the event the price per share of Common Stock as so calculated would be less
than $2.00, the price per share in any event shall be deemed to be $2.00; and in
the event the price per share of Common Stock as so calculated would be more
than $4.00, the price per share in any event shall be deemed to be $4.00.
4. Register of Investor Stock; Restrictions on Transfer of Securities;
-------------------------------------------------------------------
Removal of Restrictions on Transfer of Investor Stock.
-----------------------------------------------------
4.1 Register of Investor Stock. The Company or its duly appointed
--------------------------
agent shall maintain a register for the shares of Investor Stock, in which it
shall register the issue and sale of all such shares. All transfers of the
Investor Stock shall be recorded on the register maintained by the Company or
its agent, and the Company shall be entitled to regard the registered holder of
the Investor Stock as the actual holder of the Investor Stock so registered
until the Company or its agent is required to record a transfer of such Investor
Stock on its register. Subject to Section 4.2(c) hereof, the Company or its
agent shall be required to record any such transfer when it receives the shares
of Investor Stock to be transferred duly and properly endorsed by the registered
holder thereof or by its attorney duly authorized in writing.
4.2 Restrictions on Transfer.
------------------------
(a) Investor understands and agrees that the shares of Investor
Stock it will be acquiring have not been registered under the Securities Act,
and that accordingly they will not be fully transferable except as permitted
under various exemptions contained in the Securities Act, or upon satisfaction
of the registration and prospectus delivery requirements of the Securities Act.
Investor acknowledges that it must bear the economic risk of its investment in
the Investor Stock for an indefinite period of time (subject, however, to the
Company's obligation to effect the registration of the Investor Stock under the
Securities Act in accordance with this Agreement) since they have not been
registered under the Securities Act and therefore cannot be sold unless they are
subsequently registered or an exemption from registration is available.
(b) (i) Investor hereby represents and warrants to the Company
that it is acquiring the Investor Stock for investment purposes only, for its
own account, and not as nominee or agent for any other Person, and not with the
view to, or for resale in connection with, any distribution thereof within the
meaning of the Securities Act, and (ii) it is an "accredited investor" within
the meaning of Regulation D of the Commission under the Securities Act.
(c) Investor hereby agrees with the Company as follows:
(i) Subject to Section 4.3 hereof, the certificates
4
evidencing the Investor Stock it has agreed to purchase, and each certificate
issued in transfer thereof, will bear the following legend:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933 and have been taken
for investment purposes only and not with a view to the
distribution thereof, and, except as stated in an agreement
between the holder of this certificate, or its predecessor in
interest, and the issuer corporation, such securities may not be
sold or transferred unless there is an effective registration
statement under such Act covering such securities or the issuer
corporation receives an opinion of counsel (which may be counsel
for the issuer corporation) stating that such sale or transfer is
exempt from the registration and prospectus delivery requirements
of such Act."
(ii) The certificates representing such Investor Stock,
and each certificate issued in transfer thereof, will also bear any legend
required under any applicable state securities law.
(iii) Absent an effective registration statement under the
Securities Act, covering the disposition of the Investor Stock which Investor
acquires, Investor will not sell, transfer, assign, pledge, hypothecate or
otherwise dispose of any or all of the Investor Stock without first providing
the Company with an opinion of counsel (which may be counsel for the Company) to
the effect that such sale, transfer, assignment, pledge, hypothecation or other
disposition will be exempt from the registration and the prospectus delivery
requirements of the Securities Act and the registration or qualification
requirements of any applicable state securities laws, except that no such
registration or opinion shall be required with respect to (A) a transfer not
involving a change in beneficial ownership, or (B) a sale to be effected in
accordance with Rule 144 of the Commission under the Securities Act (or any
comparable exemption).
(iv) Investor agrees that neither it nor any of its
affiliates will, during the period between the Closing Date and the Final
Valuation Date, (A) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any of the Initial Shares or the Interim Additional
Shares or (B) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Initial Shares of the Interim Additional Shares, whether any such
transaction described in clause (A) or (B) above is to be settled by delivery of
the Initial Shares or the Interim Additional Shares, in cash or otherwise.
Investor agrees that the certificates evidencing the Initial Shares and the
Interim Additional Shares it has agreed to purchase, and each certificate issued
in transfer thereof during the period between the Closing Date and the Final
Valuation Date, will bear the following legend:
5
"The sale, pledge, hypothecation or transfer of the
securities represented by this certificate is subject to
the terms and conditions (including certain adjustment
provisions) of a certain Stock Purchase Agreement by and
between the Corporation and the holder hereof. Copies of
such agreement may be obtained upon written request to the
secretary of the Corporation."
(v) Investor consents to the Company's making a notation on
its records or giving instructions to any transfer agent of the Investor Stock
in order to implement the restrictions on transfer of the Investor Stock
mentioned in this subsection (c).
4.3 Removal of Transfer Restrictions. Any legend endorsed on a
--------------------------------
certificate evidencing shares of Investor Stock pursuant to Section 4.2(c)(i)
hereof and any stop transfer instructions and record notations with respect to
such Investor Stock shall be removed and the Company shall issue a certificate
without such legend to the holder of such Investor Stock (a) if such Investor
Stock is registered under the Securities Act, or (b) if such Investor Stock may
be sold under Rule 144(k) of the Commission under the Securities Act or (c) if
such holder provides the Company with an opinion of counsel (which may be
counsel for the Company) reasonably acceptable to the Company to the effect that
a public sale or transfer of such Investor Stock may be made without
registration under the Securities Act.
4.4 Standstill. Each of the Company and Investor agrees that, except
----------
as otherwise provided in or contemplated by this Agreement, including without
limitation the transactions contemplated by the Universal Agreement (as defined
below), for a period from and after the date hereof until December 31, 1999,
neither it nor any of its Subsidiaries will, without the prior written consent
of the other party: (i) acquire, offer to acquire, or agree to acquire, directly
or indirectly, by purchase or otherwise, any voting securities or direct or
indirect rights to acquire any voting securities of the other party or any
Subsidiary thereof, or any material amount of the assets of the other party or
any Subsidiary or division thereof outside the ordinary course of business; (ii)
make, or in any way participate in, directly or indirectly, any "solicitation"
of "proxies" (as such terms are used in the rules of the Commission) to vote, or
seek to advise or influence any Person with respect to the voting of, any voting
securities of the other party for the purpose of changing or influencing the
control of the other party; or (iii) make any public announcement with respect
to, or submit a proposal for, or offer of (with or without conditions) any
merger, business combination, recapitalization, restructuring, liquidation or
other extraordinary transaction involving the other party or its securities or
assets; provided, however, the foregoing restrictions shall not preclude
-------- -------
Investor from (A) acquiring the shares of Common Stock contemplated by this
Agreement or the Universal Agreement, (B) pursuing and consummating a Permitted
Transaction, (C) filing a Schedule 13D in connection with the transactions
contemplated by this Agreement, (D) voting its shares of Common Stock within its
discretion on any matter submitted for a vote or consent of the Company's
stockholders, or (E) taking any other action
6
contemplated by this Agreement; provided, further, that the restrictions on
-------- -------
Investor in this Section 4.4 shall lapse automatically to the extent any Person
other than Investor takes any action with respect to the matters described in
clauses (ii) and (iii) above.
5. Representations and Warranties by the Company. In order to induce
---------------------------------------------
Investor to enter into this Agreement and to purchase the Investor Stock, the
Company hereby covenants with, and represents and warrants to, Investor, as of
the date hereof, except as set forth on the Schedule of Exceptions delivered to
Investor concurrently herewith, as follows (unless the context otherwise
requires, the "Company" shall refer to the Company and its Subsidiaries,
collectively):
5.1 Organization, Standing, etc. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has all requisite power and authority to carry on its business, to
own and hold its properties and assets, to enter into this Agreement, to issue
the Investor Stock and to carry out the provisions hereof and thereof. The
copies of the Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws of the Company which have been delivered to Investor prior to
the execution of this Agreement are true and complete and have not been amended
or repealed. Subsidiaries of the Company are set forth on Schedule 5.1.
------------
5.2 Qualification. The Company is duly qualified, licensed or
-------------
domesticated as a foreign corporation in good standing in each jurisdiction
wherein the nature of its activities or its properties owned or leased makes
such qualification, licensing or domestication necessary, except where the
failure to be so qualified would not have a Material Adverse Effect on the
Company.
5.3 Capital Stock. The authorized capital stock of the Company
-------------
consists of 50,000,000 shares of Common Stock, and 5,000,000 shares of Preferred
Stock, and the Company has no authority to issue any other capital stock. No
shares of Preferred Stock have been issued prior to the Closing; 18,308,861
shares of Common Stock are issued and outstanding, and such shares are duly
authorized, validly issued, fully paid and nonassessable. Except where the
failure to do so would not result in a Material Adverse Effect on the Company,
the offer, issuance and sale of the shares of Common Stock were (a) registered
or qualified under (or were exempt from the registration and prospectus delivery
requirements of) the Securities Act, (b) registered or qualified (or were exempt
from registration or qualification) under the registration or qualification
requirements of all applicable state securities laws, and (c) accomplished in
conformity with all other federal and applicable state securities laws, rules
and regulations. As of March 1, 1999, the Company has (A) reserved a total of
893,925 shares of Common Stock for issuance to employees, officers and directors
under a 1991 stock purchase plan, under which options to purchase a total of
270,384 shares have been granted, but neither exercised nor forfeited by the
holder thereof, (B) reserved a total of 603,750 shares of Common Stock for
issuance to employees, officers and directors under a 1994 stock option plan,
under which options to purchase a total of 602,550 shares have been granted, but
neither exercised nor forfeited by the holder thereof, and (C) reserved a
7
total of 2,259,425 shares of Common Stock for issuance to employees, officers
and directors under a 1997 stock incentive plan, under which options to purchase
622,300 shares have been granted, but neither exercised nor forfeited by the
holder thereof, (D) reserved a total of 200,000 shares of Common Stock for
issuance to employees and officers under an Employee Stock Purchase Plan, of
which 56,102 shares have been granted, but neither exercised nor forfeited by
the holder thereof, and (E) reserved a total of 861,156 shares of Common Stock
for issuance upon the exercise of options granted outside the Company's option
plans, of which 572,874 shares have been granted, but neither exercised nor
forfeited by the holder thereof. The Company has reserved a total of 400,000
shares for issuance upon exercise of outstanding warrants issued by the Company.
Under the terms thereof, to the extent that any outstanding award under the 1991
stock purchase plan or 1994 stock option plan expires or terminates prior to
exercise of such award in full, or if shares issued upon exercise are
repurchased by the Company, the unexercised portion or repurchased shares shall
be added to the pool of shares under the 1997 stock incentive plan and shall
thereafter be available for grant under the terms of such 1997 stock incentive
plan. Each of the 1991 stock purchase plan and 1994 stock option plan has been
terminated with respect to future grants of shares of Common Stock. Except as
expressly provided in this Agreement, the Company has no outstanding
subscription, option, warrant, call, contract, demand, commitment, convertible
security or other instrument, agreement or arrangement of any character or
nature whatsoever under which the Company is or may be obligated to issue Common
Stock, Preferred Stock or other Equity Security (as hereinafter defined) of any
kind. Neither the offer nor the issuance or sale of the Investor Stock
constitutes or will constitute an event, under any Equity Security or any anti-
dilution or similar provision of any agreement or instrument to which the
Company is a party or by which it is bound or affected, which shall either
increase the number of shares or units of Equity Securities issuable upon
conversion of any securities (whether stock or Indebtedness for Borrowed Money
(as hereinafter defined)) or upon exercise of any warrant or right to subscribe
to or purchase any stock or similar security (including Indebtedness for
Borrowed Money), or decrease the consideration per share or unit of Equity
Security to be received by the Company upon such conversion or exercise.
5.4 Investor Stock. The Investor Stock has been duly authorized and
--------------
validly issued, and upon payment to the Company of the Purchase Payment at the
Closing, will be fully paid and nonassessable Common Stock, free and clear of
all Liens and restrictions, other than Liens that might have been created by
Investor and restrictions imposed by (i) Section 4.2 hereof, (ii) applicable
state securities laws and (iii) the Securities Act.
5.5 Indebtedness for Borrowed Money. The Company has no Indebtedness
-------------------------------
for Borrowed Money except as disclosed on the Balance Sheet.
5.6 Shareholder List. Schedule 5.6 hereto contains a true and
---------------- ------------
complete list of the names and addresses of all persons or entities known to the
Company, based on Schedules 13D and/or 13G filed by such persons or entities or
otherwise based on the Company's actual knowledge, to be the beneficial holders
of more than five
8
percent (5%) of the outstanding Common Stock and of the holders of all
outstanding options, warrants or other rights to purchase from the Company more
than five percent (5%) of Common Stock. With respect to holders of more than 5%
of Common Stock, Schedule 5.6 contains, to the Company's knowledge, a true and
------------
complete description of the number of shares held by each such holder. With
respect to each option set forth on such Schedule, Schedule 5.6 sets forth the
------------
date of grant, the number of shares subject thereto, the exercise price, vesting
schedule and expiration date. With respect to the warrants set forth on such
Schedule, Schedule 5.6 sets forth the date of issue of each warrant, the number
------------
of shares of Common Stock subject to the warrant, the exercise price and
expiration date. Except as provided on Schedule 5.6, no holder of Common Stock
------------
or any other security of the Company or any other Person is entitled to any
preemptive right, right of first refusal or similar right from the Company or,
to the Company's knowledge, any Person as a result of the issuance of the
Investor Stock or otherwise. Except as provided on Schedule 5.6, there is no
------------
voting trust, agreement or arrangement among any of the beneficial holders of
Common Stock of the Company affecting the exercise of the voting rights of such
stock.
5.7 Corporate Acts and Proceedings. All corporate acts and
------------------------------
proceedings required for the authorization, execution and delivery of this
Agreement, the offer, issuance and delivery of the Investor Stock and the
performance of this Agreement have been lawfully and validly taken or will have
been so taken prior to the Closing.
5.8 Compliance with Laws and Other Instruments. The business and
------------------------------------------
operations of the Company have been and are being conducted in accordance with
all applicable federal, state and local laws, rules and regulations, except to
the extent that noncompliance with laws, rules and regulations would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
The execution, delivery and performance by the Company of this Agreement (a)
will not require from the Board or stockholders of the Company any consent or
approval that has not been validly and lawfully obtained, (b) will not require
any authorization, consent, approval, license, exemption of or filing or
registration with any domestic or, to best of the Company's knowledge, foreign,
court or governmental department, commission, board, bureau, agency or
instrumentality of government, except such as shall have been lawfully and
validly obtained prior to the Closing, (c) will not cause the Company to violate
or contravene (i) any provision of law, (ii) any rule or regulation of any
agency or government, domestic or foreign, (iii) any order, writ, judgment,
injunction, decree, determination or award, or (iv) any provision of the Amended
and Restated Certificate of Incorporation or Amended and Restated Bylaws of the
Company, (d) will not violate or be in conflict with, result in a breach of or
constitute (with or without notice or lapse of time or both) a default under,
any indenture, loan or credit agreement, note agreement, deed of trust,
mortgage, security agreement or other agreement, lease or instrument, commitment
or arrangement to which the Company is a party or by which the Company or any of
its properties, assets or rights is bound or affected, which in any such case
would have a Material Adverse Effect on the Company, and (e) will not result in
the creation or imposition of any Lien, other than Liens in favor of the
Investor. The Company is not in violation of, or (with or without notice or
lapse of time or both) in
9
default under, any term or provision of its Amended and Restated Certificate of
Incorporation or Amended and Restated Bylaws or of any indenture, loan or credit
agreement, note agreement, deed of trust, mortgage, security agreement or other
material agreement, lease or other instrument, commitment or arrangement to
which the Company is a party or by which any of the Company's properties, assets
or rights is bound or affected, which in any such case would have a Material
Adverse Effect on the Company. The Company is not subject to any restriction of
any kind or character which prohibits the Company from entering into this
Agreement or would prevent its performance of or compliance with all or any part
of this Agreement or the consummation of the transactions contemplated hereby or
thereby.
5.9 Binding Obligations. This Agreement constitutes the legal, valid
-------------------
and binding obligation of the Company and is enforceable against the Company in
accordance with its terms, except as such enforcement is limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors' rights
generally.
5.10 Securities Laws. Based in part upon the representations of
---------------
Investor in Section 4.2, the offer, issue and sale of the Investor Stock are and
will be exempt from the registration and prospectus delivery requirements of the
Securities Act, and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.
5.11 No Brokers or Finders. No Person has, or as a result of the
---------------------
transactions contemplated herein will have, any right or valid claim against the
Company or the Investor for any commission, fee or other compensation as a
finder or broker, or in any similar capacity based upon obligations incurred by
the Company.
5.12 Financial Statements. Attached hereto as Schedule 5.12 is the
-------------------- -------------
Company's unaudited balance sheet (the "Balance Sheet") as of December 31, 1998
-------------
(the "Balance Sheet Date"), and the unaudited statement of operations for the
------------------
twelve-month period then ended. Included in the Company's Registration
Statement on Form S-1 effective June 19, 1998 (the "Form S-1") are the Company's
--------
audited balance sheets as of April 30, 1996 and 1997, and December 31, 1997, and
the audited statements of operations, cash flow and shareholders' equity for
each of the periods then ended, together with the related opinion thereon of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, independent certified public accountants. Included in the
Company's Report on 10-Q for the quarterly period ended September 30, 1998 (the
"Form 10-Q") are the Company's unaudited balance sheet as of September 30, 1998
---------
and the unaudited statement of operations for the nine-month period then ended.
The foregoing financial statements (i) are in accordance with the books and
records of the Company, (ii) present fairly the financial condition of the
Company at the Balance Sheet Date and other dates therein specified and the
results of its operations and cash flow for the periods therein specified, and
(iii) have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior accounting periods.
Specifically, but not by way of limitation, the Balance Sheet discloses all of
the debts, liabilities and obligations of any nature (whether absolute,
10
accrued, contingent or otherwise and whether due or to become due) of the
Company at the Balance Sheet Date which must be disclosed on a balance sheet in
accordance with generally accepted accounting principles.
5.13 Changes. Since the Balance Sheet Date, except as disclosed on
-------
Schedule 5.13 hereto, the Company has not (a) incurred any debts, obligations or
-------------
liabilities, absolute, accrued, contingent or otherwise, whether due or to
become due in excess of $250,000, except current liabilities incurred in the
usual and ordinary course of business, none of which (individually or in the
aggregate) materially and adversely affects the business, finances, properties
or prospects of the Company, (b) discharged or satisfied any Liens other than
those securing, or paid any obligation or liability other than, current
liabilities shown on the Balance Sheet and current liabilities incurred since
the Balance Sheet Date, in each case in the usual and ordinary course of
business, (c) mortgaged, pledged or subjected to Lien any of its assets,
tangible or intangible, (d) sold, transferred or leased any of its assets of
value exceeding $250,000 except in the usual and ordinary course of business,
(e) canceled or compromised any debt or claim, or waived or released any right,
of value exceeding $250,000, (f) suffered any physical damage, destruction or
loss (whether or not covered by insurance) materially and adversely affecting
the properties, business or prospects of the Company, (g) encountered any labor
difficulties or labor union organizing activities, (h) made or granted any wage
or salary increase to any executive officer other than in the ordinary course of
business or entered into any employment agreement, (i) issued or sold any shares
of capital stock or other securities or granted any options with respect
thereto, (j) modified any Equity Security, except to the extent disclosed on
Schedule 5.6 hereto, (k) declared or paid any dividends on or made any other
------------
distributions with respect to, or purchased or redeemed, any of its outstanding
Equity Securities, (l) suffered or experienced any change in, or condition
affecting, the condition (financial or otherwise) of the Company as a whole
other than changes, events or conditions in the usual and ordinary course of its
business, none of which (either by itself or in conjunction with all such other
changes, events and conditions) has been materially adverse, (m) made any change
in the accounting principles, methods or practices followed by it or
depreciation or amortization policies or rates theretofore adopted, or (n)
entered into any agreement, or otherwise obligated itself, to do any of the
foregoing.
5.14 Material Agreements of the Company. Except as expressly set
----------------------------------
forth in this Agreement, the Balance Sheet, as disclosed in the Index (compiled
pursuant to Item 601 of Regulation S-K of the Commission) to the Company's
filings under the Securities Act and the Exchange Act or as disclosed on
Schedule 5.14 hereto, the Company is not a party to any written or oral
-------------
agreement, instrument or arrangement not made in the ordinary course of business
that is material to the Company and is either (a) an agreement with any labor
---
union, (b) an agreement for the purchase of fixed assets or for the purchase of
materials, supplies or equipment over $250,000, (c) an agreement for the
employment of any officer on other than an at-will basis, (d) an indenture, loan
or credit agreement, note agreement, deed of trust, mortgage, security
agreement, promissory note or other agreement or instrument relating to or
evidencing Indebtedness for Borrowed Money in excess of $250,000 or subjecting
any asset or property of the
11
Company to any Lien, (e) a guaranty of any Indebtedness, (f) a lease or
agreement under which the Company is lessee of or holds or operates any
property, real or personal, owned by any other Person under which payments to
such Person exceed $250,000 per annum, (g) a lease or agreement under which the
Company is lessor or permits any Person to hold or operate any property, real or
personal, owned or controlled by the Company having a value over $250,000 other
than in the ordinary course of business, (h) an agreement granting any
preemptive right, right of first refusal or similar right to any Person, (i) a
covenant not to compete or other restriction on its ability to conduct a
business or engage in any other activity, or (j) an agreement to register
securities under the Securities Act. To the Company's knowledge, all parties
having material contractual arrangements with the Company are in substantial
compliance therewith, and none is in default in any material respect thereunder,
except for noncompliance or defaults which will not have a Material Adverse
Effect on the Company.
5.15 Employees. The following individuals (collectively, "Designated
--------- ----------
Key Employees") are in the full-time employ of the Company and/or one or more of
-------------
its Subsidiaries: ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇. To the best of
the Company's knowledge, no Designated Key Employee of the Company has any plans
to terminate his employment with the Company, and the Company has no intention
of terminating the employment of any Designated Key Employee. To the best of the
Company's knowledge, no Designated Key Employee or any other employee of the
Company is a party to or is otherwise bound by any agreement or arrangement
(including, without limitation, any license, covenant, or commitment of any
nature), or subject to any judgment, decree, or order of any court or
administrative agency, (a) that would conflict with such employee's obligation
diligently to promote and further the interests of the Company or (b) that would
conflict with the Company's business as now conducted or as proposed to be
conducted. The Company has complied in all material respects with all laws
relating to the employment of labor, including provisions relating to wages,
hours, equal opportunity, collective bargaining and payment of Social Security
and other taxes, and the Company has encountered no material labor difficulties.
5.16 Tax Returns and Audits. All required federal, state and local
----------------------
tax returns of the Company have been accurately prepared and duly and timely
filed, and all federal, state and local taxes required to be paid with respect
to the periods covered by such returns have been paid. The Company is not
delinquent in the payment of any material tax, assessment or governmental
charge. Except as set forth on Schedule 5.16 hereto, there is not currently
-------------
pending against the Company any tax deficiency proposed or assessed against it
and the Company has not executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge for any tax period
for which the statute of limitations has not expired. Except as set forth on
Schedule 5.16 hereto, none of the Company's federal income tax returns nor any
-------------
state or foreign income or franchise tax returns has ever been audited by
governmental authorities in any of the last five (5) tax years. The reserves
for taxes, assessments and governmental charges reflected in the Balance Sheet
are and will be sufficient for the payment of all unpaid taxes, assessments and
governmental charges payable by the Company with respect to the period ended on
the Balance Sheet Date.
12
5.17 Patents and Other Intangible Assets.
-----------------------------------
(a) Except as disclosed on Schedule 5.17 hereto, the Company
-------------
(i) owns or has the right to use all patents, trademarks, service marks, trade
names, copyrights, licenses and rights with respect to the foregoing, used in or
necessary for the conduct of its business as now conducted and proposed to be
conducted, (ii) to the Company's knowledge, is not infringing upon or otherwise
acting adversely to the right or claimed right of any Person under or with
respect to any patent, trademark, service ▇▇▇▇, trade name, copyright or license
with respect thereto, where such infringement would have a Material Adverse
Effect on the Company.
(b) The Company owns or has the right to use all product
rights, manufacturing rights, trade secrets, including know-how, negative know-
how, formulas, patterns, compilations, programs, devices, methods, techniques,
processes, inventions, designs, technical data, computer software (in both
source code and object code forms and all documentation therefor), including
without limitation the Operational Software (as hereinafter defined) (all of the
foregoing of which are collectively referred to herein as "intellectual
------------
property") required for or incident to the conduct of the Company's business, as
---------
it is presently conducted, in each case free and clear of any right, Lien or
claim of others, including without limitation former employers of its employees,
except for rights reserved by the licensors of such intellectual property and
rights granted by the Company pursuant to license, publishing and distribution
agreements, and except where such right, lien or claim would not have a Material
Adverse Effect on the Company.
(c) Since its organization, the Company has taken reasonable
security measures to protect the secrecy, confidentiality and value of all
intellectual property and all Inventions (as defined below). Without limiting
the generality of the foregoing, except as set forth on Schedule 5.17, each of
-------------
the Company's employees has signed an agreement with the Company in the form
provided to Investor, and each of the Company's past employees has signed an
agreement with the Company substantially in the form provided to Investor,
except, in either such case, where the failure to do so would not have a
Material Adverse Effect on the Company. As used herein, "Inventions" means all
----------
inventions, and discoveries which during the period of an employee's or other
Person's service to the Company he or she makes or conceives of, either solely
or jointly with others, that relate to any subject matter with which his or her
work for the Company may be concerned, or relate to or are connected with the
business, products, services or projects of the Company, or relate to the actual
or demonstrably anticipated research or development of the Company or involve
the use of the Company's time, material, facilities or trade secret information.
(d) Except for license, publishing and distribution agreements
with third parties entered into in the ordinary course of business, and except
as disclosed on Schedule 5.17 hereto, the Company has not sold, transferred,
-------------
assigned, licensed or subjected to any Lien, any intellectual property, trade
secret, know-how, invention, design, process, computer software or technical
data, or any interest therein,
13
necessary for the development, manufacture, use, operation or sale of any
product listed on Schedules 5.27(a) and 5.27 (b) hereto.
(e) No director, officer, employee, agent or shareholder of the
Company owns or has any right in the intellectual property of the Company, or
any patents, trademarks, service marks, trade names, copyrights, licenses or
rights with respect to the foregoing, or any inventions, developments or
discoveries used in or necessary for the conduct of the Company's business as
now conducted and as proposed to be conducted, which could reasonably be
expected to have a Material Adverse Effect on the Company.
(f) The Company has not received any communication alleging or
stating that the Company or any of its employees or other agents has violated or
infringed, or by conducting business as proposed, would violate or infringe, any
patent, trademark, service ▇▇▇▇, trade name, copyright, trade secret,
proprietary right, process or other intellectual property of any other Person,
which could reasonably be expected to have a Material Adverse Effect on the
Company.
5.18 Employment Benefit Plans; ERISA. Except for the Interplay
-------------------------------
Productions 401(k) Profit Sharing Plan (the "Plan"), as described in Schedule
---- --------
5.18, the Company does not maintain or make contributions to any pension, profit
----
sharing or other employee retirement benefit plan. The Plan has been maintained
in compliance with all applicable laws, ordinances, rules, regulations, permits,
orders, writs, judgments, injunctions, decrees, determinations and awards of any
agency, government, or arbitrator. The Company has no material liability with
respect to the Plan or any other such plan (including, without limitation, any
unfunded liability or any accumulated funding deficiency) or any material
liability to the Pension Benefit Guaranty Corporation or under Title IV of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), with
-----
respect to the Plan or any multi-employer pension benefit plan, nor would the
Company have any such liability if the Plan or any multi-employer plan were
terminated or if the Company withdrew, in whole or in part, from the Plan or any
multi-employer plan. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated by this Agreement will
constitute a termination of employment or other event entitling any person to
any additional or other benefits, or that would otherwise modify benefits or the
vesting of benefits, provided under the Plan.
5.19 Title to Property and Encumbrances; Leases. The Company has
------------------------------------------
good and marketable title to all of its properties and assets, including without
limitation the properties and assets reflected in the Balance Sheet and the
properties and assets used in the conduct of its business, except for properties
disposed of in the ordinary course of business since the Balance Sheet Date and
except for properties held under valid and subsisting leases which are in full
force and effect and which are not in default, subject to no Lien, except those
which are shown and described on the Balance Sheet and except for Permitted
Liens (as hereinafter defined). All material leases under which the Company is
lessee of any real or personal property are valid, enforceable and effective in
accordance with their terms; there is not under any such lease any existing or
claimed
14
default by the Company or event or condition which with notice or lapse of time
or both would constitute a default by the Company. Except as disclosed on
Schedule 5.19 hereto, no material lease under which the Company is lessee of any
-------------
real property contains any provision which either (i) treats a sale or transfer
of any or all of the outstanding stock of the Company or a merger of the Company
with another Person as an assignment of the Company's leasehold interest, or
(ii) otherwise requires the consent of the lessor in the event of any such sale,
transfer or merger.
5.20 Condition of Properties. All facilities, machinery, equipment,
-----------------------
fixtures, vehicles and other properties owned, leased or used by the Company
with fair market value in excess of $250,000 are in good operating condition and
repair, subject to ordinary wear and tear, and are adequate and sufficient for
the Company's business.
5.21 Insurance Coverage. There is in full force and effect one or
------------------
more policies of insurance issued by insurers of recognized responsibility,
insuring the Company and its properties and business against such losses and
risks, and in such amounts, as are customary in the case of corporations engaged
in the same or similar business and similarly situated. The Company has not
been refused any insurance coverage sought or applied for, and the Company has
no knowledge of any facts that cause it to believe that the Company will be
unable to renew its existing insurance coverage as and when the same shall
expire upon terms at least as favorable as those presently in effect, other than
possible increases in premiums that do not result from any act or omission of
the Company.
5.22 Litigation. Except as disclosed on Schedule 5.22 hereto, there
---------- -------------
is no legal action, suit, arbitration or other legal, administrative or other
governmental investigation, inquiry or proceeding (whether federal, state, local
or foreign) pending or, to the Company's knowledge, threatened against or
affecting (i) the Company or its properties, assets or business (existing or
contemplated), or (ii) any Designated Key Employee, before any court or
governmental department, commission, board, bureau, agency or instrumentality or
any arbitrator, which if adversely determined would have a Material Adverse
Effect on the Company. Except as disclosed on Schedule 5.22 hereto, the Company
-------------
is not aware of any fact which might result in or form the basis for any such
action, suit, arbitration, investigation, inquiry or other proceeding, which if
adversely determined would have a Material Adverse Effect on the Company.
Neither the Company nor, to the best of the Company's knowledge, neither Fargo
nor Perry is in default with respect to any order, writ, judgment, injunction,
decree, determination or award of any court or of any governmental agency or
instrumentality (whether federal, state, local or foreign).
5.23 Registration Rights. Except as set forth on Schedule 5.23,
------------------- -------------
other than under this Agreement, the Company has not agreed to register under
the Securities Act any of its authorized or outstanding securities.
5.24 Licenses. The Company possesses from the appropriate agency,
--------
commission, board and governmental body and authority, whether state, local or
15
federal, all licenses, permits, authorizations, approvals, franchises and rights
which are necessary for the Company to engage in the business currently
conducted by it and proposed to be conducted (except where the failure to so
hold would not have a Material Adverse Effect on the Company), including without
limitation the development, manufacture, use, sale and marketing of its existing
and proposed products and services; and all such certificates, licenses,
permits, authorizations and rights have been lawfully and validly issued and are
in full force and effect.
5.25 Interested Party Transactions. Except as disclosed on Schedule
----------------------------- --------
5.25 hereto, no officer, director or 5% shareholder of the Company or any
----
Affiliate or "associate" (as this term is defined in Rule 405 of the Commission
under the Securities Act) of any such Person or the Company has, either directly
or indirectly, (a) a material interest in any Person which (i) furnishes or
sells services or products which are furnished or sold or are proposed to be
furnished or sold by the Company, or (ii) purchases from or sells or furnishes
to the Company any goods or services, or (b) a beneficial interest in any
transaction, contract or agreement to which the Company is a party or by which
it is bound or affected.
5.26 Minute Books. The minute books of the Company provided to ▇▇▇▇,
------------
Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, special counsel for the Investor, contain all
resolutions adopted by directors and shareholders since the incorporation of the
Company and fairly and accurately reflect, in all material respects, all matters
and transactions referred to in such minutes.
5.27 Computer Software.
-----------------
(a) Each of the computer software programs developed by the
Company that are listed on Schedule 5.27(a) hereto (the "Operational Software")
---------------- --------------------
is functional, complete and operational in all material respects in accordance
with its specifications, has been documented in accordance with the Company's
standard practices, and the Company possesses both the source code and object
code versions thereof.
(b) Attached as Schedule 5.27(b) hereto is a true and
---------------------------
complete list of all computer software games currently in active development by
or on behalf of the Company (the "Developing Software"). Schedule 5.27(b) also
-------------------
sets forth whether each such game is being internally or externally developed
and, if externally developed, the name of the third party developer.
5.28 Interplay Web Site and Systems.
------------------------------
(a) The Company owns and has the right to communicate and
publish its "Interplay" Internet product offering (the "Web Site") and conduct
--------
business on the World Wide Web at the Internet address "▇▇▇▇▇▇▇▇▇.▇▇▇" and in
connection therewith to use the registered service ▇▇▇▇ and trade name
"Interplay" and in so doing is not acting in conflict with any patent,
trademark, service ▇▇▇▇, trade name,
16
copyright, trade secret, license or other proprietary right with respect
thereto, except where such conflict would not have a Material Adverse Effect on
the Company.
(b) The Company has not received any communication from any
Person that the Web Site or the conduct of the Company's business is in
violation of any law, rule or regulation or in conflict with any patent,
trademark, service ▇▇▇▇, trade name, copyright, trade secret, license or other
proprietary right with respect thereto, except where such violation or conflict
would not have a Material Adverse Effect on the Company.
5.29 Product Returns. Schedule 5.29 hereto sets forth the Company's
--------------- -------------
experience with respect to the return of any of its products sold or leased for
the three (3) year period ended on December 31, 1998.
5.30 Disclosure. To the Company's knowledge, the information
----------
contained in this Agreement, in the Form 10-Q, the Balance Sheet and the Form S-
1, and in any writing furnished pursuant hereto or in connection herewith, taken
as a whole, is true, complete and correct (except that with respect to the Form
10-Q, the Balance Sheet and the Form S-1, the information contained therein
shall be true, complete and correct as of the date thereof), and does not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or herein or necessary to make the statements
therein or herein, in light of the circumstances under which they were made, not
misleading.
6. Representations and Warranties of Investor. In order to induce the
------------------------------------------
Company to enter into this Agreement and to issue the Investor Stock, Investor
hereby covenants with, and represents and warrants to, the Company as follows:
6.1 Organization, Standing, etc Investor is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of France, and
has all requisite corporate power and authority to enter into this Agreement,
and to carry out the provisions hereof and thereof.
6.2 Corporate Acts and Proceedings. All corporate acts and
------------------------------
proceedings required for the authorization, execution and delivery of this
Agreement by Investor, and the performance of this Agreement by Investor, have
been lawfully and validly taken or will have been so taken prior to the Closing.
6.3 Compliance with Laws and Other Instruments. The execution,
------------------------------------------
delivery and performance by Investor of this Agreement (a) will not require from
the board of directors or stockholders of Investor any consent or approval that
has not been validly and lawfully obtained, (b) will not require any
authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality of government, except such as shall have
lawfully and validly obtained prior to the Closing, (c) will not cause Investor
to violate or contravene (i) any provision of law, (ii) any rule or regulation
of any agency
17
or government, domestic of foreign, (iii) any order, writ, judgment, injunction,
decree, determination or award binding upon Investor, or (iv) any provision of
the charter documents of Investor, (d) will not violate or be in conflict with,
result in a breach of or constitute (with or without notice or lapse of time or
both) a default under, any indenture, loan or credit agreement, note agreement,
deed of trust, mortgage, security agreement or other material agreement, lease
or instrument, commitment or arrangement to which Investor is a party or by
which Investor or any of its properties, assets or rights is bound or affected,
which in any case would have a Material Adverse Effect on Investor.
6.4 Binding Obligations. This Agreement constitutes the legal, valid
-------------------
and binding obligations of Investor and is enforceable against Investor in
accordance with its terms, except as such enforcement is limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors' rights
generally.
6.5 No Brokers or Finders. No Person has, or as a result of the
---------------------
transactions contemplated herein will have, any right or valid claim against the
Company or Investor for any commission, fee or other compensation as a finder or
broker, or in any similar capacity, except for Concordia Capital Technology
Group, Inc., whose fees will be the responsibility of the Investor.
7. Conditions of Parties' Obligations.
----------------------------------
7.1 Conditions of Investor's Obligations at the Closing. The
---------------------------------------------------
obligation of Investor to purchase and pay for the Investor Stock is subject to
the fulfillment prior to or on the Closing Date of the following conditions, any
of which may be waived in whole or in part by Investor:
(a) No Errors, etc. The representations and warranties of the
--------------
Company under this Agreement shall be deemed to have been made again on the
Closing Date and shall then be true and correct in all material respects (except
to the extent already qualified as to materiality, in which case such
representations and warranties shall then be true and correct in all respects).
(b) Compliance with Agreement. The Company shall have performed
-------------------------
and complied with all agreements and conditions required by this Agreement to be
performed or complied with by it on or before the Closing Date.
(c) No Default. There shall not exist on the Closing Date any
----------
Default (as hereinafter defined) or Event of Default (as hereinafter defined) or
any event or condition which, with the giving of notice or lapse of time or
both, would constitute a Default or Event of Default.
(d) Certificate of Company. The Company shall have delivered to
----------------------
Investor a certificate dated the Closing Date, executed by the Chief Executive
Officer and Chief Financial Officer of the Company, certifying the satisfaction
of the conditions specified in subsections (a), (b) and (c) of this Section 7.1.
18
(e) Opinion of the Company's Counsel. The Investor shall have
--------------------------------
received from ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇, a professional corporation,
counsel for the Company, a favorable opinion dated the Closing Date
substantially in the form of Exhibit A hereto.
(f) Qualification Under State Securities Laws. All
-----------------------------------------
registrations, qualifications, permits and approvals required under applicable
state securities laws shall have been obtained for the lawful execution,
delivery and performance of this Agreement, including without limitation the
offer, sale, issue and delivery of the Investor Stock.
(g) Supporting Documents. Investor shall have received the
--------------------
following:
(1) Copies of resolutions of the Board, certified by the
Secretary of the Company, authorizing and approving the execution, delivery and
performance of this Agreement, and all other documents and instruments to be
delivered pursuant hereto and thereto, and taking all such other actions as
required by Section 203 of the Delaware General Corporation Law with respect to
this Agreement and the Universal Agreement (as defined below), and the
transactions contemplated hereby and thereby;
(2) A certificate of incumbency executed by the Secretary
of the Company certifying the names, titles and signatures of the officers
authorized to execute the documents referred to in subsection (1) above and
further certifying that the Amended and Restated Certificate of Incorporation
and Amended and Restated Bylaws of the Company delivered to the Investors at the
time of the execution of this Agreement have been validly adopted and have not
been amended or modified; and
(3) Such additional supporting documentation and other
information with respect to the transactions contemplated hereby as Investor or
its special counsel, Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP ("Investor Counsel"),
----------------
may reasonably request.
(h) Proceedings and Documents. All corporate and other
-------------------------
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transactions, shall be satisfactory in
form and substance to Investor and to Investor Counsel.
(i) Universal Agreement. Investor shall have entered into an
-------------------
agreement with Universal Studios, Inc. ("Universal") and the Company with
---------
respect to the granting to Investor of an option (the "Universal Option") to
----------------
purchase 4,658,215 shares of Common Stock (the "Option Stock") held by Universal
------------
substantially in the form of Exhibit B hereto (the "Universal Agreement").
--------- -------------------
19
(j) Fargo Employment Agreement. Fargo, Universal and the Company
--------------------------
shall have entered into a one-year extension of the employment agreement among
Fargo, Universal and the Company dated as of March 28, 1994.
(k) Lender's Consent. The Company's lender shall have approved
----------------
this Agreement and the transactions contemplated hereby, and shall otherwise
provide such assurances to Investor as Investor may reasonably request with
respect to the use of the proceeds from the sale of the Investor Stock and the
continuing availability and renewal of such lender's current credit facility to
the Company (or the Company shall have provided such assurances to Investor with
respect to a substitute credit facility).
(l) Due Diligence. Investor and Investor Counsel shall have
-------------
completed their legal due diligence investigation of the Company and its
business prospects, and Investor shall be satisfied with the results thereof in
its sole discretion (including without limitation investigation of the Company's
D&O insurance policies).
(m) NASDAQ-NMS Approval. The Company shall have obtained any
-------------------
waiver or approval from NASDAQ-NMS required with respect to this Agreement and
the issuance of the Investor Stock.
(n) Waiver of Existing Rights Agreement. If necessary, the
-----------------------------------
requisite percentage of the Holders (as defined therein) party to the Investors'
Rights Agreement dated as of October 10, 1996, by and among the Company and the
Holders (the "Existing Rights Agreement"), shall have waived the application of
-------------------------
the Existing Rights Agreement (including without limitation Section 1.12
thereof) to the issuance of the Investor Stock and the registration rights
granted hereunder with respect to the Investor Stock.
(o) Government and Other Consents. Any approval, consent or
-----------------------------
waiting period required by any governmental agency or authority, or any other
Person, necessary or material to the consummation of the transactions
contemplated hereby shall have been obtained or expired, as the case may be,
including without limitation any approval from NASDAQ and any applicable waiting
period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended.
(p) Waiver by Fargo. Fargo shall have entered into the Waiver
---------------
substantially in the form of Exhibit C hereto.
---------
(q) Proxies from Fargo and Universal. Each of Fargo and
--------------------------------
Universal shall have granted to Investor an irrevocable proxy substantially in
the form of Exhibit D hereto.
---------
(r) Legal Fees. The Company shall have paid or reimbursed
----------
Investor for $50,000 of the reasonable fees and expenses of Investor Counsel
incurred in connection with the preparation of this Agreement, and all other
20
documentation necessary to consummate the transactions contemplated hereby, and
all reasonable fees and expenses of Investor Counsel incurred in connection with
its legal due diligence investigation of the Company and its business prospects.
7.2 Conditions of Company's Obligations. The Company's obligation
-----------------------------------
to issue and sell the Investor Stock to Investor on the Closing Date is subject
to the fulfillment prior to or at the Closing Date of the conditions precedent
specified in paragraphs (f) and (o) of Section 7.1 hereof, and to the accuracy
in all material respects of the representations of Investor in Section 4.2 and
Section 6 of this Agreement.
8. Affirmative Covenants of the Company. The Company agrees that
------------------------------------
unless Investor otherwise agrees in writing, from the date hereof through the
later of the Final Valuation Date or the effective date of registration
statement with respect to the Investor Shares (the "Adjustment Period"), unless
-----------------
another period is expressly provided for in this Section 8, the Company (and
each of its Subsidiaries unless the context otherwise requires) and, to the
extent expressly provided herein, Fargo, will do the following:
8.1 Maintain Corporate Rights and Facilities. Maintain and
----------------------------------------
preserve its corporate existence and all rights, franchises and other authority
adequate for the conduct of its business; maintain its properties, equipment and
facilities in good order and repair; and conduct its business in an orderly
manner without voluntary interruption.
8.2 Maintain Insurance. Maintain in full force and effect a policy
------------------
or policies of insurance issued by insurers of recognized responsibility,
insuring it and its properties and business against such losses and risks, and
in such amounts, as are customary in the case of corporations of established
reputation engaged in the same or a similar business and similarly situated.
8.3 Pay Taxes and Other Liabilities. Pay and discharge, before the
-------------------------------
same become delinquent and before penalties accrue thereon, all taxes,
assessments and governmental charges upon or against it or any of its
properties, and all its other material liabilities at any time existing, except
to the extent and so long as (i) the same are being contested in good faith and
by appropriate proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right of redemption from
any sale thereunder, and (ii) it shall have set aside on its books reserves
(segregated to the extent required by generally accepted accounting principles)
deemed by it adequate with respect thereto.
8.4 Records and Reports. Accurately and fairly maintain its books
-------------------
of account in accordance with generally accepted accounting principles, as
approved from time to time by a majority of the Board and its independent
certified public accountants; permit Investor and its representatives to have
access to and to examine its properties, books and records (and to copy and make
extracts therefrom) at such reasonable times and intervals as Investor may
request and to discuss its affairs, finances and accounts with its officers and
auditors, all to such reasonable extent and at such reasonable times and
21
intervals as Investor may request; and furnish Investor:
(a) As soon as available, and in any event within thirty (30)
days after the close of each monthly accounting period, but only during the
Restricted Period, financial statements prepared on a consolidated basis
(together with consolidating statements in support thereof) consisting of a
balance sheet of the Company as of the end of such monthly accounting period and
statements of income, shareholders' equity and cash flow for such monthly
accounting period, and for the portion of the Company's fiscal year ending with
the last day of such monthly accounting period, all in reasonable detail,
prepared and certified by the chief executive officer or the chief financial
officer of the Company as fairly presenting the financial condition as of the
balance sheet date and results of operations and cash flows for the period then
ended in accordance with generally accepted accounting principles consistently
applied, subject to normal year end adjustments which in the aggregate shall not
be material;
(b) Promptly upon, and in any event within three (3) business
days following, the learning of the occurrence of a Default or an Event of
Default or a condition or event which with the giving of notice or the lapse of
time, or both, would constitute a Default or an Event of Default, a certificate
signed by the chief executive officer or chief financial officer of the Company
describing such Default, Event of Default or condition or event and stating what
steps are being taken to remedy or cure the same;
(c) During the Restricted Period, promptly upon the receipt
thereof by the Company or the Board, copies of all reports, all management
letters and other detailed information submitted to the Company or the Board by
independent accountants in connection with each annual or interim audit or
review of the accounts or affairs of the Company made by such accountants;
(d) Concurrently with their delivery to the Commission, all
reports, registration statements, proxy statements, and any other document, form
or report submitted to, or filed with, the Commission; and
(e) With reasonable promptness, during the Restricted Period,
such other information relating to the finances, properties, business and
affairs of the Company and each Subsidiary, as Investor reasonably may request
from time to time.
Notwithstanding the foregoing, the Company's obligation to provide any
such information to the Investor under this Section 8.4 shall be subject to the
Company's right to refuse to provide such information if, in the good faith
judgment of the Company, such information has not been provided, directly or
indirectly, to the general public or to any governmental agency (unless and to
the extent filed on a confidential basis), and is confidential and/or
competitively sensitive in nature, unless Investor executes an agreement, in
form reasonably satisfactory to the Company, pursuant to which Investor agrees
(i) to keep such information strictly confidential and not to use it for any
purpose not reasonably related to its interest as a stockholder of the Company,
and (ii) to comply with all of its obligations under the Securities Act and the
22
Exchange Act with respect to such information.
8.5 Notice of Litigation and Disputes. Promptly notify Investor of
---------------------------------
each legal action, suit, arbitration or other administrative or governmental
investigation or proceeding (whether federal, state, local or foreign)
instituted or threatened against the Company which could materially and
adversely affect its condition (financial or otherwise), properties, assets,
liabilities, business, operations or prospects, or of any occurrence or dispute
which involves a reasonable likelihood of any such action, suit, arbitration,
investigation or proceeding being instituted.
8.6 Directors' Meetings; Election to Board. From and after the
--------------------------------------
Closing until the expiration of the Restricted Period:
(a) Give Investor at least the notice required by Delaware law
and the Company's bylaws to be given to directors (or such longer notice
actually given to the Company's directors), and permit up to two (2) officers or
other representatives of Investor or any Persons designated by Investor (each a
"Designee" and together the "Designees") to attend as observers, all meetings of
-------- ---------
the Board and all meetings of committees of the Board; furnish Investor and the
Designees with a complete and accurate copy of the minutes and other records of
all meetings and other proceedings of the Board and its committees as well as of
the written consents of members of the Board by which action is taken by the
Board or any committee without a meeting, and minutes and written consents
relating to action taken by the shareholders of the Company; provided, that, if
a meeting of the Board or any committee thereof is required to be held on
shorter notice than required above, waiver of the notice contained in this
Section 8.6 shall not be unreasonably withheld; and also furnish Investor and
the Designees with a complete and accurate copy of the minutes of the meetings
and the written consents with respect to action taken without a meeting of the
board of directors and committees of each Subsidiary and of the stockholders of
each Subsidiary. The Company may exclude the Designees from portions of any such
meeting to the extent necessary (i) for reasons of attorney-client privilege or
(ii) if the subject matter of the meeting involves discussion of competitively
sensitive information.
(b) At any time upon at Investor's notice to the Company, the
Company shall use its best efforts to cause one of the Designees to be elected
to the Board. In such event, Fargo shall vote all shares owned by Fargo in favor
of the election of such Designee to the Board and the Company shall, upon such
election, execute and deliver to such Designee an indemnification agreement in
form identical to that which it has entered into with its other directors.
8.7 Conduct of Business. Conduct its business in accordance with
-------------------
all applicable provisions of federal, state, local and foreign law.
8.8 Compliance with Legal Requirements. Comply promptly with all
----------------------------------
legal requirements that applicable law may impose upon it with respect to the
transactions contemplated by this Agreement, and cooperate promptly with, and
furnish
23
information to, Investor in connection with any such requirements imposed upon
the Company in connection therewith or herewith.
8.9 Replacement of Certificates. Upon receipt of evidence
---------------------------
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of any certificate representing any of the Investor Stock, issue a
new certificate representing such Investor Stock in lieu of such lost, stolen,
destroyed, or mutilated certificate.
8.10 Compliance with Section 7. Use commercially reasonable efforts
-------------------------
efforts to cause the conditions specified in Section 7.1 hereof to be met by the
Closing Date.
8.11 Securities Law Filings. Make all filings necessary to perfect
----------------------
in a timely fashion exemptions from (i) the registration and prospectus delivery
requirements of the Securities Act and (ii) the registration or qualification
requirements of all applicable securities or blue sky laws of any state or other
jurisdiction, for the issuance of the Investor Stock to Investor.
8.12 Compliance With Amended and Restated Certificate of
---------------------------------------------------
Incorporation and Amended and Restated Bylaws. Perform and observe all
---------------------------------------------
requirements of the Company's Amended and Restated Certificate of Incorporation
and Amended and Restated Bylaws.
8.13 Use of Proceeds. Use the proceeds from the sale of the
---------------
Investor Stock hereunder solely for working capital purposes, including product
development; provided, however, that the Company shall not use such proceeds to
-------- -------
pay more than $250,000 in outstanding Indebtedness for Borrowed Money, except to
the extent that the amounts so paid may immediately be re-borrowed.
Notwithstanding anything herein to the contrary, the proceeds from the sale of
the Investor Stock shall not be used to exercise the Interplay Option (defined
below).
8.14 Exclusivity. The Company will not, between the date hereof and
-----------
the earlier to occur of (i) ninety (90) days from the Closing Date hereof and
(ii) the consummation of a Permitted Transaction or a definitive agreement with
respect to a Permitted Transaction (the "Restricted Period"), directly or
-----------------
indirectly, through any officer, director, employee, agent, 5% stockholder,
partner or otherwise, (a) solicit or initiate, or participate in discussions or
negotiations with, or encourage the submission of bids, offers or proposals by
(or commence negotiations with or provide any information to), any Person with
respect to an acquisition of the Company, its business or assets, or any
interest therein, other than Investor, or (b) provide any non-public information
concerning the Company, its business or assets, to any Person, other than
Investor, except for product developers, distributors, publishers and licensees
under agreements with the Company entered into in the ordinary course of
business consistent with past practices, and except for the Company's lender.
Notwithstanding the foregoing, the Company may entertain a written unsolicited
bid or proposal from, and provide non-public information to, any party who
delivers such a written bid or proposal with respect to an acquisition of
24
the Company, its business or assets, but only if and so long as the Board
determines in good faith by a majority vote (with the written concurring and
concurrent advice from outside legal counsel) that failing to entertain such
written bid or proposal would constitute a breach of the fiduciary duties of the
Board under applicable law. The Company shall notify Investor in writing
promptly upon receipt of any bids, offers or proposals received, written or
oral. The Company further agrees that it will not engage any broker, financial
advisor or other consultant on a basis which might provide such broker,
financial advisor or consultant with an incentive to initiate or encourage
proposals or offers from other parties with respect to the Company, its business
or assets, or any interest therein. The Company shall not commence any
proceeding to merge, consolidate, liquidate or dissolve the Company or obligate
itself to do so.
8.15 Restriction on Transfer of Fargo's Common Stock. During the
-----------------------------------------------
Restricted Period, Fargo shall not sell, assign, pledge, mortgage or otherwise
dispose of or transfer his Common Stock, or any other securities of the Company,
whether now owned or hereafter acquired, or agree to do any of the foregoing,
except to Investor.
8.16 Permitted Transaction. The Company will within one week after
---------------------
the Closing enter into negotiations with Investor concerning, and will use
commercially reasonable efforts thereafter to effect, a transaction approved by
the Board (including Fargo unless he abstains, in which case such abstention
shall be deemed an approval), in which Investor and the Company (or any wholly
owned Subsidiary of the Company) would merge or effect another business
combination involving both Investor and the Company (a "Permitted Transaction").
---------------------
If necessary, Fargo will vote his shares of Common Stock in favor of any
Permitted Transaction, and will waive any rights he has to purchase such shares
of Common Stock in accordance with the Shareholders' Agreement by and among the
Company, Fargo and MCA Inc. dated March 30, 1994.
8.17 Break-Up Fee. In the event that the Permitted Transaction is
------------
not consummated on or prior to the Restricted Period, and the Company enters
into a definitive agreement or letter of intent, or makes a public statement
with respect to, or becomes subject to, any transaction or series of related
transactions (including any tender offer) with any Person other than Investor
and its affiliates which results in, or is intended to result in, a Change of
Control (as defined herein) on or prior to September 30, 1999, then the Company
shall pay to Investor in immediately available funds upon the consummation of
such transaction (whether such transaction is consummated prior to or after
September 30, 1999) a breakup fee in an amount equal to three percent (3%) of
the Enterprise Value of all such transactions. "Enterprise Value" for any
----------------
transaction shall mean the sum of (a) all consideration received or deemed
received by the Company or the selling shareholder or shareholders of the
Company in connection with such transaction, including without limitation all
consideration for covenants not to compete, employment agreements, and
consulting agreements, plus (b) the principal amount of all Indebtedness for
Borrowed Money outstanding as of the closing of such transaction. For purposes
of this Agreement, a "Change in Control" shall mean a sale by the Company of all
-----------------
or substantially all of its assets, or a merger, consolidation, stock sale by
the Company or its stockholders, or any other transaction in which the holders
of the Company's outstanding Common Stock immediately prior to such transaction
or series of related transactions
25
hold less than fifty percent (50%) of the outstanding Common Stock of the
Company (or the common stock of the surviving entity of parent of such surviving
entity) after the consummation of such transaction or series of related
transactions.
8.18 Key Man Life Insurance. The Company shall within thirty (30)
----------------------
days after Closing obtain, at the Company's expense, a $2,000,000 life insurance
policy on the life of Fargo, for the benefit of Investor, and thereafter so long
as Investor holds any Investor Stock, the Company shall pay from general
corporate funds all trustee fees and remaining insurance premiums.
8.19 HSR Filing. From the date hereof through the end of the
----------
Option Period (as defined in the Universal Agreement), to the extent that
Investor is required in connection with the transactions contemplated hereby, or
the transactions contemplated by the Universal Agreement, to file a notification
and report form in compliance with the ▇▇▇▇-▇▇▇▇▇- ▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended, or the rules and regulations promulgated thereunder
(collectively, the "HSR Act"), the Company shall agree to fully cooperate with
-------
Investor to enable Investor to promptly make such filing and to respond to any
requests for additional information in connection therewith.
9. Negative Covenants of the Company. The Company agrees that unless
---------------------------------
Investor otherwise agrees in writing, during the Adjustment Period the Company
(and each of its Subsidiaries unless the context otherwise requires) will not do
any of the following:
9.1 Senior Securities. Issue, assume or suffer to exist (a) any
-----------------
security that is senior to the Investor Stock, or (b) any Indebtedness for
Borrowed Money that is an Equity Security or is issued with an Equity Security.
9.2 Changes in Type of Business. Make any substantial change in
---------------------------
the character of its business.
9.3 Loans; Guarantees. Make any loan or advance to any Person,
-----------------
including, without limitation any employee or director of the Company or any
Subsidiary, except advances for travel and entertainment expenses and similar
expenditures in the ordinary course of business or under the terms of an
employee stock option plan or stock purchase agreement approved by the Board,
and except for de minimis loans to employees consistent with past practice; or
-- -------
guarantee, directly or indirectly, any Indebtedness for Borrowed Money except
for trade accounts of the Company or any Subsidiary arising in the ordinary
course of business.
9.4 Restrictive Agreements. Enter into or become a party to any
----------------------
agreement or instrument which by its terms would violate or be in conflict with,
or restrict the Company's performance of, its obligations under this Agreement.
10. Affirmative Covenants of Investor. Investor agrees that, unless
---------------------------------
the
26
Company otherwise agrees in writing, during the Restricted Period Investor will
do the following:
10.1 Permitted Transaction. Investor will within one week after
---------------------
the Closing enter into negotiations with the Company concerning, and will use
commercially reasonable efforts thereafter to effect, a Permitted Transaction.
10.2 Compliance with Legal Requirements. Comply promptly with all
----------------------------------
legal requirements that applicable law may impose upon it with respect to the
transactions contemplated by this Agreement, and cooperate promptly with, and
furnish information to, the Company in connection with any such requirements
imposed upon Investor in connection therewith or herewith.
10.3 Interplay Option. In the event that Investor exercises the
----------------
Universal Option, but Investor and the Company do not consummate a Permitted
Transaction within the 180 days from the date hereof (the "Option Period"), then
-------------
the Company shall have the right and option (the "Company Option") to purchase
--------------
up to fifty percent (50%) of the Option Stock from Investor at a price per share
equal to the price per share paid by Investor pursuant to the Universal
Agreement (the "Company Option Price"). The Company Option shall be exercisable
--------------------
by the Company providing written notice to Investor within fifteen (15) days
following the earlier to occur of (i) the end of the Option Period, or (ii) if
Investor shall have then exercised the Universal Option, notice by Investor to
the Company that Investor intends to dispose of the Option Stock. Upon the
exercise of the Company Option, the Company shall become obligated to purchase
from Investor, and Investor shall become obligated to sell to the Company, the
number of shares of the Option Stock set forth in the Company's notice for cash
equal to the Company Option Price. Notwithstanding anything herein to the
contrary, the Company Option is personal to the Company and may not be assigned
or transferred or encumbered by the Company to any other Person. Investor agrees
not to sell more than fifty percent (50%) of the Option Stock without first
complying with this Section and, in furtherance thereof, consents to the
placement of a stop transfer order on the Stock transfer books of the Company
with respect to the Option Stock.
11. Registration of Registrable Stock.
---------------------------------
11.1 Required Registration. On June 21, 1999, the Company shall
---------------------
prepare and file a registration statement under the Securities Act, on a form
selected by the Company, covering all Investor Stock (including the Initial
Shares and the maximum number of Final Additional Shares) and all Option Stock
(together with the Investor Stock, the "Registrable Stock") and shall use its
-----------------
best efforts to cause such registration statement to become effective as
expeditiously as possible and to remain effective until the earlier to occur of
the date (a) the Registrable Stock covered thereby has been sold, or (b) by
which all Registrable Stock covered thereby may be sold under Rule 144(k).
Notwithstanding the foregoing, if (i) prior to June 21, 1999, the Company shall
become ineligible to use Form S-3 or (ii) prior to such date the Company enters
into an agreement to cause a sale or other disposition of all or substantially
all of the assets or outstanding
27
Common Stock of the Company and the Investor would be materially prejudiced in
such transaction by holding unregistered Common Stock, then in either of such
cases the Company shall promptly prepare and file such registration statement on
Form S-1. Without limiting the generality of clause (ii) in the preceding
sentence, the parties agree that Investor would be materially prejudiced in such
transaction in the event that it is unable to dispose of the shares of
Registrable Stock immediately upon the consummation of such transaction.
11.2 Registration Procedures. When the Company effects the
-----------------------
registration of the Registrable Stock under the Securities Act pursuant to
Section 11.1 hereof, the Company will, at its expense, as expeditiously as
possible:
(a) In accordance with the Securities Act and the rules and
regulations of the Commission, prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period described herein, and prepare and file with the Commission such
amendments to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration statement
effective for such period and such registration statement and prospectus
accurate and complete for such period; the plan of distribution set forth in
such registration statement or in any amendment or supplement shall be subject
to the approval of Investor;
(b) Furnish to Investor such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and such other
documents as Investor may reasonably request in order to facilitate the public
offering of such securities;
(c) Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as Investor may reasonably request within twenty (20)
days following the original filing of such registration statement, except that
the Company shall not for any purpose be required to execute a general consent
to service of process or to qualify to do business as a foreign corporation in
any jurisdiction where it is not so qualified;
(d) Notify Investor, promptly after it shall receive notice
thereof, of the date and time when such registration statement and each post-
effective amendment thereto has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
(e) Notify Investor promptly of any request by the Commission
for the amending or supplementing of such registration statement or prospectus
or for additional information;
(f) Prepare and file with the Commission, promptly upon the
request of Investor, any amendments or supplements to such registration
statement or
28
prospectus which, in the opinion of counsel for Investor, is required under the
Securities Act or the rules and regulations thereunder in connection with the
distribution of the Registrable Stock by Investor;
(g) Prepare and promptly file with the Commission, and promptly
notify Investor of the filing of, such amendments or supplements to such
registration statement or prospectus as may be necessary (i) to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event has
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) to revise or amend the plan of
distribution of the Registrable Stock, as requested by Investor;
(h) In case Investor is required to deliver a prospectus at a
time when the prospectus then in circulation is not in compliance with the
Securities Act or the rules and regulations of the Commission, prepare promptly
upon request such amendments or supplements to such registration statement and
such prospectus as may be necessary in order for such prospectus to comply with
the requirements of the Securities Act and such rules and regulations; and
(i) Advise Investor, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued.
11.3 Expenses. With respect to any registration effected pursuant
--------
to Section 11.1 hereof, the Company agrees to bear all fees, costs and expenses
of and incidental to such registration and the public offering in connection
therewith; provided, however, that Investor shall bear its pro rata share of any
underwriting discounts or commissions. The fees, costs and expenses of
registration to be borne as provided in this Section 11.3 shall include, without
limitation, all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and disbursements
of counsel for the underwriter or underwriters of such securities (if the
Company and/or selling security holders are otherwise required to bear such fees
and disbursements), all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or qualified, reasonable fees
and disbursements of one firm of counsel for the Investor (not to exceed
$15,000), and the premiums and other costs of policies of insurance against
liability of directors and officers arising out of such public offering.
11.4 Indemnification.
---------------
(a) The Company will indemnify and hold harmless Investor and
any underwriter (as defined in the Securities Act) for Investor, and any
29
Person who controls Investor or such underwriter within the meaning of the
Securities Act, and any officer, director, employee, agent, partner or affiliate
of Investor, from and against, and will reimburse Investor and each such
underwriter, controlling person, officer, director, employee, agent, partner and
affiliate with respect to, any and all claims, actions, demands, losses,
damages, liabilities, costs and expenses to which Investor or any such
underwriter or controlling Person or any such officer, director, employee,
agent, partner or affiliate may become subject under the Securities Act or
otherwise, insofar as such claims, actions, demands, losses, damages,
liabilities, costs or expenses arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
claim, action, demand, loss, damage, liability, cost or expense is caused by an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity in all material respects with information furnished to the
Company by Investor, such underwriter or such controlling person or such
officer, director, employee, agent, partner or affiliate in writing specifically
for use in the preparation thereof.
(b) Investor will indemnify and hold harmless the Company, and
any Person who controls the Company within the meaning of the Securities Act,
from and against, and will reimburse the Company and such controlling Persons
with respect to, any and all losses, damages, liabilities, costs or expenses to
which the Company or such controlling Person may become subject under the
Securities Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue or alleged untrue statement of any material
fact contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or are caused by the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was so made in reliance upon and in conformity in all
material respects with written information furnished by Investor to the Company
in writing specifically for use in the preparation thereof. Notwithstanding the
foregoing, the liability of Investor pursuant to this subsection (b) shall be
limited to an amount equal to the per share sale price (less any brokerage or
underwriting discount and commissions) multiplied by the number of shares of
Registrable Stock sold by Investor pursuant to the registration statement which
gives rise to such obligation to indemnify (less the aggregate amount of any
damages which Investor has otherwise been required to pay in respect of such
losses, damages, liabilities, costs or expenses or any substantially similar
losses, damages, liabilities, costs or expenses arising from the sale of such
Registrable Stock).
(c) Promptly after receipt by a party indemnified pursuant to
the provisions of paragraph (a) or (b) of this Section 11.4 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity
30
provisions, such indemnified party will, if a claim thereof is to be made
against the indemnifying party pursuant to the provisions of paragraph (a) or
(b), notify the indemnifying party of the commencement thereof; but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to an indemnified party otherwise than under this Section 11.4 and
shall not relieve the indemnifying party from liability under this Section 11.4
except to the extent that such indemnifying party is materially prejudiced by
such omission. In case such action is brought against any indemnified party and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party pursuant to the provisions of such paragraph
(a) or (b) for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall be liable to an indemnified
party for any settlement of any action or claim without the consent of the
indemnifying party. No indemnifying party will consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
complete and unconditional release from all liability in respect to such claim
or litigation.
(d) If the indemnification provided for in subsection (a)
or (b) of this Section 11.4 is held by a court of competent jurisdiction to be
unavailable to a party to be indemnified with respect to any claims, actions,
demands, losses, damages, liabilities, costs or expenses referred to therein,
then each indemnifying party under any such subsection, in lieu of indemnifying
such indemnified party thereunder, hereby agrees to contribute to the amount
paid or payable by such indemnified party as a result of such claims, actions,
demands, losses, damages, liabilities, costs or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions which resulted in such claims, actions, demands, losses,
damages, liabilities, costs or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, the amount
Investor shall be obligated to contribute pursuant to this subsection (d) shall
be limited to an amount equal to the per share sale price (less any brokerage or
underwriting discount and commissions) multiplied by the number of shares of
Registrable Stock sold by Investor pursuant to the registration statement which
gives rise to such obligation to contribute (less the aggregate amount of any
damages which Investor has otherwise been required to pay in respect of such
claim, action, demand, loss, damage, liability, cost or expense or
31
any substantially similar claim, action, demand, loss, damage, liability, cost
or expense arising from the sale of such Registrable Stock). No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution hereunder from any person who
was not guilty of such fraudulent misrepresentation.
11.5 Reporting Requirements Under the Exchange Act. The Company
---------------------------------------------
shall timely file such information, documents and reports as the Commission may
require or prescribe under Section 13 or 15(d) of the Exchange Act. The Company
acknowledges and agrees that the purposes of the requirements contained in this
Section 11.5 are (a) to enable Investor to comply with the current public
information requirement contained in paragraph (c) of Rule 144 should Investor
ever wish to dispose of any of the Registrable Stock without registration under
the Securities Act in reliance upon Rule 144 (or any other similar exemptive
provision) and (b) to qualify the Company for the use of registration statements
on Form S-3.
11.6 Investor Information. The Company may require Investor to
--------------------
furnish the Company such information with respect to Investor and the
distribution of the Registrable Stock as the Company may from time to time
reasonably request in writing as shall be required by law or by the Commission
in connection therewith.
11.7 Transferability of Registration Rights. Notwithstanding
--------------------------------------
anything to the contrary in this Section 11, the rights of the Investor under
this Section 11 shall automatically transfer to any transferee of at least ten
percent (10%) of the Registrable Stock in accordance with Section 15.5 hereof.
It is understood and agreed that the registration of the Option Stock in
accordance with this Section 11 shall not be deemed to inure to the benefit of
Universal.
12. Enforcement.
-----------
12.1 Survival of Representations and Warranties. The representations,
------------------------------------------
warranties, covenants and agreements of the parties hereto contained in this
Agreement or in any writing delivered pursuant to the provisions of this
Agreement or at the Closing shall survive any examination by or on behalf of any
party hereto and shall survive the Closing and the consummation of the
transactions contemplated hereby.
12.2 Indemnification.
---------------
(a) Subject to Section 12.2(e), the Company hereby covenants
and agrees to defend, indemnify and save and hold harmless Investor, together
with its officers, directors, shareholders, employees, attorneys and
representatives and each Person who controls Investor within the meaning of the
Securities Act, from and against any loss, cost, expense, liability, claim or
legal damages (including, without limitation, reasonable fees and disbursements
of counsel and accountants and other costs and expenses incident to any actual
or threatened claim, suit, action or proceeding (each, an "Action") and all
------
costs of investigation) (collectively, the "Damages") arising out of or
-------
32
resulting from (i) any Default, or any inaccuracy in or breach of, or failure to
perform or observe, any representation, warranty, covenant or agreement made by
the Company or Fargo in this Agreement or in any writing delivered pursuant to
this Agreement or at the Closing, or (ii) any claims of third parties claiming
compensation, commissions or expenses for services as a broker or finder based
upon obligations incurred by the Company.
(b) In the event that any indemnified party is made a
defendant in or party to any action, suit, proceeding or claim, judicial or
administrative, instituted by any third party for Damages or other relief (any
such third party action, suit, proceeding or claim being referred to as a
"Claim"), the indemnified party (referred to in this clause (b) as the
-----
"notifying party") shall give notice thereof (a "Notice of Claim") as soon as
--------------- ---------------
practicable and in any event within thirty (30) days after the notifying party
receives notice thereof. The failure to give such notice shall not affect
whether an indemnifying party is liable for reimbursement unless such failure
has resulted in the loss of substantive rights with respect to the indemnifying
party's ability to defend such Claim, and then only to the extent of such loss.
Notice of the intention so to contest and defend shall be given by the
indemnifying party to the notifying party within twenty (20) business days after
the notifying party's notice of such Claim (but, in all events, at least ten
(10) business days prior to the date that an answer to such Claim is due to be
filed). Such contest and defense shall be conducted by reputable attorneys
employed by the indemnifying party and approved by the indemnified party (which
approval will not be unreasonably withheld). The indemnifying party shall have
the sole right to control the contest and defense of such Claim. The notifying
party shall be entitled, at its own cost and expense (which expense shall not
constitute Damages unless the notifying party reasonably determines that the
indemnifying party because of a conflict of interest, may not adequately
represent, the interests of the indemnified parties, and has provided the
indemnifying party with notice of such determination, and only to the extent
that such expenses are reasonable), to participate in such contest and defense
and to be represented by attorneys of its or their own choosing. The notifying
party will cooperate with the indemnifying party in the conduct of such defense.
Neither the notifying party nor the indemnifying party may concede, settle or
compromise any Claim without the consent of the other party, which consent will
not be unreasonably withheld or delayed in light of all factors of importance to
such party; provided, however, that if the indemnified party shall fail to
consent to the settlement of any Claim where (i) such settlement includes an
unconditional release of all claims against the indemnified party and requires
no payment on the part of the indemnified party to the claimant or any other
party, (ii) such settlement does not require any action on the part of the
indemnified party and does not impose terms restricting or adversely affecting
the indemnified party's activity, and (iii) the claimant has affirmatively
indicated that it will accept such settlement, then the indemnifying party shall
no liability with respect to any payment to be made in respect of such claim in
excess of the proposed settlement amount.
(c) In the event any indemnified party shall have a claim
against any indemnifying party that does not involve a Claim, the indemnified
party shall deliver a notice of such claim with reasonable promptness to the
indemnifying party. The
33
failure to give such notice shall not affect whether an indemnifying party is
liable for reimbursement unless such failure has resulted in the loss of
substantive rights with respect to the indemnifying party's ability to defend
such claim, and then only to the extent of such loss. If the indemnifying party
notifies the indemnified party that it does not dispute the claim described in
such notice or fails to notify the indemnified party within thirty (30) days
after delivery of such notice by the indemnified party whether the indemnifying
party disputes the claim described in such notice, the Damages in the amount
specified in the indemnified party's notice will be conclusively deemed a
liability of the indemnifying party and the indemnifying party shall pay the
amount of such Damages to the indemnified party on demand.
(d) Any claim for indemnity under this Section 12.2 shall
be delivered in writing to the indemnifying party and set forth with reasonable
specificity as to the amount claimed and the underlying facts supporting such
claim. The indemnifying party shall have thirty (30) days to accept or dispute
such claim by written notice to the indemnified party (a "Contest Notice");
--------------
provided, however, that if, at the time a Notice of Claim is submitted to the
indemnifying party the amount of the Claim in respect thereof has not yet been
determined, such thirty (30) day period shall not commence until a further
written notice (a "Notice of Liability") has been sent or delivered by the
-------------------
indemnified party to the indemnifying party setting forth the amount of the
Claim incurred by the indemnified party that was the subject of the earlier
Notice of Claim. Such Contest Notice shall specify the reasons or bases for the
objection of the Indemnifying Party to the claim, and if the objection relates
to the amount of the Claim asserted, the amount, if any, which the indemnifying
party believes is due the indemnified party. If no such Contest Notice is given
with such 30-day period, the obligation of the indemnifying party to pay to the
indemnified party the amount of the Claim set forth in the Notice of Claim, or
subsequent Notice of Liability, shall be deemed established and accepted by the
indemnifying party. If, on the other hand, the indemnifying party contests a
Notice of Claim or Notice of Liability (as the case may be) within such 30-day
period, the indemnified party and the indemnifying party shall thereafter
attempt in good faith to resolve their dispute by agreement. If the parties are
unable to so resolve their dispute within the immediately succeeding thirty (30)
days, such dispute shall be resolved by binding arbitration in Los Angeles,
California, as provided in Section 15.13 below. The award of the arbitrator
shall be final and binding on the parties and may be enforced in any court of
competent jurisdiction. Upon final determination of the amount of the Claim that
is the subject of an indemnification claim (whether such determination is the
result of the indemnifying party's acceptance of, or failure to contest, a
Notice of Claim or Notice of Liability, or of a resolution of any dispute with
respect thereto by agreement of the parties or binding arbitration), such amount
shall be payable, in cash by the indemnifying party to the indemnified parties
who have been determined to be entitled thereto within fifteen (15) days of such
final determination of the amount of the Claim due by the indemnifying party.
Any amount that becomes due hereunder and is not paid when due shall bear
interest at the maximum legal rate per annum from the date due until paid.
(e) Anything to the contrary notwithstanding, (i) the
34
Investor shall not be indemnified and held harmless in respect of any Damages
unless and until the aggregate amount of such Damages exceeds $100,000, in which
event the Investor shall be indemnified and held harmless in respect of all
Damages without regard to the foregoing $100,000 limit, and (ii) the liability
of the Company to the Investor shall be limited to an amount equal to the
Purchase Payment.
(f) Investor hereby covenants and agrees to defend,
indemnify and save and hold harmless the Company, together with officers,
directors, shareholders, employees, attorneys and representatives and each
Person who controls the Company within the meaning of the Securities Act from
and against any Damages arising out of or resulting from (i) any inaccuracy in
breach of, or failure to perform or observe, any representation, warranty,
covenant or agreement made by Investor in this Agreement or in any writing or
other agreement delivered pursuant hereto, or (ii) any claims of third parties
claiming compensation, commissions or expenses for services as a broker or
finder based upon obligations incurred by Investor.
(g) Except as provided in Section 12.3, the provisions of
this Section 12.2 shall be the exclusive remedy or exclusive means to obtain
relief, as the case may be, of any party in the event of any breach of any
representation, warranty, covenant or agreement contained herein (or in any
certificate or other document delivered pursuant hereto) by another party, or
with respect to any Action or Claim; provided, however, that this subsection (g)
-------- -------
shall not limit any statutory claim, or any claim in tort, which any party may
have against the other party.
12.3 Injunctive Relief. (a) Any party may bring a claim seeking
-----------------
specific performance by way of injunctive relief before a court of competent
jurisdiction to enforce the provisions of this Agreement, (b) any party seeking
to enforce a claim for indemnification may bring any claim of indemnification
which is not resolved within the thirty day period provided in Section 12.2(b)
before a court of competent jurisdiction, and (c) in the event of any breach by
either party of Section 15.9, the other party may seek injunctive relief from a
court of competent jurisdiction to restrain any such breach.
12.4 No Implied Waiver. Except as expressly provided in this
-----------------
Agreement, no course of dealing between the Company and Investor and no delay in
exercising any such right, power or remedy conferred hereby or now or hereafter
existing at law in equity, by statute or otherwise, shall operate as a waiver
of, or otherwise prejudice, any such right, power or remedy.
13. Rights of First Refusal.
-----------------------
13.1 Subsequent Offerings. Investor shall have the right of
--------------------
first refusal to purchase all (or any part of all) Equity Securities that the
Company may, from time to time, propose to sell and issue during the Restricted
Period, other than the Equity Securities excluded by Section 13.4 hereof.
13.2 Exercise of Rights. If and each time the Company proposes
------------------
to
35
issue any Equity Securities, it shall give Investor written notice of its
intention, describing the Equity Securities, the price, and the general terms
and conditions upon which the Company proposes to issue the same. Investor shall
have ten (10) days from the giving of such notice to agree to purchase Equity
Securities for the price and upon the terms and conditions specified in the
notice by giving written notice to the Company.
13.3 Issuance of Equity Securities to Other Persons. If Investor
----------------------------------------------
fails to exercise in full the rights of first refusal within such ten (10) day
period by giving the agreement referred to in Section 13.2, the Company shall
have ninety (90) days thereafter to complete the sale of the Equity Securities
in respect of which Investor's rights were not exercised, at a price and upon
general terms and conditions no more favorable to the purchasers thereof than
specified in the Company's notice to the Investors pursuant to Section 13.2
hereof. If the Company has not sold all of such Equity Securities within such
ninety (90) days, the Company shall not thereafter issue or sell any of such
Equity Securities, without first offering such securities to Investor in the
manner provided above.
13.4 Excluded Securities. The rights of first refusal
-------------------
established by this Section 13 shall have no application to (a) any shares of
Common Stock issued in accordance with the stock option plans and warrants
currently reserved for issuance to employees, directors and advisors, as
described in Sections 5.3 and 5.6, and Schedule 5.6, (b) shares of Common Stock
------------
issued as consideration to third parties for product development services or
publishing or distribution rights, not to exceed 500,000 shares, (c) shares of
Common Stock issued in connection with any stock split, stock dividend or
reverse stock split, and (d) shares of Common Stock issued in connection with
acquisitions of other entities by way of merger, share exchange, sale of assets
or otherwise.
14. Definitions. Unless the context otherwise requires, the terms
-----------
defined in this Section 14 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined in this Section
14 and those accounting terms used in this Agreement not defined in this Section
14 shall, except as otherwise provided for herein, be construed in accordance
with those generally accepted accounting principles that the Company is required
to employ by the terms of this Agreement. If and so long as the Company has any
Subsidiary, the accounting terms defined in this Section 14 and those accounting
terms appearing in this Agreement but not defined in this Section 14 shall be
determined on a consolidated basis for the Company and its Subsidiaries, and the
financial statements and other financial information to be furnished by the
Company pursuant to this Agreement shall be consolidated and presented with
consolidating financial statements of the Company and its Subsidiaries.
"Action" shall have the meaning assigned to it in Section
------
12.2(a).
"Affiliate" shall mean any Person which directly or indirectly
---------
controls, is controlled by, or is under common control with, the indicated
Person.
36
"Agreement" shall mean this Agreement.
---------
"Balance Sheet" and "Balance Sheet Date" shall have the meanings
------------- ------------------
assigned to these terms in Section 5.12 hereof.
"Board" shall mean the Board of Directors of the Company.
-----
"Claim" shall have the meaning assigned to it in Section 12.2(b).
-----
"Closing" and "Closing Date" shall have the meanings assigned to
------- ------------
these terms in Section 3.1.
"Common Stock" shall have the meaning assigned to it in Section 1
------------
hereof.
"Commission" shall mean the Securities and Exchange Commission.
----------
"Damages" shall have the meaning assigned to it in Section
-------
12.2(a).
"Default" shall mean a default or failure in the due observance
-------
or performance of any covenant, condition or agreement on the part of the
Company or any of its Subsidiaries to be observed or performed under the terms
of this Agreement, if such default or failure in performance shall remain
unremedied for ten (10) days.
"Designated Key Employees" shall have the meaning assigned to it
------------------------
in Section 5.15.
"Designee" shall have the meaning assigned to it in Section
--------
7.6(a).
"Developing Software" shall have the meaning assigned to it in
-------------------
Section 5.27(b).
"Equity Security" shall mean any stock or similar security of the
---------------
Company or any security (whether stock or Indebtedness for Borrowed Money)
convertible or exchangeable, with or without consideration, into or for any
stock or similar security, or any security (whether stock or Indebtedness for
Borrowed Money) carrying any warrant or right to subscribe to or purchase any
stock or similar security, or any such warrant or right.
"Event of Default" shall mean (a) the failure of either the
----------------
Company or any Subsidiary to pay any Indebtedness for Borrowed Money, or any
interest or premium thereon, within ten (10) days after the same shall become
due, whether such Indebtedness shall become due by scheduled maturity, by
required prepayment, by acceleration, by demand or otherwise, (b) an event of
default under any agreement or instrument evidencing or securing or relating to
any such Indebtedness, or (c) the failure of either the
37
Company or any Subsidiary to perform or observe any material term, covenant,
agreement or condition on its part to be performed or observed under any
agreement or instrument evidencing or securing or relating to any such
Indebtedness when such term, covenant or agreement is required to be performed
or observed.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"Existing Rights Agreement" shall have the meaning assigned to it
-------------------------
in Section 7.1(p).
"Form 10-Q" shall have the meaning assigned to it in Section
---------
5.12.
"Form S-1" shall have the meaning assigned to it in Section 5.12.
--------
"Indebtedness" shall mean any obligation of the Company or any
------------
Subsidiary which under generally accepted accounting principles is required to
be shown on the balance sheet of the Company or such Subsidiary as a liability.
Any obligation secured by a Lien on, or payable out of the proceeds of
production from, property of the Company or any Subsidiary shall be deemed to be
Indebtedness even though such obligation is not assumed by the Company or
Subsidiary.
"Indebtedness for Borrowed Money" shall mean (a) all Indebtedness
-------------------------------
in respect of money borrowed including, without limitation, Indebtedness which
represents the unpaid amount of the purchase price of any property and is
incurred in lieu of borrowing money or using available funds to pay such amounts
and not constituting an account payable or expense accrual incurred or assumed
in the ordinary course of business of the Company or any Subsidiary, (b) all
Indebtedness evidenced by a promissory note, bond or similar written obligation
to pay money, or (c) all such Indebtedness guaranteed by the Company or any
Subsidiary or for which the Company or any Subsidiary is otherwise contingently
liable.
"Investor Counsel" shall have the meaning assigned to it in
----------------
Section 7.1(g)(3).
"Investor Stock" shall have the meaning assigned to it in Section
--------------
1.
"Lien" shall mean any mortgage, pledge, security interest,
----
encumbrance, lien or charge of any kind, including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof and the filing of or agreement to give any financing statement under the
Uniform Commercial Code of any jurisdiction and including any lien or charge
arising by statute or other law.
"Material Adverse Effect" on a Person means a material adverse
-----------------------
effect, or any condition, situation or set of circumstances that could
reasonably be expected to have an adverse effect, on such Person and its
Subsidiaries, taken as a whole.
38
"Operational Software" shall have the meaning assigned to it in
--------------------
Section 5.27(a).
"Permitted Liens" shall mean (a) Liens for taxes and assessments or
---------------
governmental charges or levies not at the time due or in respect of which the
validity thereof shall currently be contested in good faith by appropriate
proceedings; (b) Liens in respect of pledges or deposits under workers'
compensation laws or similar legislation, carriers', warehousemen's, mechanics',
laborers' and materialmen's and similar Liens, if the obligations secured by
such Liens are not then delinquent or are being contested in good faith by
appropriate proceedings; and (c) Liens incidental to the conduct of the business
of the Company or any Subsidiary which were not incurred in connection with the
borrowing of money or the obtaining of advances or credits and which do not in
the aggregate materially detract from the value of its property or materially
impair the use thereof in the operation of its business.
"Permitted Transaction" shall have the meaning assigned to it in
---------------------
Section 8.16.
"Person" shall include any natural person, corporation, trust,
------
association, company, partnership, limited liability company, joint venture and
other entity and any government, governmental agency, instrumentality or
political subdivision.
"Purchase Payment" shall have the meaning assigned to it in Section
----------------
2.
"Restricted Period" shall have the meaning assigned to it in Section
-----------------
8.14.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Subsidiary" shall mean any corporation, association or other business
----------
entity at least fifty percent (50%) of the outstanding voting stock of which is
at the time owned or controlled directly or indirectly by the Company or by one
or more of such subsidiary entities or both, where "voting stock" means any
shares of stock having general voting power in electing the board of directors
(irrespective of whether or not at the time stock of any other class or classes
has or might have voting power by reason of any contingency).
"Universal" shall have the meaning assigned to it in Section 7.1(j).
---------
"Universal Agreement" shall have the meaning assigned to it in
-------------------
Section 7.1(j).
"Web Site" shall have the meaning assigned to it in Section 5.28(a).
--------
39
15. Miscellaneous.
-------------
15.1 Waivers and Amendments. With the written consent of Investor,
----------------------
the obligations of the Company and the rights of Investor under this Agreement
may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely), and with the same consent the Company, when authorized by
resolution of its Board, may enter into a supplementary agreement for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of any supplemental agreement or
modifying in any manner the rights and obligations hereunder of Investor and the
Company. Neither this Agreement, nor any provision hereof, may be amended,
waived, discharged or terminated orally or by course of dealing, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, as provided in this Section
15.1. Specifically, but without limiting the generality of the foregoing, the
failure of Investor at any time or times to require performance of any provision
hereof by the Company shall in no manner affect the right of Investor at a later
time to enforce the same. No waiver by any party of the breach of any term or
provision contained in this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in the
Agreement.
15.2 Rights of Investor. Investor shall have the absolute right to
------------------
exercise or refrain from exercising any right or rights which Investor may have
by reason of this Agreement or any Investor Stock, including, without
limitation, the right to consent to the waiver of any obligation of the Company
under this Agreement and to enter into an agreement with the Company for the
purpose of modifying this Agreement or any agreement effecting any such
modification, and Investor shall not incur any liability to any other
shareholder of the Company with respect to exercising or refraining from
exercising any such right or rights.
15.3 Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing (including
telecopy or similar writing) and shall be given,
if to the Company to:
Interplay Entertainment Corp.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Mr. ▇▇▇▇▇ ▇▇▇▇▇, Chairman and
Chief Executive Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇.▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇, a professional corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
if to Investor to:
▇▇▇▇▇ Interactive SA
c/▇ ▇▇▇▇▇ Software Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇▇▇▇, Chairman and
Chief Executive Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., Esq.
Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
41
if to Fargo to:
Mr. ▇▇▇▇▇ ▇▇▇▇▇
c/o Interplay Entertainment Corp.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or telecopier number as such party may specify for the
purpose by notice to the other party or parties to this Agreement, as the case
may be. Any notice, request, consent or other communication hereunder shall be
deemed to have been given and received on the day on which it is delivered (by
any means including personal delivery, overnight air courier, United States
mail) or telecopied (or, if such day is not a business day or if the notice,
request, consent or communication is not telecopied during business hours of the
intended recipient, at the place of receipt, on the next following business
day).
15.4 Severability. Should any one or more of the provisions of
------------
this Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
15.5 Assignment; Parties in Interest. Neither this Agreement nor
-------------------------------
any interest herein may be assigned by either party hereto without the written
consent of the other parties hereto, except that Investor may assign all of its
rights hereunder to any Subsidiary of Investor. Subject to the foregoing, all
the terms and provisions of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and assigns of
the parties hereto, whether so expressed or not. Subject to the immediately
preceding sentence, this Agreement shall not run to the benefit of or be
enforceable by any Person other than a party to this Agreement and its
successors and assigns.
15.6 Headings. The headings of the Sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
15.7 Choice of Law. The internal substantive laws, and not the
-------------
laws of conflicts, of the State of California shall govern the enforceability
and validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties.
15.8 Expenses. The Company agrees, whether or not the transactions
--------
contemplated hereby are consummated, to pay (a) $50,000 of the fees and
42
expenses of the Investor Counsel arising in connection with the negotiation and
execution of this Agreement and consummation of the transactions contemplated
hereby, some or all of which Investor, in its discretion, may deduct from the
Purchase Payment, (b) the fees and expenses incurred in connection with any
requested waiver of the right of Investor or the consent of Investor to
contemplated acts of the Company not otherwise permissible by the terms of this
Agreement, (c) stamp and other taxes, excluding income taxes, which may be
payable with respect to the execution and delivery of this Agreement or the
issuance, delivery or acquisition of the Investor Stock, and (d) all costs of
the Company's performance of and compliance with this Agreement.
15.9 Publicity. Without the prior consent of the other parties, no
---------
party shall, and each party shall cause its directors, officers, employees,
representatives and agents not to, make any public statement or press release
with respect to the transactions contemplated by this Agreement or otherwise
disclose to any Person the existence, terms, content or effect of this
Agreement; provided, however, that if a disclosure is required by law, the party
--------
required to make such disclosure shall be permitted to make such disclosure but
shall use best efforts to consult with the other parties hereto before making
the required disclosure.
15.10 Counterparts. This Agreement may be executed in any number
------------
of counterparts (including by facsimile) and by different parties hereto in
separate counterparts, with the same effect as if all parties had signed the
same document. All such counterparts shall be deemed an original, shall be
construed together and shall constitute one and the same instrument.
15.11 Entire Agreement. This Agreement, and the Exhibits,
----------------
Schedules, certificates, and documents referred to herein constitute the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersede all prior understandings with respect to the subject matter hereof,
and no representation or warranty not included herein has been relied upon by
any party hereto.
15.12 Attorneys' Fees. In the event of any dispute, controversy,
---------------
or proceeding between the parties concerning this Agreement or the transactions
contemplated hereby, the prevailing party shall be entitled to receive from the
non-prevailing party its costs and expenses, including attorneys' fees.
15.13 Arbitration. Except for actions to obtain injunctions or
-----------
other equitable remedies, all disputes between the parties hereto shall be
determined solely and exclusively by arbitration under, and in accordance with
the rules then in effect of, the American Arbitration Association, or any
successors thereto ("AAA"), in Los Angeles, California, unless the parties
---
otherwise agree in writing. The parties shall, in connection with such
arbitration, in addition to any discovery permitted under AAA rules, be
permitted to conduct discovery in accordance with Section 1283.05 of the
California Code of Civil Procedure, the provisions of which are incorporated
herein by this reference. The parties shall jointly select an arbitrator. In
the event the parties fail to agree upon an arbitrator within ten (10) days,
then each party shall select an arbitrator and
43
such arbitrators shall then select a third arbitrator to serve as the sole
arbitrator; provided, that if either party, in such event, fails to select an
--------
arbitrator within seven (7) days, such arbitrator shall be selected by the AAA
upon application of either party. Judgment upon the award of the agreed upon
arbitrator or the so chosen third arbitrator, as the case may be, shall be
binding and may be entered in any court of competent jurisdiction.
15.14 Partial and Conditional Termination of Shareholders' Agreement.
--------------------------------------------------------------
In the event the Investor exercises the Universal Option, the Investor, the
Company and Fargo agree that the provisions of Article II of the Shareholders'
Agreement shall terminate and be of no further force or effect.
44
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective duly authorized officers as of the day and year
first above written.
INTERPLAY ENTERTAINMENT CORP., a Delaware
corporation
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
------------------------------------------
An Authorized Officer
▇▇▇▇▇ INTERACTIVE SA, a French corporation
By: /s/ Herve Caen
------------------------------------------
An Authorized Officer
/s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇